2003 (8) TMI 14 - HC - Income Tax

Whether the brand name in respect of eight items of medicines sold by the assessee for a consideration of Rs. 4 lakhs to M/s. Vysali Pharmaceuticals (P.) Ltd. is exigible to capital gains tax effect of the amendment to clause (a) of sub-section (2) of section 55 - Admittedly this amendment is having only prospective effect from April 1 2002. However the effect of the amendment in relation to the earlier period is necessarily a matter to be considered by the Tribunal while determining the question as to whether brand name associated with a business was taken in within the expression goodwill - We emit the matter to the Tribunal for passing fresh orders

Summary

Issues:
Whether the brand name in respect of eight items of medicines sold by the assessee for a consideration of Rs. 4 lakhs is exigible to capital gains tax under the Income-tax Act, 1961.

Analysis:

The appellant, in this case, sold the brand name of eight medicines to a sister concern for Rs. 4 lakhs during the relevant accounting period. The Assessing Officer sought to tax this amount under section 55(2) of the Income-tax Act, treating the brand name as part of the goodwill of the business. The appellant contended that a brand name should not be equated with goodwill, emphasizing the distinctiveness of goodwill from a brand name. The dispute centered around whether the brand name could be considered part of goodwill for tax assessment purposes.

The appellant's counsel argued that the amendment to section 55(2) by the Finance Act, 2001, effective from April 1, 2002, supported the contention that goodwill did not encompass a brand name. The Revenue's standing counsel, on the other hand, maintained that all authorities had determined the brand name fell within the ambit of goodwill as per section 55(2). The Tribunal and lower authorities had not considered the impact of the 2001 amendment due to the timing of their decisions pre-dating the amendment.

The High Court noted the amendment's prospective effect from April 1, 2002, and highlighted the need for the Tribunal to assess whether the brand name was included in the expression of goodwill for the period preceding the amendment. The Court directed the Tribunal to reevaluate the matter in light of the amendment and the arguments presented, emphasizing that both parties should be given the opportunity to be heard. The Court instructed the Tribunal to issue a fresh decision within three months from the date of receiving the judgment.

In conclusion, the High Court disposed of the appeal by remitting the case to the Tribunal for a reevaluation considering the impact of the 2001 amendment on the classification of a brand name as part of goodwill for tax assessment purposes. The decision highlighted the importance of interpreting the law in accordance with the amended provisions and ensuring a fair hearing for both parties in reaching a final determination.