Setback for ITC Ltd: Calcutta HC rules Rs. 32.42 Cr from Hotel Rights Relinquishment is Revenue Receipt, Not Capital Receipt

The Calcutta High Court ruled that Rs. 32.42 crores received by ITC Ltd. for relinquishing its right to operate a hotel is a revenue receipt, not a capital receipt. This decision overturned the previous rulings by the CIT(A) and ITAT, which had classified the amount as a long-term capital gain. The bench of Justices Surya Prakash Kesarwani and Rajarshi Baradwaj found that the license agreement between ITC and ELEL Hotels & Investment Ltd. was a trading contract, and ITC had no ownership interest in the hotel. \r

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The court concluded that the Rs. 32.42 crores received by ITC was part of a business settlement and should be treated as income, not a gain from a capital asset transfer. Therefore, the court ruled in favor of the Income Tax Department and against ITC Ltd.