The present article covers deduction available under section 35ABB of the Income Tax Act for obtaining a licence for operating telecommunication services. The article briefly explains the treatment on the transfer of the licence and also treatment in case of amalgamation/ demerger.
The provisions of section 35ABB states as under-
As seen above, the deduction under section 35ABB is available over the period of time the licence remains in force. Hence it is important to understand the treatment, in case of transfer of the licence, before completion of the period-
1. Treatment when the proceed amount (only capital in nature) is less than the expenditure remaining unallowed as a deduction-
Since the transfer amount is less, the deduction will be allowed under section 35ABB by applying the following formula-
|Deduction allowable under section 35ABB in the previous year in which the transfer takes place||=||Total expenditure remaining unallowed (-) proceed amount|
2. Treatment when the proceed amount (only capital in nature) is more than the expenditure remaining unallowed as a deduction-
Since the transfer amount is more, the amount will be chargeable as business income by applying the following formula-
|The amount chargeable to Income tax under the head ‘Profits and gains of business and profession’ in the previous year in which the transfer takes place||=||Total expenditure incurred for obtaining a licence (-) total expenditure remaining unallowed|
3. Treatment when the part of the licence is transferred and proceed amount is less than the expenditure remaining unallowed as a deduction-
In such case, the deduction allowable for the remaining period would be arrived at by applying the following formula-
Deduction allowable under section 35ABB for the expenditure remaining unallowed
|=||Total expenditure remaining unallowed (-) proceed amount|
|Number of previous years not expired at the beginning of the previous year during which the licence is transferred|
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.