Amortization of spectrum fee for purchase of spectrum - Section 35ABA - Income Tax - Ready Reckoner - Income Tax

Amortization of spectrum fee for purchase of spectrum - Section 35ABA Amortization of capital expenditure incurred for acquiring any right to use spectrum for telecommunication services: Where any capital expenditure is incurred by the assessee for acquiring any right to use spectrum for telecommunication services either before the commencement of the business or thereafter at any time during any previous year and for which payment has been actually made to obtain a right to use spectrum, a deduction equal to the appropriate fraction of the amount of such expenditure shall be allowed for such relevant previous years. Amount of Deduction: 1. Spectrum fees actually paid before commencement of business: Spectrum 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. Spectrum fees paid after the commencement of business: Spectrum 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 Telecommunication Spectrum: Allowed deduction under the Head Profits or Gains of Business or profession Different Situations Tax Treatment Entire telecommunication s pectrum 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 telecommunication s pectrum 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 Capital Gain The licence constitutes the capital asset and as such there will be capital gain/ loss on sale of entire/ part of the telecommunication spectrum. further, for computing long term capital gain indexation of cost shall be allowed if such spectrum 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. Consequences if there is failure to comply with any of the provisions of the section 35ABA: The deduction shall be deemed to have been wrongly allowed. The AO may, notwithstanding anything contained in this Act, re-compute the total income of the assessee for the said PY and make the necessary rectification. The provision of section 154 shall, so far as may be, apply and period of 4 years specified u/s 154(7) of that section being reckoned from the end of PY in which the failure to comply with the provisions of this section takes place.