New World Payphones Limited runs a network of over 2,000 phone kiosks around the country, with over 200 in the City of Westminster alone.
It has a rolling programme of replacing old-style telephone boxes with open structures that offer LCD interactive screens and Wi-Fi internet access.
Advertising displays on the back of its kiosks are essential to finance them and, without them, no new kiosks would be installed, the company says.
New World argued that formal planning permission was not required to replace two old phone boxes outside 25-27 Marylebone Road with a single new kiosk.
As an electronic communications network operator, it argued that the development fell within the Town and Country Planning (General Permitted Development) (England) Order 2015 (the GPDO).
Westminster City Council refused to grant prior approval under the GPDO for the kiosk's installation, but that decision was overturned, and approval granted, by a planning inspector in June last year.
Challenging that decision in court, the council argued that the "primary purpose" of the kiosk was not as part of a telecommunications network, but for advertising in the form of an illuminated digital panel.
The council contended that, with the advent of mobile phones, the public nowadays make little or no use of telephone kiosks for telecommunications and that their principal objective is to display advertisements.
However, neither the council's arguments in respect of public "need" for the kiosk, nor in respect of its primary purpose, were decisive in Mr Justice Ouseley's decision to quash the inspector's decision.
The judge noted that a development only falls within the scope of the relevant class of the GPDO if it is "for the purpose" of a telecommunications network.
In order to benefit from PD rights, the kiosk had to fall "fully" and "squarely" within that class.
And, because the kiosk was for the "dual purpose" of communications and advertising, the council was right to find that it did not fall within the GPDO.
The judge said: "I do not consider that the evidence here could permit of any conclusion other than that the kiosk served a dual purpose.
"Part of its purpose was for the operator's network, as a telephone kiosk. Part of it was to be the electrified advertising panel.
"The panel was for the purpose of displaying advertisements. It was not ancillary or incidental to the kiosk, nor legally insignificant."
He added: "A development which is partly 'for the purpose' of the operator's network, and partly for some other purpose, is not a development 'for the purpose' of the operator's network, precisely because it is for something else as well.
"The single dual-purpose development must be judged as a whole."
The questions of whether telecommunications, or advertising, was the "dominant or primary purpose" of the kiosk - or whether there was a real public need for the kiosk - were therefore of limited relevance.
Discerning the main purpose of developments posed obvious uncertainties and evidential difficulties, and the judge added: "The language of the GPDO is not that of dominant or primary purpose."
"The kiosk cannot be brought within the scope of prior approval … merely because it is acceptable in the street scene. The kiosk would fall outside the scope (of the GPDO) if advertising consent were granted, since its dual purpose would be apparent daily."
New World's lawyers pointed out that consent for installation of the advertising panel had in fact been refused. However, the judge said the company's bid for prior approval had to be "determined upon the application", rather than "by the outcome of the prior approval process".
The inspector's decision to grant prior approval for the kiosk was quashed.
Saira Kabir Sheikh QC of Francis Taylor Building, who acted on behalf of Westminster City Council, said the judgment "clarifies the position with respect to the development of telephone boxes which include advertising capabilities".
"Moving forward, such development should not benefit from permitted development rights, on the basis that it serves a dual purpose," she said.
"This is significant not only for the telecommunications industry, but also for local planning authorities who have been grappling with an increase in applications of this type in recent years."
Barrister Mark Westmoreland-Smith, also of Francis Taylor Building, acted for the Secretary of State for Housing, Communities and Local Government.
London councils, including Westminster, have lobbied central government to review permitted development rights for telephone kiosks that they say are leading to a plethora of unsightly advertising.
In October, the government published a consultion on the removal of permitted development rights for phone boxes to allow "greater consideration of their impact on local amenity". Advertising on new phone boxes would also be subject to planning approval, under the proposals.