Section 35ABA Expenditure for obtaining right to use spectrum for telecommunication services

Expenditure for obtaining right to use spectrum for telecommunication services [Section 35ABA]

1. Section 32 allows for depreciation on assets, including certain intangible ones. Section 35ABB specifically deals with the amortization of license fees in the case of telecommunication services.
2. The government has implemented a spectrum fee for the auctioning of airwaves.
3. Section 35ABA was introduced to address the uncertainty surrounding the tax treatment of spectrum payments. It aims to determine whether spectrum should be considered an intangible asset eligible for depreciation under section 32 or if it should be categorized as a 'license to operate telecommunication business' eligible for deduction under section 35ABB.
4. No Depreciation: If a deduction is claimed and allowed under Section 35ABA in a previous year, no depreciation on the capital expenditure incurred for the same year or any other previous year shall be permitted under Section 32(1).
5. Where an assessee has claimed and been granted a deduction in a prior year under this section, and subsequently, there is a failure to comply with any of the provisions outlined within this section, then:-

• The deduction will be treated as wrongly allowed.
• The Assessing Officer has the authority to recompute the total income of the assessee for that previous year and make necessary rectifications, overriding the usual provisions in the Income-tax Act, 1961.
• Section 154, dealing with rectification of mistakes apparent from records, will be applicable. The four-year period for rectification begins from the end of the previous year in which the failure to comply with Section 35ABA provisions occurs.

     6. The tax treatment of spectrum fees is outlined under Section 35ABA of the             Income Tax             Act.

S.no	Transaction	Manner of deduction
1)	Acquisition of right to use spectrum
	Any capital expenditure incurred for acquisition of 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 actually been made to obtain a right to use spectrum.	Appropriate fraction of the amount of such expenditure [1/ total number of relevant previous years]
2)	Transfer of the spectrum
	Case 1: Where the proceeds of the transfer of spectrum are less than the expenditure incurred remaining unallowed	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. Amount of deduction = Expenditure remain unallowed                                                  (–) Sale proceeds
	Case 2: Where the proceeds of the transfer of whole or any part of the spectrum exceed the amount of expenditure remaining unallowed	The excess amount or expenditure allowed till date (i.e., difference between expenditure incurred to obtain spectrum and the expenditure remain unallowed), whichever is less, shall be chargeable to tax as profits and gains of business in the previous year in which the spectrum has been transferred. If the spectrum is transferred in a previous year in which the business is no longer in existence, the taxability would arise in the above manner as though the business is in existence in that previous year.
	Case 3: Where the proceeds of the transfer of whole or any part of the spectrum are not less than the amount of expenditure incurred remaining unallowed.	No deduction for such expenditure shall be allowed in the previous year in which spectrum is transferred or in respect of any subsequent previous year or years. Amount of deduction = NIL
	Case 4: Where a part of the spectrum is transferred and the case is not covered under Case 2 above i.e., the proceeds of transfer of a part of the spectrum does not exceed the amount of expenditure remaining unallowed	Unallowed expenditure would be amortized in the following manner (i)  subtracting the proceeds of transfer from the expenditure remaining unallowed; and (ii)                 dividing the remainder by the number of relevant previous years which have not expired at the beginning of the previous year during which the spectrum is transferred.  Amount of deduction = Unallowed -Sale expenditure             proceeds                Unexpired No. of relevant P.Y.S
3)	Transfer of spectrum in a scheme of amalgamation
	If the amalgamating company sells or transfers the spectrum to the amalgamated company, being an Indian company under the scheme of amalgamation	The provisions of section 35ABA will apply to amalgamated company as they would have applied to amalgamating company as if the latter has not transferred the spectrum. The tax treatment in cases 1, 2 & 3 given in (2) above will not apply to the amalgamating company.
4)	Transfer of spectrum in a scheme of demerger
	If the demerged company sells or transfers the spectrum to the resulting company, being an Indian company under the scheme of demerger	The provisions of section 35ABA will apply to resulting company as they would have applied to demerged company as if the latter has not transferred the spectrum. The tax treatment in cases 1, 2 & 3 given in (2) above will not apply to the demerged company