I run a telecom company. I have been paying the annual licence fee to the Department of Telecommunications as a share of my revenue and claiming it as a business expense. The assessing officer says the Supreme Court has held it is capital and must be spread over the life of the licence. Is that right, and what do I do about the years already assessed?
Yes, that is right for the licence fee paid under the migration package of 1999. In CIT v Bharti Hexacom Ltd (Supreme Court, 16 October 2023, 2023 INSC 917) the Court held that the one-time entry fee and the variable annual licence fee payable to the DoT under the policy of 1999 are both capital in nature, to be amortised under section 35ABB. It refused to split the fee: it held that the Delhi High Court had been wrong to apportion the expenditure between capital and revenue, and it set that judgment of 19 December 2013 aside along with the judgments of the Delhi, Bombay and Karnataka High Courts that had followed it. In paragraph 27 it said that the payment after 31 July 1999 "is a continuation of the payment pre 31 July, 1999 albeit in an altered format which does not take away the essence of the payment", so the character of the fee does not change at the migration date. What changes is only the year in which each payment enters the amortisation, because section 35ABB spreads each tranche over the previous years from the year it is actually paid to the year the licence expires. Section 35ABA does the same job for the spectrum fee from assessment year 2017-18, with one difference that matters in practice: rule 6A lets a company on deferred payment terms treat the whole upfront-equivalent amount as paid.
This page describes the law as it stands on 23 September 2026. Sections 35ABB and 35ABA are provisions of the Income-tax Act, 1961, and they govern assessments up to and including the previous year 2025-26. The Income-tax Act, 2025 (Act 30 of 2025) received assent on 21 August 2025 and, by its section 1, "save as otherwise provided in this Act, it shall come into force on the 1st April, 2026". From that point the same ground is covered by section 52 of the 2025 Act, which deals with both the telecommunication licence fee and the spectrum fee in a single table. So if you are looking at an old assessment year, you are in sections 35ABB and 35ABA; if you are looking at a current one, read section 52 alongside them.
Section 35ABB is headed "Expenditure for obtaining licence to operate telecommunication services". It was inserted by the Finance Act, 1997 with retrospective effect from 1 April 1996, and amended by the Finance Act, 1999 partly with retrospective effect from 1 April 1996 and partly with effect from 1 April 2000. Sub-section (1) reads: "In respect of any expenditure, being in the nature of capital expenditure, incurred for acquiring any right to operate telecommunication services either before the commencement of the business to operate telecommunication services or thereafter at any time during any previous year and for which payment has actually been made to obtain a licence, there shall, subject to and in accordance with the provisions of this section, be allowed for each of the relevant previous years, a deduction equal to the appropriate fraction of the amount of such expenditure." Two things follow from that sentence. The deduction runs on actual payment, not on the accrual your books show; and it is a fixed fraction of the payment, not a written-down-value write-off. The Explanation supplies the two definitions that do the work. "Relevant previous years" means "(A) in a case where the licence fee is actually paid before the commencement of the business to operate telecommunication services, the previous years beginning with the previous year in which such business commenced; (B) in any other case, the previous years beginning with the previous year in which the licence fee is actually paid, and the subsequent previous year or years during which the licence, for which the fee is paid, shall be in force". "Appropriate fraction" means "the fraction the numerator of which is one and the denominator of which is the total number of the relevant previous years". And "payment has actually been made" means "the actual payment of expenditure irrespective of the previous year in which the liability for the expenditure was incurred according to the method of accounting regularly employed by the assessee". Each payment is therefore its own tranche with its own run of years, and every tranche stops at the same finish line: the expiry of the licence.
Work it through. Suppose a licence is in force to 31 March 2024 and you actually pay licence fee of Rs 220 crore in the previous year 2013-14, the business having commenced long before. Sub-clause (B) applies. The relevant previous years are 2013-14 and each subsequent year the licence is in force: 2013-14, 2014-15, 2015-16, 2016-17, 2017-18, 2018-19, 2019-20, 2020-21, 2021-22, 2022-23 and 2023-24. That is eleven previous years. The appropriate fraction is one-eleventh, the deduction is Rs 20 crore in each of those eleven years, and 20 times 11 is 220, so the whole payment is written off by the time the licence ends. A payment made in 2019-20 on the same licence would run over five years, at a fifth each. The later the payment, the shorter the run and the larger the annual slice.
Sub-sections (2) to (5) deal with transfer of the licence. If the licence is transferred and the capital proceeds are less than the expenditure remaining unallowed, sub-section (2) allows "a deduction equal to such expenditure remaining unallowed, as reduced by the proceeds of the transfer" in the year of transfer. If the proceeds exceed the unallowed balance, sub-section (3) charges the excess as business profits, but only up to "the difference between the expenditure incurred to obtain the licence and the amount of such expenditure remaining unallowed" - in other words, only the deductions you have already taken are clawed back as business income. The Explanation to that sub-section closes the obvious escape: "Where the licence is transferred in a previous year in which the business is no longer in existence, the provisions of this sub-section shall apply as if the business is in existence in that previous year." Sub-section (4) shuts off further deduction where the proceeds are not less than the unallowed balance, and sub-section (5) gives the formula for a part transfer: subtract the capital proceeds from the expenditure remaining unallowed, then divide by the number of relevant previous years that have not expired at the beginning of the year of transfer. Amalgamation and demerger are carved out. Under sub-section (6), where an amalgamating company transfers the licence to an Indian amalgamated company, sub-sections (2), (3) and (4) do not apply to the amalgamating company, and the section applies to the amalgamated company "as they would have applied to the amalgamating company if the latter had not transferred the licence". Sub-section (7) says the same for a demerged company and an Indian resulting company; it was inserted by the Finance Act, 1999 with effect from 1 April 2000, alongside the rest of the demerger machinery. The amortisation, in short, moves across with the licence and carries on undisturbed. Sub-section (8) is the exclusivity rule: where a deduction under sub-section (1) "is claimed and allowed in respect of any expenditure referred to in that sub-section, no deduction shall be allowed under sub-section (1) of section 32 for the same previous year or any subsequent previous year".
Section 35ABA is the spectrum twin. Section 16 of the Finance Act, 2016 (Act No. 28 of 2016, which received assent on 14 May 2016) inserted it, in these words: "After section 35AB of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 2017, namely:—". It therefore bites from assessment year 2017-18, and the CBDT's explanatory notes to the Finance Act, 2016 (Circular No. 3/2017 dated 20 January 2017) carry it as "Amortisation of spectrum fee for purchase of spectrum". Sub-section (1) mirrors section 35ABB(1) for "any right to use spectrum for telecommunication services", and sub-section (2) borrows the rest: "The provisions contained in sub-sections (2) to (8) of section 35ABB, shall apply as if for the word 'licence', the word 'spectrum' had been substituted." The Explanation is built the same way, with "spectrum" put in place of "licence" throughout - it reads "spectrum fee" where section 35ABB reads "licence fee", and "the spectrum, for which the fee is paid, shall be in force" where section 35ABB reads "the licence" - so the definitions of "relevant previous years" and "appropriate fraction" do the same work in both sections. Two things in section 35ABA have no counterpart in section 35ABB. One is sub-section (3): if a deduction has been claimed and granted and there is subsequently a failure to comply with the section, the deduction is deemed to have been wrongly allowed and the assessing officer may recompute the total income and rectify, with section 154 applying. The other, and the one that moves the year the amortisation starts, is the third definition in the Explanation. In section 35ABB, "payment has actually been made" stops at actual payment. In section 35ABA the same clause ends with the extra words "or payable in such manner as may be prescribed", and rule 6A of the Income-tax Rules, 1962 - inserted by the Income-tax (Twenty-fourth Amendment) Rules, 2016 with effect from 4 October 2016 - fills them in. Where the company has opted and been allowed by the DoT to make full upfront payment, it is the actual payment that counts. Where it "has opted and been allowed by the Department of Telecommunications, Government of India to make deferred payment", what counts is "the amount which would have been payable by the assessee had he opted for full upfront payment of spectrum fee". Rule 6A fixes the amount treated as paid; it does not in terms name a year. But once the whole upfront-equivalent sum is treated as paid, the run of relevant previous years is set by that deemed payment rather than starting again with each instalment, and sub-rule (2) reads that way: it provides for recomputation where the deferred terms are breached and the DoT terminates the allotment, which presupposes that the deduction has already begun. A licence fee paid in instalments under section 35ABB has no such rule and enters the computation instalment by instalment, as each is actually paid.
Now the case. Bharti Hexacom held a licence granted under the telecom policy of 1994 on a fixed fee. Under the new policy of 1999 the licensees were offered a migration package, described by the Delhi High Court in the judgment under appeal and reproduced by the Supreme Court as a "one time entry fee which is chargeable and had to be calculated as licence fee dues payable upto 31 July, 1999 and licence fee was thereafter payable on percentage share of gross revenue". The Revenue said the whole thing was capital. The assessees said the annual revenue-share fee was the cost of running the business year to year. The Delhi High Court, on 19 December 2013 in ITA No. 1336 of 2010 and connected matters, split it. Its answer was: "The expenditure incurred towards licence fee is partly revenue and partly capital. Licence fee payable upto 31st July, 1999 should be treated as capital expenditure and licence fee on revenue sharing basis after 1st August, 1999 should be treated as revenue expenditure", the capital part qualifying "for deduction as per Section 35ABB of the Act".
The Supreme Court (B.V. Nagarathna and Ujjal Bhuyan, JJ., Civil Appeal No. 11128 of 2016 and connected appeals, 16 October 2023, 2023 INSC 917) reversed the split, not the characterisation of either half. It held that the one-time entry fee and the variable annual licence fee payable to the DoT under the policy of 1999 are both capital in nature, and that the expenditure is to be amortised in accordance with section 35ABB. It held that the Delhi High Court had been wrong to apportion the expenditure between capital and revenue, and it set that judgment of 19 December 2013 aside, together with the judgments of the Delhi, Bombay and Karnataka High Courts that had followed it. Its reasoning on the migration date is in paragraph 27, which the Delhi High Court reproduced word for word on 23 January 2024 in Vodafone Mobile Services Ltd v DCIT: "The payment post 31 July, 1999 is a continuation of the payment pre 31 July, 1999 albeit in an altered format which does not take away the essence of the payment. It is a mandatory payment traceable to the foundational document i.e., the licence agreement as modified post migration to the 1999 policy. Consequence of non-payment would result in ouster of the licensee from the trade. Thus, this is a payment which is intrinsic to the existence of the licence as well as trade itself. Such a payment has to be treated or characterized as capital only." The fee, on that reasoning, is not the running cost of working an asset you already hold. It is the price of holding the right to trade at all, and it does not change its nature because the amount is now measured on gross revenue.
Be careful what you take from that. It is a holding that the fee has a single character throughout, and that character is capital; the date 31 July 1999 marks a change in how the fee is measured, not a change in what it is. So the pre-migration fee and the post-migration revenue share stand on the same footing, and the answer is the same whichever side of the date the payment falls. It is not authority that every payment a telecom operator makes to the DoT is capital, and it is not authority on any regime other than the licence under the policy of 1999. Nor did the Court rework the arithmetic. It sent the expenditure to section 35ABB and left the mechanics of the spread where the statute puts them.
What that means year by year is set by the Explanation, not by the judgment. Treat each payment as its own tranche. The entry fee crystallised on migration, having been paid after the business commenced, falls under sub-clause (B) and runs from the year it was actually paid to the year the licence expires. Every later annual revenue-share payment is a separate tranche on the same footing, each starting in its own year of payment and each ending at the same licence expiry, so the fractions get larger as the licence runs down. Licence fee actually paid before the business commenced falls under sub-clause (A) instead and starts in the year the business commenced. If you have both pre-1999 and post-1999 payments, you do not need to sort them into two buckets by character - you need to sort them by the year each was actually paid, work out how many previous years of the licence remained from that year onwards, and carry a separate schedule for each. A company that had been claiming the revenue share in full has to restate: the deduction is not lost, it is deferred, and the unallowed balance keeps running against future years and against the transfer provisions in sub-sections (2) to (5).
Finally, why section 35ABB and not section 32 or section 37. A licence is on the face of section 32(1), which allows depreciation in respect of "know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998" - the intangible-assets limb, usually cited as section 32(1)(ii). Two things keep the telecom licence out of it. A licence acquired before 1 April 1998 is outside that limb altogether, which covers the first generation of telecom licences. And where a deduction under section 35ABB(1) is claimed and allowed, sub-section (8) bars section 32(1) for that year and every later year. Section 37(1) is barred for two independent reasons at once: it allows only expenditure "not being expenditure of the nature described in sections 30 to 36", and in any event only expenditure "not being in the nature of capital expenditure". Once the Supreme Court held the fee capital, section 37(1) was closed on the second ground even before the first was reached. Section 35ABB is the special provision that tells you the timing, and it displaces both general ones where it applies.
The difference is not whether you get the deduction but when. A revenue-share fee claimed in full in the year of payment and a fee amortised from that year to the expiry of the licence come to the same total, but they land in different years, and for a licence with a long tail the deferral is most of the money. That is why the assessments went back years and why the restatement, not the principle, is where the work is.
It also fixes how the next argument of this kind will be run. The Court's reasoning is that a payment does not change character because the manner or the measure of paying it changes; a periodic payment measured on turnover is still the price of the right to trade if non-payment ends the trade. Expect that to be put to you wherever a recurring fee is the condition of keeping a licence, a concession or an approval.
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