Tax treatment for spectrum fee [New section 35ABA] :

Effective from: A.Y.2017-18

(i) Section 32 allows depreciation in respect of assets including certain intangible assets. Section 35ABB provides for amortisation of licence fee in case of telecommunication service.

(ii) The Government has newly introduced spectrum fee for auction of airwaves.

(iii) In order to resolve the 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 or whether it is in the nature of a ‘license to operate
telecommunication business’ and eligible for deduction under section 35ABB, new section 35ABA has been inserted to provide for tax treatment of spectrum fee.

(iv) Tax treatment of spectrum fee [New section 35ABA]

	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 (actual payment of expenditure or payable in the prescribed manner) to obtain a right to use spectrum.	Appropriate fraction of the amount of such expenditure [1/total number of relevant previous years] Meaning of relevant previous years: Case Meaning Where the spectrum fee is actually paid before the commencement of business to operate tele communication services The previous years beginning with the P.Y. in which such business commenced and the subsequent P.Y. or P.Y.s during which the spectrum, for which the fee is paid, shall be in force. In any other case The previous years beginning with the P.Y. in which the spectrum fee is actually paid and the subsequent P.Y. or years during which the spectrum, for which the fee is paid, shall be in force.
(2)	Transfer of the spectrum
	Case 1: Where the proceeds of the transfer 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.
	Case 2: Where the 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. However, the excess should not exceed the difference between the expenditure incurred to obtain the spectrum and the amount of expenditure remaining unallowed.   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 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.
	Case 4: Where a part of the spectrum is transferred (and the case is not covered under Case 2 above)	Unallowed expenses would be amortised in the following manner –   (i) subtracting the proceeds of transfer from the expenditure remaining  nallowed; 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 licence is transferred.
(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.

 

(v) Consequences of failure to comply with the conditions after grant of deduction:

Where, in a previous year, any deduction has been claimed and granted to an assessee and subsequently, there is failure to comply with any of the provisions of this section, then –

(1) the deduction shall be deemed to have been wrongly allowed;

(2) the Assessing Officer may recompute the total income of the assessee for the said previous year and make the necessary rectification. This is notwithstanding anything contained in the Income-tax Act, 1961;

(3) the provisions under section 154 for rectification of mistake apparent from the record would apply. The period of four years would be reckoned from the end of the previous year in which the failure to comply with the provisions of section 154 takes place.