Applicability of Section 35ABB:
This section is applicability to Telecom companies Jio, Airtel, BSNL etc.
Amount of Deduction u/s 35ABB:
License Obtained Before commencement of Business:
Deduction shall be allowed from the previous year in which business commences till the period of license expires.
License Obtained after commencement of business:
Deduction shall be allowed from the previous year in which fees paid till the previous year in which license expires.
Example:
Onlinesolves Call Ltd.”, to provide telecom services in Mumbai, obtained a license on 1.4.2020 for a period of 10 years ending on 31.3.2020 against a fee of 27 lacs to be paid in 3 installments of 9 lacs each by April, 2020, April, 2021 and April, 2022, respectively. The company has commenced business on 14.2021.
Explain, how the payment made for licence fee shall be dealt with under the Income-tax Act, 1961 and the amount, if any, deductible for A.Y. 2023-24.
Answer:
The payment made for acquiring the license to operate telecom services in Mumbai shall be subject to deduction as per the scheme in section 35ABB. As per section 35ABB, any amount actually paid for obtaining license to operate telecommunication services shall be allowed as deduction in equal instalments during the number of years for which the license is in force.
If the payment is made before the commencement of business:
The deduction shall be allowed beginning with the year of commencement of business.
In any other case:
It will be allowed commencing from the year of payment. Deduction shall be allowed up to the year in which the license shall cease to be in force.
The amount of deduction available for Assessemnt Year 2023-24 is worked out below:
Previous year of Payment | Unexpired Period of License | Instalment Paid | Deduction in respect of each instalment |
2020-21 | 9 Years | Rs: 9,00,000 | Rs: 1,00,000 |
2021-22 | 9 Years | Rs: 9,00,000 | Rs: 1,00,000 |
2022-23 | 8 Yeras | Rs: 9,00,000 | Rs: 1,12,500 |
The deduction under section 35AAB from Assessment Year 2023-24 shall be Rs: 3,12,500.
Some Important Key Points Regarding Section 33ABB
- The expenditure incurred should be capital in nature.
- The expenditure should be incurred for acquiring the right to obtain the license to operate telecommunication services.
- The amount towards eligible expenditure should actually be paid.
- In other words, deduction under section 35ABB is available on actual payment.
- Any capital expenditure incurred before the commencement of telecommunication business is also allowable as a deduction.
- The deduction is available in equal instalments over the period the licence remains in force.
- Amount of deduction claimed and allowable under section 35ABB is not eligible for depreciation under section 32 of the Income Tax Act.
Treatment in case of amalgamation or demerger under section 35ABB In case of amalgamation/ demerger, the same will not be treated as transfer, if the following conditions are satisfied-
1. The amalgamated company or the resulting company is an Indian company; and
2. The amalgamated or the resulting company has not transferred the licence.
Notably, since the same is not treated as transfer, the deduction will be available to the amalgamated/ resulting company as the same would have been available to the amalgamating/ demerged company.
