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2012 (3) TMI 209 - AT - Income TaxCapital receipt versus revenue receipt - Whether the receipt from transfer of trade marks, copyrights and designs received is to be chargeable to capital gains tax? - Held that - (i) Right to manufacture, produce or processing of biscuits is a different right from trade mark, brand name and designs. - (ii) One cannot presume otherwise, when the Legislature itself has, in clear terms, mentioned its intention in the Act and the Memorandum explaining the provisions of the Act. The amendment made to sec.55(2)(a) by the Finance Act, 2001 is only prospective and applicable from assessment year 2002-03 only since the appeal of the assessee relates to assessment year 2001-02 this amendment cannot be applied retrospectively - the assessee, while transferring trademark, patents and designs to BIL has not transferred right to manufacture, produce or process biscuits - the assessee continued to carry on manufacturing and trading business is evident from sales tax assessment orders it is incorrect to hold that the assessee transferred its right to manufacture - assessee is entitled to claim the amount of ₹ 30 crores received from BIL as non-taxable capital receipt for the assessment year and the same is not liable for long term capital gains tax.
Issues Involved:
1. Whether the amendment made to Section 55(2)(a) of the Income-tax Act, 1961, for bringing into the fold of the term 'cost of acquisition', 'trade mark' or 'brand name associated with the business' w.e.f. 1-4-2002 by the Finance Act, 2001, is curative (retrospective) or prospective. 2. Whether the assessee, while transferring trademark, patent, and design to BIL, has transferred the right to manufacture, produce or process any article or thing also. Issue-wise Detailed Analysis: 1. Retrospective or Prospective Application of Amendment to Section 55(2)(a): The main question was whether the amendment to Section 55(2)(a) by the Finance Act, 2001, which included 'trade mark' or 'brand name associated with the business' within the scope of 'cost of acquisition', was retrospective or prospective. The amendment was stated to take effect from 1st April 2002, and thus applicable from the assessment year 2002-03. - Arguments by the Assessee: The assessee contended that the amendment was prospective and could not be applied to the assessment year 2001-02. They relied on the principle that charging provisions of the Act cannot operate retrospectively but only prospectively, supported by the Supreme Court's decision in Guffic Chem (P.) Ltd. v. CIT, which held that amendments to Section 28(va) were prospective. - Arguments by the Department: The Department argued that the amendment was curative and should apply retrospectively. They cited the comprehensive nature of 'goodwill', which includes trademarks and other IPRs, and thus the consideration received should be taxable. - Tribunal's Analysis: The Tribunal analyzed the legislative intent and historical context of the amendments. It was observed that the Finance Act, 2001, explicitly stated that the amendment would take effect from 1st April 2002. The Tribunal also noted the CBDT Circular No. 14 of 2001, which clarified that the amendment was prospective. - Conclusion: The Tribunal concluded that the amendment to Section 55(2)(a) by the Finance Act, 2001, was prospective and applicable from the assessment year 2002-03. Thus, for the assessment year 2001-02, the amendment could not be applied retrospectively. 2. Transfer of Right to Manufacture, Produce or Process: The second issue was whether the transfer of trademarks, patents, and designs by the assessee to BIL also included the transfer of the right to manufacture, produce, or process any article or thing. - Arguments by the Assessee: The assessee argued that they only transferred the rights related to trademarks, copyrights, and designs, and not the right to manufacture biscuits. They continued to manufacture biscuits even after the transfer, paying royalty to BIL for using the 'Kwality' brand. The non-compete fee was paid to the promoters in their personal capacity, not to the assessee company. - Arguments by the Department: The Department contended that the transfer of IPRs, along with the non-compete agreement, effectively transferred the right to manufacture biscuits to BIL. They argued that the comprehensive arrangement included the right to manufacture, produce, or process biscuits. - Tribunal's Analysis: The Tribunal examined the Heads of Agreement and the deeds of assignment. It was noted that the assessee continued to manufacture biscuits even after the transfer of IPRs. The Tribunal found that the right to manufacture biscuits was separate from the right to market, distribute, and sell biscuits under the 'Kwality' brand name. The Tribunal also observed that if the right to manufacture had been transferred, BIL would not have paid Rs. 16 crores for the purchase of shares of the assessee. - Conclusion: The Tribunal concluded that the transfer of trademarks, patents, and designs did not include the transfer of the right to manufacture, produce, or process biscuits. The right to manufacture remained with the assessee, and the consideration received for the transfer of IPRs was not liable to long-term capital gains tax. Final Decision: The Tribunal concurred with the view that the amendment to Section 55(2)(a) was prospective and that the assessee did not transfer the right to manufacture biscuits. Consequently, the amount of Rs. 30 crores received from BIL was considered a non-taxable capital receipt for the assessment year in question and not liable for long-term capital gains tax.
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