2016 (11) TMI 728 - SC - Income Tax

Supreme Court overturns High Court's decision on licence fee as business loss

The Supreme Court allowed the Revenue's appeal, overturning the High Court's decision to delete the addition of licence fee as a business loss. It was ... Addition of the licence fee paid - HC deleted the addition - Held that:- The licence fee stands forfeited, the licencee/assessee may be entitled to claim the forfeited amount as a business loss. However in the present case, from the grounds urged before the High Court which facts have not been controverted by the assessee, it appears that the respondent had transferred the licence on June 25, 2005 to one Shankarlal Patidar and the forfeiture of the said licence took place thereafter on August 1, 2005. If that be so, the loss, if any, on account of forfeiture was sustained not by the respondent-assessee but by the transferee-Shankarlal Patidar. In view of the above and as the learned Tribunal and the High Court have overlooked the aforesaid vital fact, we are of the view that the orders passed by the learned Tribunal and the High Court will require to be reversed by us. Consequently, we set aside the order of the High Court affirming the order of the learned Tribunal and the learned Commissioner of Income-tax (Appeals) passed in favour of the assessee and affirm the order of the Assessing Officer disallowing the aforesaid claims of the assessee. - Decided against assessee Issues:Challenge to order deleting addition of licence fee as business loss following forfeiture.Analysis:The Supreme Court granted leave to appeal against the High Court's order upholding the deletion of the addition of licence fee as business loss by the Income-tax Appellate Tribunal and the Commissioner of Income-tax (Appeals). The reasoning behind the deletion was that the forfeiture of the licence fee necessitated setting it off as a loss for the relevant assessment year. The High Court's decision was based on a judgment by the Madras High Court in CIT v. Chensing Ventures. However, upon closer examination, it was revealed that the respondent had actually transferred the licence to another individual before the forfeiture occurred. This transfer meant that any loss resulting from the forfeiture was borne by the transferee, not the original assessee.The Supreme Court found that the crucial fact of the licence transfer before forfeiture was overlooked by both the Tribunal and the High Court in their decisions. Consequently, the Court held that the orders of the Tribunal and the High Court needed to be reversed. The Court set aside the High Court's order affirming the decisions in favor of the assessee and upheld the Assessing Officer's disallowance of the claims made by the assessee. As a result, the appeal by the Revenue was allowed, and the orders of the Tribunal and the High Court were overturned in favor of the Revenue.