In a significant development, the Supreme Court of India has granted substantial relief to the nation’s telecom companies, including Reliance Jio and Airtel, by waiving the interest on their outstanding income tax dues. This decision follows the Court’s October 2023 ruling that classified the license fees paid by these companies under the Income Tax Act as ‘capital expenditure’ rather than ‘revenue expenditure’.
Previously, under the National Telecom Policy of 1999, telecom companies were required to pay a one-time entry fee in addition to a license fee based on their annual turnover. This was a departure from the prior policy, where only a one-time license fee was required.
The Supreme Court had previously recognized the one-time payments as ‘capital’ in nature, which significantly impacted the taxable income of these companies, increasing both their tax liabilities and accrued interest. However, in its latest ruling, the Court decided that it could not reclassify the annual variable license fees as revenue, thus providing a basis for the waiver of interest.
The telecom companies had argued that enforcing the previous decision would have drastically increased their taxable income, due to a sudden change in the treatment of these fees which had been in place for over 20 years. They had filed a petition in the Supreme Court to reconsider its decision.
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The Court’s refusal in February to retract its earlier decision but its willingness to consider waiving interest accrued after 1999 provides a significant financial reprieve for the telecom sector.
