License receipt not taxable as business profit or capital gains due to lack of connection & cost computation.

The court held that the receipt of Rs. 10 lakhs from the transfer of a licence was not taxable as business profit under section 28(iv) of the Income-tax Act, as the licence was not connected to the assessee's existing business. Additionally, the receipt could not be assessed under 'Capital gains' due to the inability to compute the cost of acquisition as required by section 48. Therefore, the court concluded that the receipt could not be taxed under either provision and directed the Tribunal to proceed accordingly.

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Issues Involved:
1. Taxability of the receipt of Rs. 10 lakhs as business profit under section 28(iv) of the Income-tax Act, 1961.
2. Assessability of the receipt of Rs. 10 lakhs under the head 'Capital gains'.

Detailed Analysis:

1. Taxability as Business Profit:
The primary issue was whether the receipt of Rs. 10 lakhs from the transfer of a licence could be taxed as business profit. The Tribunal had held that it was not business income since the assessee was not engaged in the business of dealing with licences. The court supported this view, stating that the licence was not connected with the business carried on by the assessee. The licence was obtained for setting up a new business, not related to the existing business. Thus, the benefit arising from the licence could not be considered as income from the business under section 28(iv). The court emphasized that the benefit under section 28(iv) must be related to the business carried on by the assessee, which was not the case here.

2. Assessability under 'Capital Gains':
The second issue was whether the receipt could be assessed under 'Capital gains'. The court noted that the licence was a capital asset as defined under section 2(14) of the Income-tax Act. However, for it to be chargeable under section 45, it had to be computed under section 48, which requires the determination of the cost of acquisition. In this case, the cost of acquisition of the licence could not be determined as per section 55(2) as it stood during the assessment year 1986-87. The court referred to the Supreme Court decision in B.C. Srinivasa Setty's case, which held that if the cost of acquisition cannot be computed, the receipt cannot be charged under 'Capital gains'. Therefore, the receipt of Rs. 10 lakhs could not be assessed under 'Capital gains' due to the inability to compute the cost of acquisition.

Conclusion:
The court concluded that the receipt of Rs. 10 lakhs from the transfer of the licence, a capital asset, could not be taxed as business income under section 28(iv) nor as capital gains under section 45 due to the computation issues under sections 48 and 55(2). The Tribunal was directed to dispose of the appeal in light of these observations.

Separate Judgments:
R.N. Sinha J. agreed with the judgment delivered by D.K. Seth J.

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