 "Telecom")
The Supreme Court on Monday said that licence fees paid by telecommunication companies such as Bharti Airtel and Vodafone Idea after July 1999 would be treated as capital expenditure and not revenue expenditure.
Capital expenditure is the money a corporate entity spends to buy, maintain or improve its fixed assets such as buildings, vehicles, equipment or land. Meanwhile, revenue expenditure implies administrative expenses such as rent, utilities, property taxes and business travel incurred to meet the operational costs of running a business.
Dismissing the telecom companies’ contention and accepting Income Tax (I-T) department’s arguments, the court said that annual payment based on adjusted gross revenue (AGR) is towards licence fees. The fee cannot be construed as revenue expenditure merely because it is paid based on the annual gross revenue, the court said.
The question before the apex court was whether licence fee, which is paid in installments as under the licence agreement, should be recharacterised as 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,” the court said.
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This ruling has overturned orders of Delhi High Court, Bombay High Court and Karnataka High Court that had gone in favour of telecom companies.
The Delhi High Court in 2013 had said that the licence fee expenditure cannot be construed as capital expenditure since it is paid as a part of the revenue according to the AGR scheme. The I-T department had approached the apex court against this order.
Telecom companies are required to pay a one-time entry licence fee as subsequent licence fee on yearly turnover under the National Telecom Policy of 1999. Before 1999, they were required to pay the fee all at once.
Vodafone Idea also filed a curative petition on October 9 against another Supreme Court judgment that rejected petitions of telecom companies seeking correction of AGR dues payable by them.
The Supreme Court in 2019 directed telcos such as Bharti Airtel and Vodafone Idea to pay dues as per calculations of the Department of Telecommunications (DoT).
The court in September 2020 gave telecom firms 10 years to clear their pending AGR dues to the central government, with 10 per cent payment to be made every year. The deadline for the first installment of payment was March 31, 2021.
The appeal by the telcos for recalculation of dues was rejected by the apex court in July 2021.
Vodafone Idea's AGR dues amount to Rs 58,254 crore, of which it has paid Rs 7,854 crore. Meanwhile, Bharti Airtel has to pay Rs 43,980 crore.
After the 2021 verdict, Vodafone Idea filed a review petition in August 2021 in the Supreme Court for correction of dues payable by them. This case is pending.
The companies had then argued that the DoT had made arithmetical errors in calculating the dues and wanted the court to allow their rectification.
But the apex court barred the telcos from self-assessing their dues, and went with the DoT’s claimed amounts.
After the DoT recently rejected Vodafone Idea’s plea to review licence fee demands of Rs 3,273 crore for FY16 and FY17, the company said it was deciding on the next course of action in the Supreme Court.
