Sinha has been given a detailed list of defaulters by Jagmohan in order to initiate action against those who have claimed deduction under Section 35 ABB of the Income-tax Act. Sinha also intends to impose capital gains tax on promoters who have earned profits from disinvestment of their equity holdings in telecommunication companies.

A confidential letter written by Sinha to Jagmohan states that two direct implications arise out of non-payment of licence fees by telecom operators under the Income-tax Act.

Sinha has stated that deduction on account of licence fee is admissible under Section 35 ABB of the I-T Act only when payments are actually made.

"Accordingly, in all instances where the telecommunication operators have defaulted in making payments of licence fee to the Department of Telecommunication, prima facie, they arenot entitled to avail the benefit of deduction of the same in the computation of their income under the provisions of the I-T Act," states Sinha's letter to Jagmohan.

The second implication is whether capital gains tax can be clamped on promoters on profits earned by them through divestment.

"In this connection, all field authorities have been directed to bring to tax under Section 45 as capital gains any profits earned by them by disinvestment of their holdings in telecommunication companies. With respect to both these aspects, administrative instructions have already been issued to the field authorities to take appropriate action as per law. Action as per law can be initiated under the Income-tax Act to consider disallowance of the same," Sinha has stated in the letter.

Sinha has also pointed out that certain telecom companies have also been notified as enterprises engaged in infrastructure facility. Such companies are in a position to raise substantial funds for their projects at lower cost due tothe benefits contained in section 10(23G) of the I-T Act.

"In the event any promoter is found not to be engaged wholly in the business of providing telecommunication services, you (Jagmohan) may like to forward particulars in this regard so that the same can be kept in mind while considering their cases for approval under the I-T Act," Sinha's letter stated.