28/01/2019
Amortisation of telecom licence fees [Sec. 35ABB] :-Section 35ABB was inserted with effect from he assessment year 1996-97.
CONDITIONS :- Deduction under section 35ABB is available if the following conditions are satisfied-
1. The expenditure is capital in nature.
2. It is incurred for acquiring any right to operate telecommunication services.
3.The expenditure may be incurred either before the commencement of business or at any time thereafter.
4. The payment for which has actually been made to obtain licence.
If all the above conditions are satisfied, then one can claim deduction under section 35ABB. If, however, these conditions are not satisfied, then deduction under section 35ABB is not available [one may claim deduction under section 37(1)].
AMOUNT OF DEDUCTION :- The payment will be allowed as deduction in equal instalments over the period starting from the year in which such payment has been made (if payment is made before the commencement of business, deduction is available from the year in which business is commenced) and ending in the year in which the licence comes to an end. It may be noted that the deduction starts from the year in which actual payment of expenditure is made irrespective of the previous year in which the liability for the expenditure is incurred according to the method of accounting regularly employed by the assessee.
PROFIT OR LOSS ON SALE OF TELECOM LICENCE - :- Any profit or loss on sale of telecom licence is taken into consideration while computing business income. The relevant rules are given below. In the table given below, WDV is the written down value (i.e, the expenditure incurred remaining unallowed) on the first day of the previous year in which telecom licence is transferred'
Different situations and its Tax treatment:-
1. Entire telecom licence is transferred :-
(i) When sale consideration is less than WDV :- WDV minus sale consideration is allowed as deduction under section 35ABB in the year of sale. .
(ii) When sale consideration is more than WDV :- The excess of sale consideration over WDV is taxable as business income in the year of sale (subject to rules given in Notes 1, 2 and 3 below).
2. When a part of telecom licence is transferred :-
(i) When sale consideration is less than WDV :- WDV minus sale consideration will be allowed as deduction over the unexpired period.
(ii)When sale consideration is more than WDV :- Same tax treatment as is given in 1.(ii).
Notes
1. In situations 1(ii) and 2(ii), the amount taxable as business income cannot exceed deduction allowed under section 35ABB in the earlier years.
2. The aforesaid amount is taxable whether (or not) business is in existence.
3. In respect of the same expenditure no further deduction will be allowed under section 35ABB.
CONSEQUENCES IN CASE OF AMALGAMATION 0R DEMERGER :- Where, under the scheme of amalgamation, a telecom licence is transferred by the amalgamating company to the amalgamated company (being an Indian company), then deduction will not be available under section 35ABB to the amalgamating company. However, the provisions of section 35ABB continue to apply to the amalgamated company as these would have applied to the amalgamating company if the latter had not transferred the licence.
* A Similar rule is applicable from the assessment year 2000-01 in the case of demerger, For this purpose, sub- Section (7) provides that the aforesaid provisions relating to transfer of licence shall not be applicable in the case-of demerged company and the provisions of the section allowing deduction of expenditure incurred for obtaining the licence shall be applicable to the resulting company as it would have applied to demerged company.
DEPRECIATION UNDER SECTION 32 NOT AVAILABLE :- Where a deduction for any previous year is claimed and allowed under section 35ABB, then no deduction shall be allowed under section 32 for same previous year or any subsequent previous year in respect of the same expenditure.
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