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SC acknowledges Telcos’ license and entrance fees as capital outlays

<p>The Supreme Court recently issued a judgment recognizing the payment of the entrance fee and the variable yearly license cost under the New Telecom Policy of 1999 as capital expenditure, which is a significant blow for Indian telecom companies.<img decoding=”async” class=”alignnone wp-image-240392″ src=”–750×500.jpg” alt=” sc acknowledges telcos license and entrance fees as capital outlays supreme court” width=”977″ height=”651″ srcset=”–750×500.jpg 750w,–1024×683.jpg 1024w,–768×512.jpg 768w,–150×100.jpg 150w, 1200w” sizes=”(max-width: 977px) 100vw, 977px” title=”SC acknowledges Telcos' license and entrance fees as capital outlays 6″></p>
<p>According to its decision, Section 35ABB of the Income Tax Act should be followed when amortizing these costs. According to the ruling issued by the highest court on Monday, “we hold that the payment of entry fee as well as the variable annual licence fee paid by the respondents-assessees to the DoT under the Policy of 1999 are capital in nature and may be amortized in accordance with Section 35ABB of the Act.”</p>
<p>Justices B.C. Nagarathna and Ujjal Bhuyan were sitting on a bench to hear a request from the Department of Telecommunications over the calculation of tax for the license fees that telecom businesses must pay.</p>
<p>The top court additionally declared that the Delhi High Court erred in classifying some of the costs associated with developing, running, and maintaining telecom services as capital and others as income.</p>
<p>It was decided that just because the method, amount, or frequency of the payment had changed or that the payment was now made annually, the essence of the payment for the same purpose could not be characterised differently.</p>
<p>In our opinion, the High Court of Delhi erred in holding that the licence fee paid or payable for the period up to 31 July, 1999, i.e., the date specified in the Policy of 1999, should be treated as capital and the balance amount as revenue when it divided the expenditure incurred for establishing, operating, and maintaining telecom services into two periods, that is, before and after that date. The ruling of the highest court was read.</p>
<p>This ruling is probably going to have a significant effect on telcos like Bharti Airtel, Reliance Jio, and Vodafone Idea.</p>
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