Following a decision by an inter-government dispute settlement committee a couple of days ago, public sector telecom service providers Mahanagar Telecom Nigam Ltd and Bharat Sanchar Nigam Ltd have got a bonanza in the form of tax refunds of around Rs 2,500 crore.

The committee upheld the view that the fee paid to the government annually for telecom licences be treated as a deductible expenditure for tax treatment purposes, as is the case with private telecom service providers.

While the Bombay Stock Exchange and Nasdaq-listed MTNL [Get Quote] expects to get a refund of nearly Rs 1,400 crore, an amount that will reflect in its balance sheet for the current financial year, unlisted BSNL expects a refund of around Rs 1,083 crore.

The conflict dates from 1996-97 onwards and started with the then telecom minister Sukh Ram levying a rural telecom fee on MTNL and Videsh Sanchar Nigam Ltd [Get Quote].

The companies used to pay a licence fee of Re 1 in those days and the tax authorities said this was a form of "connivance between the PSU and its parent, the department of telecommunications". VSNL protested and won relief subsequently.

Recalling this, RSP Sinha, the then director, finance, VSNL, and the present chairman and managing director, MTNL, said VSNL fought the case as it did not agree with the view of the tax assessing officer.

"When VSNL was divested, the law ministry agreed that license fee was expenditure and the money was returned to the company," he said.

However, MTNL did not get a relief at that stage and has been treating it as a contingent liability on the balance sheet ever since.

Around two months ago, the attorney general gave an opinion that led to the committee of disputes' recent decision.

"We are expecting to get about Rs 1,083 crore as refund. We are thankful to the government for accepting our request to consider license fee as expenditure. This will be good for BSNL," SD Saxena, finance director, BSNL, said.

Expecting a positive impact on its bottom line, MTNL director, finance, Anita Soni, said: "According to our estimate, we will get Rs 1,400 crore as refund as well as Rs 400 crore as interest according to income-tax department rules. We will also be able to save about Rs 100 crore each year."

The move seems to be a major boon for both operators who are faced with stiff competition from private operators like Bharti Airtel [Get Quote] and Reliance Communications [Get Quote].