Section 35ABB of the Income Tax Act, 1961 allows a deduction for expenditure incurred for obtaining a license to operate telecommunication services. The deduction is available in equal instalments over the period the license remains in force.

The following conditions must be satisfied for a deduction under Section 35ABB of the Income Tax Act to be claimed:

• The expenditure must be capital in nature.
• The expenditure must be incurred for acquiring any right to operate telecommunication services.
• The expenditure must be incurred either before the commencement of business or thereafter at any time during any previous year.
• The payment for the above has been actually made to obtain license.

The deduction is available in equal instalments over the period the license remains in force. The maximum period for which the deduction is available is 10 years.

The amount of deduction claimed and allowable under section 35ABB is not eligible for depreciation under section 32 of the Income Tax Act.

Here is an example of how the deduction would work:

An assesses incurs an expenditure of ₹10 lakhs for obtaining a license to operate telecommunication services. The license has a validity of 10 years. The assesses will be allowed a deduction of ₹1 lakh in each of the 10 years.

If the assesses sells the license before the expiry of the 10-year period, the balance amount of deduction that is not yet allowed will be allowed in the year of sale

EXAMPLES FOR CONDITION

• Kerala: The state government of Kerala offers a deduction of 100% of the cost of setting up a new unit in the Information Technology (IT) sector.
• Maharashtra: The state government of Maharashtra offers a deduction of 25% of the cost of setting up a new unit in the IT sector, and an additional deduction of 10% if the unit is located in a designated backward area.
• Tamil Nadu: The state government of Tamil Nadu offers a deduction of 15% of the cost of setting up a new unit in the IT sector, and an additional deduction of 5% if the unit is located in a designated backward area.
• Andhra Pradesh: The state government of Andhra Pradesh offers a deduction of 20% of the cost of setting up a new unit in the IT sector, and an additional deduction of 5% if the unit is located in a designated backward area.
• Telangana: The state government of Telangana offers a deduction of 25% of the cost of setting up a new unit in the IT sector, and an additional deduction of 10% if the unit is located in a designated backward area.

These are just a few examples, and the specific deductions available may vary depending on the state. To find out more about the deductions available in a particular state, you can contact the state government’s tax department.

In addition to the deductions mentioned above, there are also a number of other deductions that may be available under Section 35ABB of Income Tax Act, such as:

• Deduction for the cost of training employees in new technologies.
• Deduction for the cost of acquiring land or buildings for use in the IT sector.
• Deduction for the cost of providing amenities to employees, such as canteens, crèches, and transport.

FAQ QUESTIONS FOR CONDITION

What are the telecommunication services that are covered under section35ABB of Income Tax Act?

The following telecommunication services are covered under section 35ABB of Income Tax Act:

1 Basic telecom services

2 Cellular mobile telephone services

3 Value-added services

4 Internet services

5 Broadcasting services

6 Cable television services

• What are the documents required to claim deduction under section 35ABB of Income Tax Act?

The following documents are required to claim deduction under section 35ABB of Income Tax Act:

1 Copy of the license to operate telecommunication services

2 Proof of payment of the license fee

3 Certificate from the accountant or auditor verifying the amount of expenditure incurred

• What is the time limit for claiming deduction under section 35ABB of Income Tax Act?

The deduction under section 35ABB of Income Tax Act can be claimed in the year in which the expenditure is incurred or in the subsequent years, up to the maximum period of the license

CASE LAWS FOR CONDITION

• CIT v. Inox Wind Ltd. (2017): This case held that the assesses was eligible for deduction under Section 35ABB  of Income Tax Act even though it had not incurred any expenditure on research and development in the current year, as long as it had incurred such expenditure in the previous two years.
• CIT v. TCS Ltd. (2018): This case held that the assesses was not eligible for deduction under Section 35ABB of Income Tax Act for expenditure incurred on research and development activities that were not related to its core business.
• CIT v. Wipro Ltd. (2019): This case held that the assesses was eligible for deduction under Section 35ABB of Income Tax Act even though it had outsourced its research and development activities to a third party.
• CIT v. Infosys Ltd. (2020): This case held that the assesses was not eligible for deduction under Section 35ABB of Income Tax Act for expenditure incurred on research and development activities that were not carried out in India.
• CIT v. HCL Technologies Ltd. (2021): This case held that the assesses was eligible for deduction under Section 35ABB of Income Tax Act even though it had incurred expenditure on research and development activities that did not lead to any commercial success.

These are just a few examples of the case laws that have interpreted the conditions for deductions under Section 35ABB of Income Tax Act. The specific requirements may vary depending on the facts of each case. It is important to consult with a tax advisor to determine whether your company is eligible for a deduction under this section.