The Supreme Court has held that the variable annual licence fee and payment of entry fee under the New Telecom Policy, 1999 is to be regarded as capital expenditure and amortised in accordance with Section 35ABB of the Income Tax Act.
Disposing of an appeal by the Income Tax Department clubbed with 33 similar petitions, a division bench comprising Justices BV Nagarathna and Ujjal Bhuyan said that the payment of entry fee as well as the variable annual licence fee paid by the respondents-assessees to the Department of Telecommunications are capital in nature and may be amortised in accordance with Section 35ABB of the Income Tax Act. The court concluded that the Delhi High Court was not right in apportioning the expenditure incurred towards establishing, operating and maintaining telecom services as partly revenue and partly capital.
The move implies that telecom companies will need to deduct a portion of the total fee over each year for tax purposes, instead of deducting the entire expenditure all at once. According to industry experts, the decision is a setback for telecom players as they will have to rework their position regarding the disallowance of expenses which, in turn, will impact taxability.
