Income: Accrual of: Section 5: A. Y. 2004-05: Amount (Rs. 3,037 crore) for transfer of indefeasible right of connectivity for 20 years: Assessee correctly spread the entire fee of Rs. 3,037 crore over a period of 20 years and accordingly paid tax: Entire amount was not assessable during the relevant year:

In the previous year relevant to the A. Y. 2004-05, the assessee had received an amount of Rs. 3,037 crore as fees for grant of Indefeasible Right of Connectivity for a period of 20 years. The assessee spread the amount over a period of 20 years and accordingly paid the tax. The Assessing Officer allowed the claim. Exercising the powers u/s. 263 of the Income-tax Act, 1961, the Commissioner held that the entire amount was income accrued to the assessee in the relevant year i.e. A. Y. 2004-05 itself. The Tribunal upheld the assessee’s claim.

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

“i) The Tribunal has on examination of the agreement dated 30-4-2003 entered into between RI Ltd and the assessee concluded that RI Ltd in terms of the agreement had only a right to use the network during the tenure of 20 years agreement. Further, the agreement was liable to be terminated at the sole discretion of RI Ltd. and consequently, the amount received as advance for 20 years lease period would have to be returned on such termination for the balance unutilised period.

ii) Further, the Tribunal held that the agreement dated 30-4-2003 was only in the nature/form of a lease agreement. On application of AS-19 formulated by the ICAI, a lease income arising from operating lease should be recognised in the statement of profit and loss in a straight line method over the term of the lease. Therefore, the assessee had in terms of AS-19 correctly spread the entire fee of Rs. 3,037 crore over the period of 20 years and to pay tax thereon over the entire period.”