Brought forwarded business loss to be set off even if subsequent year’s income is taxable at lower rate: ITAT

Case Details: DCIT v. Channel V Music Networks Ltd. - [2022] 143 taxmann.com 41 (Mumbai-Trib.)

Judiciary and Counsel Details

• • Pramod Kumar, Vice-President & Sandeep S. Karhail, Judicial Member
  • Milind Chavan for the Appellant.
  • Divesh Chawla for the Respondent.

Facts of the Case

Assessee was a foreign company and tax resident of Hong Kong. It was mainly engaged in the operation of satellite television channels. It had brought forward loss from the said business under the head profits and gains from business and profession (PGBP). In the relevant assessment year, the assessee claimed the set-off of brought forward loss against the franchise fees earned in course of business.

The Assessing Officer (AO) contended that the brought forward loss was not allowed to set off against the said franchise fees. Franchisee fees were in the nature of royalty taxable on a gross basis at the rate of 27.04%, unlike the assessee’s business income which was taxed at 42.23%.

On appeal, the CIT(A) granted relief to the assessee. The matter was reached before the Mumbai Tribunal.

ITAT Held

The Mumbai Tribunal held that as per provisions of section 72, a claim of any business loss is allowed to be set off from any business profit irrespective of the nature of the business. Further, the rate of tax applicable on the different types of business income is not a relevant factor to consider the eligibility of the assessee to carry forward & set off the business loss.

In the instant case, the income from franchise fees was in the nature of royalty but it is considered as an income from the business. Therefore, the set off of business losses from the royalty income was to be allowed. Thus, the appeal was disposed of in the favour of the assessee.