In Brief
Telecom operators challenged the classification of variable licence fees paid under the 1999 Telecom Policy as revenue expenditure. The Supreme Court held that all licence fees—whether one-time entry fees or annual variable payments based on gross revenue—constitute capital expenditure amortizable under Section 35ABB of the Income Tax Act. The Court rejected the High Court's bifurcation into capital (pre-31 July 1999) and revenue (post-31 July 1999) components, emphasizing that these payments relate to a single, composite right to establish and operate telecom services. Non-payment results in licence revocation, confirming the payments are integral to acquiring the right. Payment structure and periodicity do not alter the capital nature of the expenditure when all payments pursue the same foundational obligation.
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