Transfer Fee Paid in Connection with Transfer of Licence is Capital Expenditure and Hence Deductible From Taxable Income: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT) Pune, has, in a recent appeal filed before it, held that transfer fee paid in connection with the transfer of licence is capital expenditure and hence, that the same would be deductible from taxable income.

The aforesaid observation was made by the Tribunal when an appeal was preferred before it by the assessee, a wine merchant, against the order dated 19-03-2021, passed by the Pr. CIT, Pune, u/s.263 of the Income-tax Act, 1961, in relation to the assessment year 2015-16.

The issue involved in the appeal being the Commisioner of Income Tax’s ,( CIT’s) opinion that while regular fee is deductible, transfer fee paid by the assessee in connection with the transfer of license from one concern to another, being in the nature of capital expenditure ought to have been disallowed u/s.37(1) of the Act, the Tribunal observed as below:

“The case of the ld. Pr. CIT is that such transfer fees is capital expenditure and hence cannot be allowed as deduction. It is seen that the AO did not examine the license transfer fee during the course of assessment proceedings. The ld. AR also could not point out any case law on the point for allowing such deduction. This shows that the AO ought to have examined this aspect from the angle of deductibility, which he did not.”

“In view of the fact that the ld. Pr.CIT has simply directed the AO to examine this issue afresh and the assessee will have ample opportunity to put across its point of view, we hold that no interference is warranted in the impugned order. We, therefore, countenance the impugned order on this score. And in result the appeal is dismissed.”, pronouncing it’s order the bench concluded.

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