The Supreme Court waived interest on telecom companies’ outstanding license fee dues. This decision alleviates a significant financial burden on the telecom sector. The ruling impacts major firms, providing relief amid ongoing financial struggles. The waiver aims to stabilize the industry and support its growth.
New Delhi: In a significant development, the Supreme Court provided relief to telecom companies by waiving off the interest component, payable on the licence fee. This decision comes after the court’s ruling last year that the payment of licence fee, which is due in a staggered or deferred manner every year, should be classified as capital expenditure rather than revenue expenditure.
According to the National Telecom Policy of 1999, telecom companies required to pay a one-time licence fee for entry, along with a licence fee, payable based on their yearly turnover. This departure from the earlier policy, which required a one-time payment of the licence fee.
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The telecom companies argued that the one-time payment of the licence fee was capital in nature, while the yearly payable licence fee, revenue in nature, as essential and an annual necessity for the continuation of their business. The Supreme Court now accepted this argument and waived off the interest component, payable on the licence fee.
This decision provides significant relief to the telecom companies, who have been grappling with the financial burden of the licence fee payments.
The court decided that the annual variable license fee cannot be categorized as a revenue expense.
The court stated,
“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.”
Following the verdict, tele communications companies petitioned the highest court, requesting a review of its decision. They contend that enforcing the verdict would significantly impact their taxable income, as the longstanding classification of yearly license fees has been called into question after nearly two decades.
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The telcos stated,
“The substantial increase in taxable income would incur interest under the Income Tax Act. Given that the settled position from the assessment years 1999–00 onwards is being disrupted in 2023, this interest would accumulate over a span of more than 20 years.”
In February, the Supreme court refused to reconsider its decision but expressed willingness to explore the possibility of exempting the interest accrued from the assessment years post-1999.
However, the court also made a critical clarification regarding the nature of the license fees. It ruled that the variable license fee, which telecom companies pay annually, cannot be reclassified as a revenue expenditure.