License Fee paid by Telecom Operators is Capital in nature: SC
Recently, Hon’ble SC held that the variable license fee paid by the telecom operators to the Department of Telecommunications is capital in nature. There are few important observation which has been made in the case by Supreme Court as under:
- The determinative test to identify whether an expenditure structured in the form of installments is in the nature of a capital expenditure or revenue expenditure, would be to first assess whether the consideration payable towards the acquisition or expansion of a capital asset has simply been chopped up into smaller sums payable in installments, for the sake of convenience
- Mere payment of an amount in installments does not convert or change a capital payment into a revenue payment. Therefore, what is relevant is the nature of the original obligation and whether the subsequent payment made in installments relates to or has a nexus with such original obligation or not.
- In the case at hand, since the annual payment of variable license fee is only towards license fees and merely because it is paid in annual installments based on the AGR, the payment cannot be construed as revenue
- The annual payments of license fee as also the entry fee relate to a singular purpose, i.e., the acquisition of the right to carry on the business of rendering telecommunication services. This right being in the nature of a capital asset, any payments made towards the acquisition of the right, whether in lump-sum or in annual installments dependent on the AGR, would be in the nature of capital disbursements
- Since the entry fee as well as variable license fees are traceable to the same source, they would both have to be held to be capital in nature, notwithstanding the fact that the variable license fee is paid in a staggered manner
- The composite right conveyed to the telecom operators by way of grant of licenses, is the right to establish, maintain and operate telecommunication services. The said composite right cannot be bifurcated in an artificial manner, into the right to establish telecommunication services on the one hand and the right to maintain and operate telecommunication services on the other
The copy of the order is as under:
