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Payment of Upfront Fees by Delhi International Airport Limited Held to be Revenue Expenditure

Akhilesh Kumar Sah

In ACIT v. Delhi International Airport Pvt. Ltd. [ITA No. 2720/DEL/2011, decided on 14-12-2017 the issue under consideration was whether upfront fee is revenue in nature. The Delhi Bench of ITAT held the same to be revenue in nature. The learned author discusses the case in detail.

1. Background

Recently, in ACIT v. Delhi International Airport Pvt. Ltd. [ITA No. 2720/DEL/2011, decided on 14-12-2017], DCIT v. Delhi International Airport [ITA No. 4202/Del/2013] & Delhi International Airport Pvt. Ltd. v. ACIT [CO No. 226/DEL/2011, (Arising out of ITA No.2720/Del/2011)] ( 2017 TaxPub(DT) 5487 (Del 'B'-Trib)), apart from other grounds, the Revenue had challenged the finding of the CIT(A) in treating the 'Upfront fees' of Rs. 150,00,00,000 as revenue expenditure, instead of capital expenditure treated by the AO.

2. Facts of the case

Briefly, in the above-mentioned appeals, pursuant to 'Operation, Management and Development Agreement' (Hereinafter referred to as OMDA), a lease deed was simultaneously entered into between Airport Authority of India (AAI) and 'Delhi International Airport Limited' (Hereinafter referred to as 'assessee' or 'DIAL' or JVC) for the lease of 'Airport site' which had an area of more than 4,609 acres, at a very nominal lease rent of Rs. 100 per annum for a period of 30 years and this was further extendable for another period of 30 years at the discretion of the parties. Apart from that, the assessee was also required to pay 'Upfront Fees' of Rs. 150 crores; and also 'Annual fees' expressed in the terms of percentage of revenue, which was determined at 45.99% of the gross revenue for allowing the assessee to carry on the function of development, operation and management of the Delhi Airport. The AO treated the amount of Rs. 150 crores paid as 'license fee' for acquiring the licence in the nature of enduring benefit and accordingly, held that it is to be allowed as deduction to the assessee on spread over basis, that is, over the period of 30 years and consequently he allowed 1/30th of the said payment. CIT(A) decided this issue in favour of the assessee after noting following important facts:-

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