Why a Supreme Court order on telcos’ licence fee tax has the industry worried

Source: The post is based on the article “Why a Supreme Court order on telcos’ licence fee tax has the industry worried” published in “Indian Express” on 20th October 2023

What is the News?

The Supreme Court has ruled that payment of entry fee as well as variable annual license fee made by telecom companies will be considered as capital expenditure and not revenue expenditure.

How do telecom companies currently pay entry fee and variable annual license fee?

Currently, telecom companies treat license fees as a revenue expenditure.Based on this, they claim deductions for computing their tax liability.

How will this judgment impact telecom companies?

After the judgment, the telecom companies would have to treat license fees as a capital expenditure.This is expected to result in additional tax liabilities for telecom companies.

However, the Supreme Court’s order has not clarified whether the changes to the accounting structure will have to be made on a retrospective basis.

What are revenue and capital expenditures?

Revenue expenditures: These are the ongoing operating expenses, which are short-term expenses used to run the daily business operations.For example, salaries and wages of employees.

Capital expenditures: These are typically one-time large purchases of fixed assets that will be used for revenue generation over a longer period.For example, land or building.