CIT v Bharti Hexacom Ltd
Supreme CourtHelps departmentJudgment not reachable
I run a telecom company and I have been claiming the annual revenue-share licence fee paid to the Department of Telecommunications as a business expense. The assessing officer says the Supreme Court has held it is capital and must go through section 35ABB. What did the Court actually decide?
It decided that the licence fee has one character throughout, and that the character is capital. The licensees had migrated from the telecom policy of 1994, under which the fee was fixed, to the policy of 1999, under which a one-time entry fee was payable, calculated as the licence fee dues up to 31 July 1999, and the fee thereafter was a share of gross revenue. The Delhi High Court had split the payment on that date, treating the fee up to 31 July 1999 as capital, qualifying for deduction under section 35ABB, and the revenue-share fee after 1 August 1999 as revenue. The Supreme Court framed the question as whether the variable annual licence fee paid to the Department of Telecommunications under the policy of 1999 is revenue in nature and deductible under section 37, or capital and accordingly required to be amortised under section 35ABB. It answered that the later payment is a continuation of the earlier one in an altered format, that the change of format does not take away the essence of the payment, that it is a mandatory payment traceable to the licence agreement and non-payment would put the licensee out of the trade, and that such a payment has to be treated or characterised as capital only. The date of 31 July 1999 therefore marks a change in how the fee is measured, not a change in what it is.
