Deduction will be allowed in respect of any capital expenditure incurred and actually paid by an assessee for acquiring any right to operate telecommunication services over the period of obtaining license. The amortisation shall be allowed in the previous year in which the license fee is actually paid and the subsequent previous years during which the license is in force. Amount of Deduction A deduction equal to the appropriate fraction of the amount of such expenditure shall be allowed. Profit/Loss on Sale of Telecom License On Transfer of Entire License:

•   If the sale proceeds of the licence < the unamortized expenditure, then the deficiency will be allowed as business loss in the year of transfer of such license.
•   If the sale proceeds of the license > the unamortized expenditure, then the surplus will be taxed as Business Income of the year in which the license is being transferred. However, the profits will not exceed the amount of deduction allowed earlier.

On Transfer of Part of License:

• If the sale proceeds < the unamortized expenditure, then the balance will be amortized over the unexpired life of the license.
• If the sale proceeds > the unamortized expenditure, the surplus shall be chargeable to be taxed as Business Income in the year of such transfer of the license.  However, the profits will not exceed the amount of deduction allowed u/s 35ABB.

Exception Any expenditure in respect of which deduction u/s 35ABB is allowed shall not be eligible for Depreciation u/s 32 of the Income Tax A In Case of Amalgamation and Demerger If the telecom license is being transferred in case of amalgamation and demerger, the deduction under this section shall be allowed to the Amalgamated Company (in case of amalgamation) or the Resulting Company (in case of demerger). Illustration: M/S Poor Network Limited have acquired telecom license for Rs. 90 crores in 2010-11 for 10 years. Compute deduction u/s 35ABB in each of the following cases:

1. Entire amount is paid in 2010-11
2. Entire amount is paid in 2011-12
3. Rs. 45crores is paid in 2010-11 and Rs. 45crores in 2011-12.

Solution: Deduction u/s 35ABB in the above cases will be as under:- Case 1: Deduction from 2010-11 to 2019-2020 = 90crores / 10years = 9crores per year Case 2: Deduction in 2010-11 = Nil Deduction from 2011-12 to 2019-20 = 90crores/ 9years = 10crores per year Case 3: Deduction in 2010-11 = 45crores/ 10years = 4.5crores Deduction from 2011-12 to 2019-20 = 4.5crores + 45cores/ 9years = 9.5crores per year.