You don't even need to use your function (especially such slow as it is right now based on loop).

You can do just this:

SELECT p.BILL_NBR

,dtr.DD

,dtr.MM

,dtr.YYYY

,p.BILL_AMOUNT / (DATEDIFF(DAY,p.FROM_DT, p.TO_DT) + 1) AS BILL_AMOUNT_PERDAY

FROM PHONEBILL AS p

CROSS APPLY (SELECT DAY(DayDT) AS DD, MONTH(DayDT) AS MM, YEAR(DayDT) AS YYYY

FROM (SELECT TOP (DATEDIFF(DAY,p.FROM_DT, p.TO_DT) + 1)

DATEADD(DAY, ROW_NUMBER() OVER (ORDER BY object_id) - 1, p.FROM_DT) DayDT

FROM sys.columns) AS r

) dtr

Just one more advice: create a proper Tally table and use it instead of sys.columns!

It will give you a performance boost as you won't even need to use ROW_NUMBER function.

Here is an example of how you can create Tally table with 1000000 rows:

SELECT TOP (1000000) IDENTITY(INT,0,1) AS N

INTO dbo.TallyTable

FROM sys.columns c1, sys.columns c2

CREATE UNIQUE CLUSTERED INDEX IDX_TallyTable_N ON dbo.TallyTable(N ASC)

and here is code you need based on the Tally table:

SELECT p.BILL_NBR

,dtr.DD

,dtr.MM

,dtr.YYYY

,p.BILL_AMOUNT / (DATEDIFF(DAY,p.FROM_DT, p.TO_DT) + 1) AS BILL_AMOUNT_PERDAY

FROM PHONEBILL AS p

CROSS APPLY (SELECT DAY(DayDT) AS DD, MONTH(DayDT) AS MM, YEAR(DayDT) AS YYYY

FROM (SELECT TOP (DATEDIFF(DAY,p.FROM_DT, p.TO_DT) + 1)

DATEADD(DAY, N, p.FROM_DT) DayDT

FROM dbo.TallyTable) AS r

) dtr

Note that I've started my tally from 0, it can be quite helpful as well as having clustered unique index...