2001 (10) TMI 257 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of compensation received for withdrawal of the right to use the trade mark 'Savlon'.
2. Correct carry forward of investment allowance.
3. Depreciation claim on income-tax paid and capitalized on overseas technical know-how.
4. Deduction of recoveries from employees for their stay in guest houses from guest house expenses.

Issue-wise Detailed Analysis:

1. Taxability of Compensation for Withdrawal of Trade Mark Use:
The primary issue in this appeal is whether the compensation received by the assessee-company for the withdrawal of the right to use the trade mark 'Savlon' is exigible to capital gains tax. The assessee received Rs.112.99 lakhs for the withdrawal of the license to use the trade mark 'Savlon' from ICI UK. The assessee contended that since no consideration was paid for acquiring the right to use the trade mark, the compensation received should not be subject to capital gains tax, citing the Supreme Court decision in CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294. The Assessing Officer and the First Appellate Authority did not accept this contention, treating the compensation as taxable under capital gains.

The Tribunal noted that the right to use the trade mark is a capital asset under section 2(14) and its surrender is a transfer under section 2(47). However, since the assessee incurred no cost to acquire this right, the principle from B.C. Srinivasa Setty applies, indicating that no capital gains tax is applicable. The Tribunal highlighted that amendments to section 55(2) to include trade marks and brand names under capital gains tax were effective only from 1-4-2002, thus not applicable to the assessment year 1993-94. Consequently, the Tribunal reversed the orders of the authorities below and allowed the appeal on this ground.

2. Correct Carry Forward of Investment Allowance:
The assessee did not press this ground during the hearing. Therefore, the Tribunal dismissed this ground as not pressed.

3. Depreciation Claim on Income-Tax Paid and Capitalized on Overseas Technical Know-How:
Similarly, the assessee did not press this ground during the hearing. The Tribunal dismissed this ground as not pressed.

4. Deduction of Recoveries from Employees for Stay in Guest Houses:
The assessee contended that recoveries from employees for their stay in guest houses while on official duty should be deducted from guest house expenses. The Assessing Officer disallowed this deduction, considering the recoveries as notional rather than actual. The First Appellate Authority upheld this decision.

The Tribunal examined the procedure for recoveries and noted that each division of the assessee-company maintained separate accounts and guest houses. The recoveries were made from employees staying in guest houses while on official duty, restricted to prescribed rates under Rule 6D of the I.T. Rules, 1962. The Tribunal found that these recoveries were justified as they were related to official duties and not for entertainment or relaxation. Therefore, the Tribunal reversed the order of the authorities below and allowed the deduction of Rs.32,62,602 from guest house expenses.

Conclusion:
The Tribunal allowed the appeal in part, reversing the orders of the authorities below on the taxability of compensation for trade mark use and the deduction of recoveries from guest house expenses, while dismissing the grounds not pressed by the assessee.