Supreme Court Waives Interest On Telecom Firms' Licence Fee Dues

In a significant relief for telecom companies, the Supreme Court has waived off the interest component that were payable after it held last year that the payment of licence fee, which is payable in a staggered or deferred manner every year, will be classified as capital expenditure and not revenue expenditure.

According to the National Telecom Policy of 1999, telecom companies were required to pay a one-time licence fee for entry, along with a licence fee that was payable based on their yearly turnover. This was in contrast to the earlier policy of paying the licence fee in one go.

Therefore, the telecom companies contended that the one-time payment of the licence fee was capital in nature, and the yearly payable licence fee was revenue in nature as it was essential and an annual necessity for the continuation of business.

However, the court ruled that the variable licence fee, which is paid yearly, cannot be reclassified as a revenue expenditure. "A single transaction cannot be split up in an artificial manner into a capital payment and revenue payments by simply considering the mode of payment," it said.

After the verdict was delivered, the telcos had filed an application before the top court seeking a recall of the court's judgement. They argued that if the verdict was implemented, it would have a ballooning effect on the telcos' taxable income as the settled position with respect to the classification of the yearly licence fee was unsettled after nearly 20 years.

“Such substantial increase in the taxable income would attract interest under the provisions of the Income Tax Act and since the position settled for assessment years 1999–00 onwards is being unsettled in the year 2023, such interest will be leviable for over 20 years," the telcos said.

In February, the top court declined to recall its verdict, but said that it would consider waiving the interest due through the assessment years after 1999.