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Deduction for Whom
This section is for telecom companies like Airtel ,Vodafone etc.
Amt of Deduction
These companies obtain license from the government for a fix period of time to provide the services.
As per this section this license fees shall be allowed equally over the period of license.
Example
Suppose, Rs50 crores paid for 5 years by a telecom company to government as license fees for telecom service in Delhi or example 10 crores in each year
Deduction Allowed from When?
| License Purchased | Deduction Allowed from Year when |
|
After Commencement of Business |
Payment Made |
|
Before Commenceent of Business |
Business Commenced |
Question 1
The company paid license fees of Rs 60 crores for 5 years license for the period 1 may 2014 to 30 April 2019.What is the amount of deduction each year
View AnswerIn this case the license is operational for 5 years but 6 previous Years are covered in this period.
2014 - 2015, 2015 -2016, 2016 - 2017,2017 - 2018, 2018 - 2019, 2019 – 2020
Deduction will be allowed equally over 6 years
i.e.60/6=10 lacs every year as shown below
| Previous Year or Financial Year | Deduction Allowed |
| 2014-15 | 10 |
| 2015-16 | 10 |
| 2016-17 | 10 |
| 2017-18 | 10 |
| 2018-19 | 10 |
| 2019-20 | 10 |
| Total Deduction | 60 |
Question 2
Suppose in last question the company paid 36 crores on 1st may 2014 and remaining 24 crores on 1st may 2015 . How is deduction available.
View Answer36 lacs wil be available equally in 6 years i.e. 36/6 =6 every year, from 2014-15 Financial year onwards
24 lacs will be avaialble equally in 5 years i.e. 24/5=4.8 every year, from 2015-16 Financial year onwards as shown below
| Previous Year or Financial Year | Deduction Allowed of 36 lacs | Deduction Allowed of 24 lacs | Total Deduction |
| 2014-15 | 6 | 6 | |
| 2015-16 | 6 | 4.8 | 10.8 |
| 2016-17 | 6 | 4.8 | 10.8 |
| 2017-18 | 6 | 4.8 | 10.8 |
| 2018-19 | 6 | 4.8 | 10.8 |
| 2019-20 | 6 | 4.8 | 10.8 |
| Total Deduction | 36 | 24 | 60 |
Question 3
The company was formed on 1st April 2010 , it obtained 5 years telecom license on 1st may 2010 for 40 Crores.(From 1/05/2010 to 30/04/2015)
However,It started its operation from 31st may 2012.
When will deduction start?
View AnswerDeduction Allowed only from the year business commenced 31st May 2012 i.e. Financial Year 2012-13 and will be available till expiry of licence(30/04/2015)
i.e.2015-16
How much deduction every year?
View AnswerNo of years from 2012-13 to 2015-16=4
Deduction every year=40/4=10 Cr
Note
- If deduction claim under this section on license fees then deprecation can’t be claimed under Section 32
- If assessee follows cash system then this expense must be paid to claim deduction
However , if assessee follows mercantile system then whole expense should be incurred to claim the deduction.
Sale of License
There can be 3 cases
-
If WDV > Selling Price
Balance Deduction Allowed in Year of Sale
-
If Selling Price > WDV
then Selling Price - Original Cost = LTCG/STCG
and
Original Cost - WDV = Business Income of the year of sale
-
Original Cost > Selling Price > WDV
then no LTCG/STCG
Selling Price - WDV = Business Income
Question 4
Suppose License purchased on 1 May 2014 for 40 Cr for 3 years
It was sold 18 Nov 2015 for 26 Cr
What is the WDV at the time of sale?
View AnswerLicense is for 4 financial years(2014-15,2015-16,2016-17 and 2017-18
Hence deduction allowed each year
=40/4=10 Cr
WDV at the time of sale
=40-10
=30 Cr
What is the taxable treatment on Sale
View AnswerWDV > Selling Price(30>26)
Hence, remaining 4 lac deduction allowed at the time of sale
Question 5
Solve Q4 assuming license was sold for 42 lacs
View AnswerIn this case
then Selling Proce - Original Cost = LTCG/STCG
(42 - 40 = 2lacs is STCG)
and
Original Cost - WDV = Business Income
40 - 30 = 10 lacs = Business Income
of the year of sale
Question 6
Solve Q4 assuming license was sold for 39 lacs
View AnswerIn this case, there is no LTCG/STCG
Selling Price-WDV=Business Income
39-30 = 9 lacs = Business Income
of the year of sale
