1977 (12) TMI 57 - AT - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the ITO to start reassessment proceedings.
2. Nature of the receipt of Rs. 50,000 in shares-whether it is capital or revenue.
3. Taxability of income accruing outside India to a non-resident.

Detailed Analysis:

1. Jurisdiction of the ITO to Start Reassessment Proceedings:
The assessee argued that the ITO lacked jurisdiction to start reassessment proceedings because the assessee was not taxable in India. The ITO initiated proceedings under s. 147(a) on discovering that the assessee would be taxable to the extent of Rs. 50,000 due to an agreement with an Indian company. The AAC upheld the ITO's decision, asserting that the non-filing of a return by the assessee led to a clear case of escaped assessment, justifying the reopening of the assessment. The decision in Kalyanji Mavji & Co. vs. CIT supported the Department's stance on reopening the assessment.

2. Nature of the Receipt of Rs. 50,000 in Shares-Capital or Revenue:
The assessee received 500 fully paid shares worth Rs. 50,000 from T.I. Miller Ltd., Madras, for granting an exclusive irrevocable license to use the trade mark "Miller." The ITO held that this payment did not result in the acquisition of a capital asset or an enduring advantage, as the trade mark remained the property of the assessee. The AAC agreed, stating that the character of the receipt was unchanged despite being paid in shares. However, the Tribunal found that the agreement indicated a transfer of rights for an indefinite period, making the payment a capital receipt. The Tribunal referenced several judicial decisions, including Anant Ram Khem Chand vs. CIT, Abdul Kayoom vs. CIT, and Withers vs. Nethersold, to conclude that the assessee parted with a capital asset, thus the receipt was not taxable as revenue.

3. Taxability of Income Accruing Outside India to a Non-Resident:
The assessee contended that the income, if any, accrued outside India since the agreement was signed abroad, and the trade mark was outside India at the relevant time. The Department argued that the trade mark utilization was in India, making the income taxable in India. The Tribunal noted that the payment was for the general right to use the trade mark over an area for a specified period, not for individual unit-by-unit use. Therefore, the receipt was a capital amount and not taxable, aligning with the principles laid down in Gotan Lime Syndicate vs. CIT and other relevant cases.

Conclusion:
The Tribunal allowed the appeal, holding that the payment of Rs. 50,000 in shares was a capital receipt and not taxable. The reassessment proceedings were deemed valid, but the nature of the receipt was determined to be capital, thus exempt from taxation. The Tribunal's decision was based on the substance of the transaction and the judicial precedents that differentiate between capital and revenue receipts.