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2024 (9) TMI 423 - AT - Income TaxNature of receipt - receipt on account of transfer of trademark - Revenue or capital receipt - contention of the assessee is no capital gain is chargeable since there was no cost of acquisition - HELD THAT - We are not in a position to agree with the assessee that the assessee has not incurred any cost on registration of the trade name Rath . No doubt, its value has increased over the years, which is closely linked to the turnover of the assessee company over the period. Therefore, it cannot be claimed that no expenditure incurred to register the brand and it is factual matter that the goodwill and trademark are two different concepts. Before us, it was claimed that it is a self-generated non-depreciable asset, the assessee has relied on the decision of B.C. Srinivasa Setty 1981 (2) TMI 1 - SUPREME COURT However, facts on record are distinguishable to the facts of the above case. Assessee has already claimed the cost of registration of trademark and other relevant costs during the course of business. It can be termed as a capital asset and as far as the trademark as a capital asset, the assessee also made a submission before the AO agreeing that it is a capital asset as defined under section 2(14) of the Act. Since it is the capital asset, the transfer of such capital asset will come under the head capital gains. Since the cost of registration of the trademark is already claimed as an expenditure it can only be a short term capital asset chargeable to tax as short term capital gain. Therefore, the present transaction of transfer of trademark to ITC is a capital asset chargeable to tax under the head capital gain. Revenue authorities treated the same as business receipt by linking above transaction with non-compete clause mentioned in the agreement. In our considered view, any transaction with intellectual property like trademark, the non-compete clause is automatic and part of the any agreement entered with parties. Therefore, what is relevant is transfer of intellectual assets not consequential clause mentioned in the agreement. Therefore, present transfer is chargeable to tax under the head capital gains. In the result, ground raised by the assessee is dismissed. Disallowance of provisions for employees leave encashment - HELD THAT - We observed that the issue under consideration is squarely covered by the decision of Hon ble Supreme Court in the case of Bharat Earthmovers Ltd. 2000 (8) TMI 4 - SUPREME COURT as held if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain - Decided in favour of assessee. Disallowance of capital loss on surrender of land to DDA - HELD THAT - We observed that assessee has made similar claim in AY 2004-05. However, 2024 (1) TMI 1315 - ITAT DELHI the coordinate Bench decided the issue against the assessee with the submission made by the assessee that the assessee has claimed the loss by way of revised return only and it was stated that this loss of surrender of land to DDA was claimed in AY 2001-02 wherein the claim has been disallowed and without prejudice to the claim in AY 2001-02, the claim is made in AY 2004-05 as an abundant precaution. Based on the above declaration, the claim of the assessee in AY 2004-05 is dismissed - allow the ground raised by the assessee that assessee has incurred the abovesaid loss and it is allowed to claim the same in the year of claim. Penalty u/s 271(1)(c) - HELD THAT - We observed that the assessee has claimed receipt from transfer of trademark as capital receipt not chargeable to tax, claimed provision for employee leave encashment based on the actual report and claimed capital loss of transfer of land to DDA. No doubt, the above claim of the assessee is debatable, however these claims were rejected by the AO and does not attract penalties automatically.
Issues Involved:
1. Taxability of Rs. 11 crores received from the sale of a trademark. 2. Disallowance of Rs. 9,16,000/- for provision of leave encashment. 3. Non-acceptance of capital loss of Rs. 1,16,17,56,990/- on surrender of land to DDA. 4. Typographical error in taxable capital gains figure. 5. Deletion of penalty imposed by the AO. Detailed Analysis: 1. Taxability of Rs. 11 crores received from the sale of a trademark: The assessee received Rs. 11 crores from ITC Agro Tech Ltd. for the sale of the trademark "Rath" and a non-compete agreement. The AO treated this amount as a trading receipt and taxable, arguing that the assessee continued its Vanaspati business. The AO also considered the receipt as a capital gain taxable under section 50 of the Act, stating that the cost of acquisition being nil does not exempt it from tax. The CIT(A) upheld this view. The Tribunal, however, noted that the trademark "Rath" was a self-generated asset and not a depreciable one. It was concluded that the receipt should be treated as a capital gain, not a trading receipt. The Tribunal dismissed the ground of the assessee, stating that the transaction is chargeable to tax under capital gains. 2. Disallowance of Rs. 9,16,000/- for provision of leave encashment: The AO disallowed Rs. 9.16 lakhs for leave encashment, which was upheld by the CIT(A), stating that the certificate of actuary cannot supersede the law. The Tribunal, referencing the Supreme Court decision in Bharat Earthmovers Ltd. vs. CIT, allowed the assessee's claim, stating that if a business liability has definitely arisen, it should be allowed even if the quantification happens later. 3. Non-acceptance of capital loss of Rs. 1,16,17,56,990/- on surrender of land to DDA: The AO disallowed the capital loss claim, stating that the actual possession of the land by DDA occurred in AY 2004-05. The CIT(A) upheld this decision. The Tribunal noted that the assessee had made a similar claim in AY 2004-05, which was dismissed. The Tribunal allowed the claim for capital loss in the current AY 2001-02, directing the AO to allow the claim. 4. Typographical error in taxable capital gains figure: The assessee argued that the AO adopted the figure of taxable capital gains as Rs. 6,98,80,603/- instead of Rs. 6,90,79,603/-. The Tribunal remitted the issue back to the AO for verification and correction. 5. Deletion of penalty imposed by the AO: The AO imposed a penalty of Rs. 50,33,42,168/- for unsubstantiated claims. The CIT(A) deleted the penalty, stating that the claims were debatable and did not automatically attract penalties. The Tribunal upheld the CIT(A)'s decision, referencing the Jurisdictional High Court's decision in CIT v. Nalwa Sons Investments Ltd., which held that no penalty could be levied when tax is computed under section 115JB, as the concealment did not lead to tax evasion. Conclusion: - The Tribunal dismissed the assessee's ground on the taxability of Rs. 11 crores as a trading receipt. - The Tribunal allowed the assessee's claim for provision of leave encashment. - The Tribunal allowed the capital loss claim for the surrender of land to DDA in AY 2001-02. - The Tribunal remitted the issue of typographical error in taxable capital gains back to the AO for correction. - The Tribunal upheld the deletion of the penalty imposed by the AO.
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