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2014 (11) TMI 296 - AT - Income TaxTaxability of amount received on transfer of technical know-how and marketing know-how Held that - CIT(A) rightly recorded that the assessee has only shared the technical know-how with M/s Glenmark and did not transfer the right to use technical information (know-how) - the assessee had only parted with the marketing know-how and did not transfer the same - the consideration received on cessation of source of income shall constitute capital receipt - there was no cessation of source of income - Hence the amount of ₹ 20.00 crores received on transfer of technical know-how and marketing know-how was related to sharing of relevant information only and is taxable as revenue receipt in the hands of the assessee Decided against assessee. Transfer of self generated trade mark named Sensur Held that - The assessee has not controverted the finding given by the CIT(A) that the assessee has bifurcated the consideration between different intangible assets as mutually agreed between the assessee and buyer and the same is not supported by any credible evidence - the assessee has not given any basis for bifurcation of the consideration between trade mark and good will - the consideration of ₹ 3.00 crores be divided between the trade mark and good will in the ratio of 75% and 25% - the 75% portion of ₹ 3.00 crores pertaining to trade mark shall not be taxable during the year - The balance amount pertaining to good will shall be taxable as Capital gains Decided partly in favour of assessee. Taxability of non-compete fees relating to transfer of three bands Held that - The assessee had received non-compete fee for not competing with the purchaser of the marketing know how relating to Nitro Glycering based formulations for a period of five years - there was loss of source of income from marketing of Nitro Glycerine based products for a period of five years, it was a capital receipt - the assessee effectively lost the source of income for a period of three years by entering into non-compete agreement - Right to manufacture is different from Agreeing not to manufacture - the amount received as noncompete fee is not taxable during the year thus, the order of the CIT(A) is set aside Decided in favour of assessee. Taxability of transfer of trade mark and marketing right of animal husbandary division Business receipt or not - Held that - The consideration can be bifurcated between trade mark and good will in the ratio of 75% and 25% on the reasoning that the trade name generally carry more weight in trade circles - The consideration received on transfer of trade mark shall not be taxable and the consideration received on transfer of good will is taxable under the head Capital gains - The amount received on transfer of marketing know-how is taxable as decided in earlier assessment year - Decided partly in favour of assessee. Disallowance of interest expenditure u/s 14A Interest paid on borrowed funds Held that - CIT(A) rightly noticed that the assessee had invested a sum of ₹ 1.25 crores in the years relevant to the AY 1994-95 and 1995-96 and in those years, the assessee had own funds - These factual findings have not been controverted by the revenue the order of the CIT(A) is upheld Decided against revenue. Chargeability of interest u/s 234B Income computed u/s 115JB Held that - The Hon ble Supreme Court does not enact any law, but it only interprets the law, meaning thereby the interpretation given by the Hon ble Supreme Court shall be applicable from the date of inception of the relevant provision - the tax authorities are justified in charging interest u/s 234B of the Act for non-payment or under payment of advance tax on MAT tax payable u/s 115JA/115JB of the Act Decided against assessee.
Issues Involved:
1. Taxability of amounts received on transfer of technical know-how, marketing know-how, trade marks, and non-compete fees. 2. Disallowance of interest expenditure under Section 14A of the Income Tax Act. 3. Assessment of notional interest on deposits. 4. Chargeability of interest under Section 234B of the Income Tax Act. 5. Inclusion of certain receipts in the book profit computed under Section 115JB of the Income Tax Act. Issue-wise Detailed Analysis: 1. Taxability of Amounts Received on Transfer of Technical Know-How, Marketing Know-How, Trade Marks, and Non-Compete Fees: - Technical and Marketing Know-How (AY 2001-02): The assessee received Rs. 10 crores each for technical and marketing know-how of products "Alex, Flucort & Sensur". The CIT(A) found that the assessee only shared, but did not transfer, the know-how, thus treating the receipts as revenue. The Tribunal upheld this view, stating that the consideration received for sharing information is taxable as revenue receipt. - Self-Generated Trade Mark "Sensur" (AY 2001-02): The assessee received Rs. 3 crores on transferring the trade mark "Sensur". The CIT(A) treated this as goodwill and taxable under capital gains. The Tribunal found a misunderstanding in CIT(A)'s decision, separating the consideration into trade mark (75%) and goodwill (25%). The portion related to the trade mark was not taxable during the year under consideration, while the goodwill portion was taxable as capital gains. - Non-Compete Fees (AY 2001-02): The assessee received Rs. 2.25 crores as non-compete fees for three brands. The CIT(A) treated it as a transfer of goodwill. The Tribunal, referencing an earlier decision, ruled it as a capital receipt and not taxable during the year. - Animal Husbandry Division (AY 2001-02): The assessee received Rs. 2.75 crores for trade marks and Rs. 2.25 crores for marketing rights. The Tribunal directed bifurcation of the Rs. 2.75 crores into trade mark (75%) and goodwill (25%), treating the trade mark portion as non-taxable and the goodwill portion as taxable under capital gains. The marketing rights amount was held taxable as revenue receipt. - Non-Compete Fee (AY 2002-03): The assessee received Rs. 10 crores for not competing with a joint venture company. The Tribunal set aside the issue for fresh examination by the AO, considering the duration of the non-compete clause and relevant case laws. - Scientific Know-How and Technical Information (AY 2002-03): The assessee received Rs. 7.40 crores, which was treated as sharing information, thus taxable as business receipt. The Tribunal upheld this view. 2. Disallowance of Interest Expenditure under Section 14A: - AY 2001-02: The AO disallowed Rs. 17,56,637/- out of interest expenditure due to investments in equity shares. The CIT(A) found no nexus between borrowed funds and investments, deleting the addition. The Tribunal upheld this decision, referencing the Bombay High Court's ruling in CIT Vs. HDFC Bank. - AY 2004-05: The AO disallowed Rs. 9,62,595/- for investments made prior to 1.4.2001. The CIT(A) enhanced the disallowance to Rs. 1,47,00,000/-. The Tribunal remanded the issue back to the AO for fresh examination, considering the assessee's claim of using funds received from a joint venture company for the investments. 3. Assessment of Notional Interest on Deposits: - AY 2001-02 and AY 2002-03: The AO assessed notional interest on a Rs. 75 lakhs deposit for a flat rented for the Managing Director. The Tribunal upheld the CIT(A)'s deletion of notional interest, referencing earlier Tribunal decisions in the assessee's favor. 4. Chargeability of Interest under Section 234B: - AY 2004-05: The assessee contested the chargeability of interest under Section 234B for non-payment of MAT tax under Section 115JB. The Tribunal rejected the assessee's contention, distinguishing between Section 115J and Sections 115JA/115JB, and upheld the tax authorities' decision to charge interest. 5. Inclusion of Receipts in Book Profit Computed under Section 115JB: - AY 2004-05: The assessee argued for the exclusion of Rs. 20 crores received on transfer of marketing rights and technical know-how from book profits. The Tribunal upheld the tax authorities' decision to include the amount, noting it was disclosed in the profit and loss account and treated as revenue receipt. Conclusion: The appeals filed by the assessee for AY 2001-02 and 2002-03 were partly allowed, while the appeal for AY 2004-05 was treated as partly allowed. Both appeals filed by the revenue were dismissed.
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