Capital expenditure incurred by the telecommunication company for acquiring use of spectrum is allowable as a deduction under section 35ABA of the Income Tax Act. Notably, the deduction is allowed over the period of time the spectrum remains in use. The deduction provisions of section 35ABA are briefly taken up and explained in the current article.

Deduction available under section 35ABA

The amount paid, in the form of capital expenditure, for acquiring the right to use spectrum for telecommunication services is allowed a deduction under section 35ABA.

Amount of deduction available under section 35ABA of the Income Tax Act

The deduction is available in equal instalments over a period of time during which the right to use the spectrum remains in force.

Conditions for claiming deduction under section 35ABA of the Income Tax Act

In order to claim the deduction under section 35ABA, the assessee needs to satisfy the following mandatory conditions-

1. The deduction is available to the assessee engaged in telecommunication services.

2. The expenditure incurred should be capital in nature.

4. Expenditure is incurred for acquisition of the right to use the spectrum for telecommunication services.

5. The amount should actually be paid.

Other points related to section 35ABA

  • Eligible expenditure incurred before the commencement of business is allowable as deduction under section 35ABA.
  • Deduction under section 35ABA is available from the year in which the payment is made till the year when the spectrum comes to an end.
  • Consequence when the spectrum is transferred-
Particulars Consequence
Capital proceeds of transfer are less than the expenditure incurred remaining unallowed The deduction allowed in the previous year in which transfer takes place = Amount of expenditure remaining unallowed (-) proceeds of a transfer.
Capital proceeds of transfer is more than the expenditure incurred remaining unallowed The excess amount will be chargeable to tax under ‘Profits and gains of business and profession’ in the previous year in which the spectrum is transferred.
  • Depreciation under section 32 of the Income Tax Act will not be available, towards amount claimed and allowed as deduction under section 35ABA.
  • The consequence of failure in complying with the provisions of section 35ABA
    • It would be deemed that the deduction is wrongly allowed,
    • An assessing officer can re-compute the total income of the defaulting assessee and undertake necessary rectification, and
    • The rectification can be done within a period of four years from the end of the previous year in which the failure takes place.
  • In case of amalgamation or demerger, the provisions of section 35ABA will continue to apply, if the amalgamated or the resulting company is an Indian company.

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