2003 (5) TMI 208 - AT - Income Tax

Summary

Issues Involved:
1. Assumption of jurisdiction u/s 263 by CIT.
2. Taxability of non-competition fee received by the assessee.
3. Taxability of the amount received for the assignment of the trade-mark "Kwality".

Summary:

1. Assumption of Jurisdiction u/s 263 by CIT:
The CIT assumed jurisdiction u/s 263 of the Act, claiming the assessment order was erroneous and prejudicial to the interest of the Revenue. The assessee argued that the CIT did not provide a specific finding that the assessment order was erroneous and prejudicial to the Revenue, which is a prerequisite for assuming jurisdiction u/s 263. The Tribunal agreed with the assessee, stating that the CIT must have material evidence to conclude that the AO's order was erroneous and prejudicial to the Revenue. The Tribunal cited various judicial precedents, including the Supreme Court's decision in Malabar Industrial Co. Ltd. vs. CIT, to support its conclusion that the CIT's assumption of jurisdiction was illegal.

2. Taxability of Non-Competition Fee:
The assessee received Rs. 1 crore from BBL for agreeing not to engage in the marketing and distribution of ice-cream and related products for ten years. The assessee claimed this amount as a capital receipt not liable to capital gains tax, relying on the Supreme Court's decisions in Kettle Well Bullen & Co. Ltd. vs. CIT and CIT vs. Best & Co. (P) Ltd. The Tribunal agreed, stating that the amount was received under a restrictive covenant and was thus a capital receipt. The Tribunal cited multiple judicial precedents, including Universal Radiator vs. CIT and Gillanders Arbuthnot & Co. Ltd. vs. CIT, to support its conclusion.

3. Taxability of Amount Received for Assignment of Trade-Mark "Kwality":
The assessee received Rs. 1.85 crores from DSPL for assigning his 50% co-ownership in the trade-mark "Kwality." The assessee argued that this amount was not taxable as capital gains because the cost of acquisition was nil, and the provisions of s. 55(2)(a) did not apply. The Tribunal agreed, noting that the relevant amendments to s. 55(2)(a) were prospective and did not apply to the assessment year in question. The Tribunal cited the Board's Circular No. 1964 and various judicial precedents to support its conclusion.

Conclusion:
The Tribunal quashed the CIT's order u/s 263, holding that the assumption of jurisdiction was illegal. The amounts received by the assessee for the non-competition agreement and the assignment of the trade-mark "Kwality" were not taxable as capital gains for the assessment year in question. The appeal filed by the assessee was allowed.