Expenditure for obtaining Licence to operate Telecommunication Services - Section 35ABB - Income Tax - Ready Reckoner - Income Tax

Expenditure for obtaining Licence to operate Telecommunication Services Section 35ABB Conditions: 1. Expenditure should be capital in nature. 2. It should be incurred for the purpose of acquiring any right to operate telecommunication services. 3. Payment should have been actually made to obtain a license for claiming deduction. 4. It may be incurred either before commencement of business or any time during the previous year. Amount of deduction: 1. License fees actually paid before commencement of business: License fee actually paid before commencement of the business / No. of years from the previous year of commencement of business to the previous year in which license expires. 2. License fees paid after the commencement of business: License fee actually paid after the commencement of the business / No. of years from the previous year in which license fee actually paid to the previous year in which license expires. Where a deduction has been allowed under this section then no depreciation shall be allowed u/s 32(1) for the same or any other subsequent years Profit or loss on sale of Telecom Licence: Taxable under the head of Business or Profession Profits and Gains Different Situations Tax Treatment 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. 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 The excess of sale consideration over WDV is taxable as business income in the year of sale. Taxable under the head of Capital Gain The licence constitutes the capital asset and as such there will be capital gain/ loss on sale of entire/ part of the licence. further, for computing long term capital gain indexation of cost shall be allowed if such licence is sold after 36 months. Treatment in case of Amalgamation / De-Merger: section 35ABB shall not apply to amalgamating company or De-merged Company. The same shall apply in the hands of Amalgamated Company or Resulting Company respectively. Other Relevant Information- Before AY 2017-18 - Fees for the spectrum paid under already existing licence of telecommunication does not amount licence fee under section 35ABB, hence capitalisation as Intangible asset is allowed and thus, depreciation on the same will also allowed as per M/s. Vodafone Idea Limited, (formerly known as Idea Cellular Ltd.) Versus PCIT-Circle (5) , Mumbai 2022 (1) TMI 1207 - ITAT Mumbai Spectrum fee paid from AY 2017-18 has to be treated as per section 35ABA of the IT Act, 1961 .