2019 (4) TMI 2083 - HC - Income Tax

Nature of expenditure - Revenue share of licence fees - Whether revenue expenditure allowable as deduction u/s 37(1) - HELD THAT - Question No. (i) is covered against the Revenue passed by this Court in 2016 (4) TMI 1410 - BOMBAY HIGH COURT involving this very assessee. Without recording separate reasons, therefore, this question is not considered. Disallowance of interest expenditure towards interest free loan to the subsidiary - HELD THAT - Question No. (ii) is covered by the virtue of the decision of the Supreme Court in the case of S.A. Builders Ltd 2006 (12) TMI 82 - SUPREME COURT Hence, this question is also not entertained. Appeal is admitted for consideration of following substantial question of law - Whether in facts of the case, the Tribunal was right in law in remanding the question of deduction of provision made by the respondent assessee for leave encashment before the Assessing Officer with further direction not to recover the sum till the availability of the decision of the Supreme Court against the judgment of the Calcutta High Court holding that Section 43B(f) of the Income Tax Act, 1961 was unconstitutional?

Summary

Issues Involved:
1. Deduction of provision made by the respondent for leave encashment.
2. Revenue share of license fees as a revenue expenditure.
3. Disallowance of interest expenditure towards interest-free loan to the subsidiary.

Analysis:
1. The primary issue in this judgment revolves around the deduction of provision made by the respondent for leave encashment. The Tribunal had remanded this question to the Assessing Officer with directions not to recover the sum until the decision of the Supreme Court against the judgment of the Calcutta High Court on the constitutionality of Section 43B(f) of the Income Tax Act, 1961. The High Court admitted the appeal to consider the substantial question of law regarding the correctness of the Tribunal's decision in this regard.

2. The Revenue raised two additional questions related to the case. Firstly, whether the Tribunal was justified in holding that the revenue share of license fees amounting to Rs. 1,42,30,76,399 is a revenue expenditure allowable as a deduction under Section 37(1) of the Income Tax Act, 1961. The High Court noted that this question was already decided against the Revenue in a previous order involving the same assessee, thus not considering it separately.

3. The second additional question raised by the Revenue was regarding the addition made on account of the disallowance of interest expenditure towards an interest-free loan to the subsidiary. The High Court found that this question is covered by a decision of the Supreme Court in the case of S.A. Builders Ltd Vs. CIT(Appeals), Chandigarh [2007] 288 ITR 1. Consequently, this question was also not entertained separately by the High Court.

4. The judgment concludes by directing the Registry to communicate the order to the Tribunal for necessary action. The respondent's counsel waived service, and the High Court's decision on the various issues presented in the appeal was made clear, providing guidance on the legal implications and precedents relevant to each question raised.