1993 (6) TMI 112 - AT - Income Tax

Summary

Issues Involved:
1. Professional status of the assessee as an author.
2. Nature of receipts from the assignment of copyright and sale of goodwill.
3. Taxability of receipts under different heads.
4. Validity of bifurcation of receipts into goodwill and copyright.
5. Applicability of Section 10(3) of the Income-tax Act, 1961.

Detailed Analysis:

1. Professional Status of the Assessee as an Author:
The Tribunal addressed whether the assessee, a Barrister, could be considered a professional author. It concluded that "the assessee was not an author by profession." The Tribunal noted that writing a book on Company Law did not automatically make it part of his profession. The assessee had written only one book and had not written any other books, which indicated that authoring was not his profession. The Tribunal also referenced past assessments where royalty from the book was assessed under "Other sources," not as professional income.

2. Nature of Receipts from the Assignment of Copyright and Sale of Goodwill:
The Tribunal examined whether the receipts from OLH represented amounts for the assignment of the copyright and sale of goodwill or were merely a licence to use these assets. It found that the agreement clearly indicated an outright sale of both the copyright and goodwill. The Tribunal cited English decisions such as Withers v. Nethersole and Shiner v. Lindblom to support the view that the assignment of copyright amounted to a sale of a capital asset, making the receipts capital in nature.

3. Taxability of Receipts Under Different Heads:
The ITO had taxed the receipts under "Other sources" and "Profession." However, the Tribunal upheld the CIT (Appeals) decision that the receipts were capital receipts and not liable to tax even under "Capital gains." The Tribunal emphasized that the receipts did not arise from the exercise of the assessee's profession and thus could not be taxed as professional income.

4. Validity of Bifurcation of Receipts into Goodwill and Copyright:
The Tribunal addressed the revenue's contention that the bifurcation of the receipt into goodwill and copyright was unjustified. It held that the terms of the agreement with OLH should be given full effect, noting that the transaction was at arm's length and there was no evidence of mala fide intent. The Tribunal upheld the CIT (Appeals) decision that the receipt referable to goodwill was exempt as capital gains since there was no cost of acquisition for goodwill, referencing CIT v. B.C. Srinivasa Setty.

5. Applicability of Section 10(3) of the Income-tax Act, 1961:
The Department argued that the receipts should be assessed under Section 10(3). The Tribunal dismissed this additional ground, stating that Section 10 contains a list of items that do not form part of the total income and does not bring any income to tax. It noted that the receipts were not casual and non-recurring, and thus could not be brought to tax under Section 10(3). The Tribunal referenced the Supreme Court decision in Dr. K. George Thomas v. CIT to support its conclusion.

Conclusion:
The Tribunal confirmed the order of the CIT (Appeals) and dismissed the appeals, holding that the receipts from the assignment of the copyright and sale of goodwill were capital receipts and not taxable as professional income or under Section 10(3) of the Income-tax Act, 1961.