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Telecom Licence Fee as Capex: Court Waives Interest on Tax Dues

The Supreme Court has waived the interest on tax demand with respect to payment of licence fee under the New Telecom Policy, 1999, which was claimed as revenue expenditure by the assessees but later confirmed to be capital in nature.[1]

In October of last year, the Court ruled that the payment of variable annual licence fee to the Department of Telecommunications under the New Telecom Policy, 1999, was capital in nature and could be amortised in accordance with Section 35ABB of the Income-tax Act, 1961 (Click here to read our article on the judgment). With this, the Supreme Court set aside the decision of the Delhi High Court which held that the fee payable up to July 31, 1999, under the previous policy (National Telecom Policy, 1994), constituted capital expenditure and the fee paid on a revenue-sharing basis after the said date amounted to revenue expenditure. In arriving at its decision, the Supreme Court emphasised the nature of the payment which was for the same purpose of obtaining a licence to operate telecommunication services and added that it could not have a different characterisation “merely because of the change in the manner or measure of payment or for that matter the payment being made on annual basis”.

The present miscellaneous application was filed seeking waiver of interest payable on the tax demand for the period subsequent to the commencement of the New Telecom Policy, 1999. It was contended that the tax demand would have to be recomputed from AY 2000-2001 and a heavy burden would be on the assessees. Considering the long period between the commencement of the new policy and the pronouncement of the judgment, the Court waived off interest on the tax demand.

It was clarified that this waiver was granted in view of the particular facts of the case and the order did not set a precedent; reference was made to the time spent in litigation before the Delhi High Court and the Supreme Court.

[1] C.I.T., Delhi v. Bharti Hexacom Ltd. (MA 218/2024)