1982 (5) TMI 52 - AT - Income Tax

Summary

Issues:
Assessment of non-resident company for AY 1967-68, taxability of shares received in consideration of technical know-how transfer, initiation of proceedings under section 147(a), taxability of sum as capital gains, determination of cost of patents.

Analysis:

1. The assessment for AY 1967-68 of a non-resident company involved the taxability of 21,000 equity shares received in exchange for technical know-how transfer. The ITO initiated proceedings under section 147(a) due to alleged income escaping assessment, leading to the assessment of total income under 'Capital gains' at Rs. 4,19,495. The Commissioner (Appeals) upheld the taxability of consideration received for patents as capital gains, setting the cost at Rs. 21,000.

2. The assessee appealed against the initiation of proceedings under section 147(a) and the taxability of the sum as capital gains. The departmental appeal contested the Commissioner (Appeals) setting the cost of patents at Rs. 21,000. The Tribunal considered both appeals.

3. The Tribunal upheld the initiation of proceedings under section 147(a), emphasizing that once material justifies income escaping assessment, the sufficiency of material is not justifiable. The transfer of patents was deemed liable to capital gains as they were registered capital assets.

4. The Tribunal rejected the assessee's argument that the sale of know-how and patents should be treated differently. It held that once a know-how is patented, the patent becomes the capital asset for which consideration is relevant, akin to selling an ornament instead of its components.

5. Regarding the determination of the cost of patents, the Tribunal acknowledged the difficulty in ascertaining the cost but upheld the liability to capital gains. It distinguished cases where the asset cost nothing from cases where cost determination is challenging, holding that the latter attracts capital gains liability.

6. The departmental appeal focused on the cost determination, with the Tribunal accepting the assessee's estimate of Rs. 21,000 as the cost of patents due to the complexity of determining the exact cost. Consequently, both the assessee's and departmental appeals were dismissed, affirming the taxability of the sum as capital gains and setting the cost of patents at Rs. 21,000.