The Supreme Court has told the country’s telecom companies that the entry fee as well as variable annual license fee paid by the telecom companies will not be treated as revenue expenditure but capital expenditure and will be taxed accordingly.
Key points
- The Supreme Court set aside the Delhi High Court order which had classified license fees before and after July 31, 1999 separately as capital expenditure (capex) and revenue expenditure.
- Disposing of an appeal by the Income Tax Department comprising 33 similar petitions, the Supreme Court said that the license fee of DoT (Department of Telecommunications) under the New Telecom Policy of 1999 is capital in nature and can be amortized as per section 35ABB of the Income Tax Act. Is.
- The Supreme Court of India has ruled that entry fees and variable annual license fees paid by telecom companies should be treated as capital expenditure and taxed.
- Capital expenditure is generally a one-time large purchase of fixed assets that is used for revenue generation over the long term.
- Revenue expenses are current operating expenses which are short-term expenses used to run daily business operations.
- Earlier, telecom companies had to pay a one-time license fee for entry and an annual license fee linked to their annual gross revenue as per the National Telecom Policy 1999.
Effect of Supreme Court’s decision
- Presently telecom companies treat license fee as a revenue expenditure and claim deduction of variable license fee on their tax liabilities.
- The decision is expected to result in additional tax liabilities on telecom companies, especially companies like Bharti Airtel and Vodafone Idea, which is estimated to be around $1 billion in the current financial year.