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TMI Blog1983 (8) TMI 124X X X X Extracts X X X X X X X X Extracts X X X X ..... facture and sale of betelnut powder with ' Triveni Nut Powder ' trade mark which was held by the assessee. The assessee, who was 35 at that time was one of the partners and the other two partners were K. Pullaiah, aged 38 at that time, and M. Veeranjaneyulu, aged 40 at that time. The assessee had a 70 per cent share and each of the other partners had a share of 15 per cent. 4. On 11-9-1974, a further partnership deed was executed by which a new partner, D. Babu Rao, was admitted into the partnership. He was the son of the assessee. The deed contained the following recital : " And whereas the said parties agreed to admit a new partner Shri Desu Babu Rao on and with effect from 1-4-1974 and the first party Desu Venkata Subba Rao agreed to part with half in his 70 paise share, reserving his rights in the Triveni Trade Mark." By this partnership deed, the assessee's share was reduced to 35 per cent. Pullaiah and Veeranjaneyulu had 15 per cent share each and Babu Rao had 35 per cent share. It was mentioned that the other clauses of the deed of 12-3-1966 would have effect. 5. Yet another partnership deed came to be drawn up on 29-9-1976 by which Pullaiah retired from the firm. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the reopening of the assessment was without jurisdiction. Such a point was not agitated before the authorities below, but on merits also, we come to the conclusion that the assessee's plea cannot succeed. The trade mark did not stand exhibited in the balance sheets of the firm and the WTO could have had reason to believe that consequent to this there was omission or failure on the part of the assessee to disclose all material facts. Merely because the partnership deed mentioned that the firm was using the trade mark, it cannot be said that there was specific disclosure by the assessee. At the stage of initiation of proceedings, all that we can consider is whether there was reason to believe on the part of the WTO. The adequacy of the reasons cannot be gone into by us and we, therefore, uphold the validity of the reopening. 9. Coming to the merits, the learned counsel for the assessee submitted that the WTO had made a global valuation of the interest of the assessee in the firm. He stated that where such a global valuation was being made, the net value of assets of the business as a whole was being determined and rule 2A of the Wealth-tax Rules, 1957 (' the Rules ') provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e anywhere near the value of goodwill and the WTO had only taken the average profit and had not computed super profits for the purpose of capitalisation, and in any view of the matter, therefore, on merits also, the value to be taken for the trade mark would be very negligible even if such value had to be determined. 12. The learned departmental representative, in reply, submitted that in Circular No. 3 (WT), dated 28-9-1957 [Taxmann's Direct Taxes Circulars, Vol. 1, 1980 edn., p [1033] the Board had stated that patents were to be valued based on the profit attributable to the use of the patents and trade marks and patents stood on a similar footing and the value of trade marks on the same basis as patents would be in order. It was submitted that the circular provided that it was to be assumed that for the unexpired period of the life of the patent, income would continue to be derived as on the valuation date and the present value of the future average income was to be evaluated which was in effect what was done by the WTO in the present case. 13. We have considered the rival submissions. ' Trade Mark ' is a mark " used or proposed to be used in relation to goods for the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance sheet, reads as under : " 2C. The value of an asset not disclosed in the balance sheet shall be taken to be--- (a) in the case of a debt due to the assessee, the amount due to the assessee under that debt, and where such amount or part thereof has been allowed as a deduction under clause (vii) of sub-section (1) of section 36 of the Income-tax Act, 1961, in computing the total income of the assessee for the relevant year for the purposes of assessment under that Act, the amount of the debt as reduced by the deduction to be allowed ; (b) in the case of goodwill purchased by the assessee for a price, its market value or the price acutally paid by him, whichever is less ; (c) in the case of managing agency rights purchased by the assessee for a price, its market value or the price actually paid by him, whichever is less ; (d) in the case of any other asset, its market value on the valuation date." We are unable to agree with the learned counsel for the assessee that in the present case the trade mark will not fall within the terms of rule 2C(d) on the ground that it was not an asset which was required to be exhibited in the balance sheet. Therefore, the decision of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heet where no value is exhibited unless a price has been paid, then, certainly, for a component of goodwill also no adjustment should be made within the terms of rule 2C(b) since the component, viz., trade mark, is a part of the whole, viz., goodwill. Therefore, this is a case where no adjustment for the value of the trade mark is to be made in terms of rule 2C(b). The question whether adjustment is to be made or not for trade mark value is to be determined in terms of rule 2C(b) which is the specific provision applicable. This being the case, a trade mark would not be any other asset which would fall for evaluation under the residuary rule 2C(d). On this ground, the question of evaluating a trade mark under rule 2C(d) would not arise. 15. At this stage, it may be relevant to state that under the provisions of section 4(1)(b) of the Act where the assessee is a partner in a firm, the value of his interest in the firm is to be determined in the prescribed manner. Rule 2 provides for the valuation of interest in partnership, and the starting point is the computation of the net wealth of the firm. For the interpretation to be given to the terms of rule 2 there is the pronouncement of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing the expression ' net wealth ' in the Rules...." The Andhra Pradesh High Court, while approving the decision of the Madras High Court in CWT v. Vasantha [1973] 87 ITR 17, has no doubt dissented from the decisions of the Orissa High Court in CWT v. I. Butchi Krishna [1979] 119 ITR 8 and of the Allahabad High Court in CWT v. Padampat Singhania [1973] 90 ITR 418. Following the ratio of the decision of the Andhra Pradesh High Court, which is binding on us, it is clear that the net wealth of the firm has to be computed, and if the net wealth of the firm is to be computed in terms of the statute, all the provisions of the Act apply and section 7(2) of the Act gets attracted and the WTO has to make the computation where he has recourse to provisions of section 7(2)(a) by making only such adjustment to the balance sheet as may be prescribed and at this stage the provisions of rule 2A, which enumerates the rules which deal with adjustments, comes into play and of these, the one which is relevant is rule 2C. We have held with reference to the provisions of rule 2C that no adjustments for the value of trade mark would be permissible to the value of other assets disclosed in the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r factors which go to make up goodwill. In the view that we have taken, we consider that it would not be necessary for us to embark on a dissertation of the valuation to be made of the trade mark. Regarding the historical development of it, there are the following observations in the book by Cornish : " As modern capitalism has grown, the drive to sell products and services by means of some mark, brand or name has invaded more and more fields. Some foods and a few other staples are still frequently sold to the consumer without branding. But even these much less than formerly (sic). Before industrialisation, there were, of course, instances of traders or trader-groups who deployed marks of various kinds to distinguish their products. The hallmarks of goldsmiths and silversmiths and the marks of Sheffield cutters, are English examples which have survived as distinct systems. But the demand for general legal protection against unfair imitation of marks and names is a product of the commercial revolution that followed upon factory production and the growth of canals and railways. That demand has swelled immensely with the development of modern advertising and large scale retailing. M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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