Section 35ABB of the Income Tax Act
Income-tax Act, 2025: s.52
Section 35ABB of the Income-tax Act, 1961 corresponds to section 52 (Amortisation of expenditure for telecommunications services, amalgamation, demerger, scheme of voluntary retirement, etc) of the Income-tax Act, 2025.
Read section 52 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 35ABB is DIT (E) v. Apparel Export Promotion Council (245 ITR 492), cited in 193 of the 81 judgments on BharatTax that turn on this section.
Leading authorities on Section 35ABB
The rule of consistency applies when facts or legal positions remain unchanged in earlier assessment years, preventing the Revenue from adopting a divergent stance in subsequent years without new material. This ensures stability and predictability in tax assessments.
The Revenue is bound by the rule of consistency and cannot adopt a divergent position in a subsequent assessment year unless there is a change in facts or law.
Discounts offered to distributors under a tightly controlled relationship constitute commission and are subject to tax deduction at source under Section 194H of the Income-tax Act.
Section 194H of the Income Tax Act, 1961, is not applicable on the discount extended to distributors of pre-paid services, as the distributor does not earn income at the time of purchasing pre-paid cards from the assessee. The assessee is not in possession of any income belonging to the distributor at that point.
Expenditure on technical aid fees for factory setup and rights to sell products under a collaboration agreement is capital in nature, not revenue, as it provides an enduring benefit.
Payments made by one telecom operator to another for providing roaming services are not characterized as royalty or fees for technical services under Section 9, and therefore, do not attract Tax Deducted at Source.
Discounts allowed by a business to grow its operations in a competitive market are acceptable and cannot be disallowed. Expenses incurred for business growth in a competitive world are not to be disallowed.
The case is cited for the principle that when a payment is made for a non-compete agreement which is part of a larger business transfer, the characterisation of the payment depends on whether it is for the enduring benefit of the business or for the loss of potential profits.
Expenditure incurred for the expansion, extension, or betterment of an existing business, or for improvisation that is part of the existing business, is allowable as revenue expenditure. Payments made for acquiring technical know-how and exclusive rights for setting up a new business can be capital expenditure.
