Budget 2016: Under section 32 of the Act, depreciation is allowed in respect of assets including certain intangible assets. Under section 35ABB of the Act, amortisation of license fee in case of telecommunication service is provided.
Government has newly introduced spectrum fee for auction of airwaves. There is uncertainty in tax treatment of payments in respect of Spectrum i.e. whether spectrum is an intangible asset and the spectrum fees paid is eligible for depreciation under section 32 of the Act or whether it is in the nature of a ‘license to operate telecommunication business’ and eligible for deduction under section 35ABB of the Act.
In order to provide clarity and avoid any future litigation and controversy, it is proposed to insert a new section 35ABA in the Act to provide for tax treatment of spectrum fee. The section seeks to provide,-
(i) any capital expenditure incurred and actually paid by an assessee on the acquisition of any right to use spectrum for telecommunication services by paying spectrum fee will be allowed as a deduction in equal instalments over the period for which the right to use spectrum remains in force.
(ii) where the spectrum is transferred and proceeds of the transfer are less than the expenditure remaining unallowed, a deduction equal to the expenditure remaining unallowed as reduced by the proceeds of transfer, shall be allowed in the previous year in which the spectrum has been transferred.
(iii) if the spectrum is transferred and proceeds of the transfer exceed the amount of expenditure remaining unallowed, the excess amount shall be chargeable to tax as profits and gains of business in the previous year in which the spectrum has been transferred.
(iv) unallowed expenses in a case where a part of the spectrum is transferred would be amortised.
(v) under the scheme of amalgamation, if the amalgamating company sells or transfer the spectrum to an amalgamated company, being an Indian company, then the provisions of this section will apply to amalgamated company as they would have applied to amalgamating company if later has not transferred the spectrum.
These amendments will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-18 and subsequent years.
Clause 16 of Finance Bill 2016
Clause 16 of the Bill seeks to insert a new section 35ABA in the Income-tax Act relating to expenditure for obtaining right to use spectrum for telecommunication services.
The proposed section seeks to provide that any capital expenditure incurred and actually paid by an assessee on the acquisition of any right to use spectrum for telecommunication services shall be allowed as a deduction in equal instalments overthe period starting from the year in which such payment has been made and ending in the year in which the useful life of spectrum comes to an end.
The proposed section further seeks to provide that the provisions contained in sub-sections (2) to (8) of section 35ABB, shall apply as if for the word “licence”, the word “spectrum” had been substituted.
It is also proposed to provide an Explanation to define certain expressions used for the purposes of the said section.
This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.