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TMI Blog2010 (10) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... Nadkarni, Senior Advocate with Mr. S. Singbal, Advocate for the respondent CORAM : D.G. KARNIK F.M. REIS, JJ. JUDGMENT : (Per D.G. KARNIK, J.) 1. This appeal under Section 260A of the Income Tax Act, 1961 ( for short "the IT Act") is directed against the judgment and order dated 28th September, 2001 of the Income Tax Appellate Tribunal (for short "the Tribunal") allowing the appeal filed by the respondents assessee. (2) By an order dated June 10, 2002, this Court admitted the appeal on the following substantial question of law : "Whether on the facts and in the circumstances of the case, amount received by the Assessee is Revenue income within the meaning of section 2(24) and taxable under section 4 of the IT act 1961 ?" BASIC FACTS : (3) The respondents are family members of Menezes family who own 58.88% of equity shares (10598 shares out of 18000 shares) in the capital Colfax Laboratories India Limited (for short "Colfax"). 7200 share i.e. 40% of the equity of Colfax was held by Shulton (GB) Ltd, United Kingdom. The remaining 202 shares were held by three other individuals. Shulton (GB) Ltd., U.K., a 100% subsidiary of Shulton Inc. USA, is the registered p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also convened on 11th February, 1994 wherein the resolution regarding giving up of the business of marketing of products under the trade mark "Old Spice" was passed. The members of Menezes family voted in favour of the resolution. As agreed, PGI paid Rs.3.5 crores to the members of Menezes family. The amount was distributed amongst the members of Menezes family in the proportion agreed between them. The proportion agreed was not proportionate to the number of shares held by them in Colfax. (4) The members of Menezes family filed their return of income for the assessment year 1994-95. Notices under section 143(2) of the Income Tax Act, 1961 (for short "the I.T. Act") were issued. In the inquiry before the Assessing Officer, the respondent-assessee claimed that the amount received from PGI was in the nature of capital receipt. In the alternative the respondent claimed that it was a lucky chance payment or windfall amount and did not amount to an income within the meaning of Section 2(14) of the I.T. Act. The contention was rejected and the Assessing Officer who hold that the amount received by each members of Menezes family from PGI as an income chargeable to tax. On appeal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res held by them in Colfax and that three of the non-family members namely Shri R.A. Shah, Dr. Amishi Sawlani, and Amila R. Shah, who held 2, 100, 100 shares respectively in Colfax had not received any consideration. He also noted that three members of Menezes family namely Ms. F Ilda Menezes, Rashmi Menezes and Divya Menezes who held 450, 60 and 60 shares respectively in Colfax had not received any part of Rs.3.5 crores paid by PGI. He also noted that even earlier Colfax was manufacturing the products which were marketed under the trade name Old Spice and there was no surrender of manufacturing right. By an agreement dated 21st October, 1993, the manufacturing right was continued in Colfax for a period of 10 years. As regards the trade mark "Old Spice", CIT (Appeals) held that the trade mark did not belong to Colfax and there was no surrender of the right in the trade mark which had expired on 31st December, 1993. He further held that the fact that Colfax entered into the manufacturing arrangement/ agreement with PGI on 21st October, 1993 showed that Colfax had full knowledge that the right to use the trade mark under the agreement dated 12th July, 1967, which was renewed from tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trary to law and not sustainable. She submitted that all the authorities below have concurrently recorded a finding of fact that the marketing agreement which entitled Colfax to use the trade mark "Old Spice" had come to an end on 31st December, 1993. Initially, Colfax had both rights -right to manufacture the products and the right to market the products under the trade name Old Spice. By an agreement dated 21st October, 1993 the right to manufacture products was protected and in fact it was extended for a period of 10 years, and PGI also agreed to purchase on principal to principal basis the products manufactured by Colfax. The right of marketing the products under the brand name Old Spice had come to an end on 31st December, 1993. The resolution dated 11th February, 1995 only was a recognition of the fact that the marketing right had already come to an end. The resolution, by itself, did not take away any marketing right of Colfax. Therefore, by passing a resolution dated 11th February, 1994 Colfax did not lose any right and there was no erosion or sterilization of the profit making apparatus by reasons of the resolution dated 11th February, 1994. Consequently, the payment recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y during the assessment year. A part of the plant and machinery owned by the assessee was affected in those fire accidents. The plant and machinery was covered by fire insurance. The assessee received a sum of Rs.13,12,772/-as compensation for the loss occurred on accent of the two fire accidents. The assessee carried out repairs to the machinery damaged in fire at fraction of the cost/money received from the insurance company and claimed that the balance amount of Rs.7,83,207/-left with it after incurring the expenditure on repairs of the machinery as capital receipt. The Income Tax Officer regarded the sum of Rs.7,83,207/-as having merely gone to reduce the cost of the capital assets of the company and reduced the written down value of the plant and machinery. The Appellate Assistant Commissioner held that the surplus in the hands of the assessee was not the capital receipt and was liable to tax. The Tribunal held that the amount received by the assessee was to compensate it for the loss or damage to its stock in trade and the fixed assets. The compensation received was not a revenue receipt and hence not liable to tax. The High Court held that the question whether a receipt was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the trade mark Old Spice had come to an end on 31st December, 1993. Therefore, the money that was received was not by way of diminution in the value of the equity shares of Colfax arising out of giving up of the marketing rights. Furthermore, if the money was received on account of diminution in value of the equity shares of Colfax, the money would have been distributed proportionately between the shareholders in proportion of the shares held by them. As noted earlier, the payment was not made proportionate to the shares held. Some shareholders were not paid any amount whatsoever; even for the members who were paid the money it was not paid proportionately. Some shareholders got a larger cake while few others got smaller amounts. The contention of the respondent that the money was received by way of diminution of the value of the shares has therefore to be rejected. Alternative submission of the respondent. (11) Learned Counsel for the respondents, however, submitted that it was the case of the respondents all along and in the alternative that the amount received was a lucky chance payment and paid to the members of Menezes family for voting in favour of the resolution a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al years of time. A possibility of a litigation between Colfax and PGI regarding the future use of brand Old Spice could not be ruled out. PGI wanted to buy peace and to avoid any litigation as that could have harmed the brand itself. Any injunction from any Court operating even for a period of time howsoever small would have discontinued the usage of that brand and could have harmed the brand itself. Marketing experts believe that the consumer memory is short and people easily change the brand loyalty especially if it is not available on demand. If a particular product is not available even for a short time and the consumer buys similar product of another brand and the possibility of such consumer shifting to the alternative brand at the time of next purchase cannot be ruled out. Therefore, PGI must be wanting to avoid litigation and any interruption in the use of Old Spice brand. It did not even want to wait for creating its own manufacturing facilities and that is why it entered into a manufacturing agreement with Colfax for a period of 10 years. In order to avoid any possibility of litigation and any interruption in the use of the brand, it desired to have a resolution to be pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of casual receipt in the nature of windfall not amounting to an income. (14) In the case of Dr. K. George Thomas vs. Commissioner of Income-tax, Ernakulam, AIR 1986 SC 98 cited by the learned Counsel for the respondents Menezes family, it is observed in para 17 as follows : "17. From all these decisions, two facts emerge. The burden is on the revenue to establish that the receipt is of a revenue character. Once receipt is found to be of a revenue character whether it comes under exemption or not, it is for the assessee to establish. Facts must be found by the Tribunal and the High Court must proceed on the basis of the facts found by the Tribunal. The High Court cannot afresh go to the facts overruling the facts found by the Tribunal unless there is a question to that effect challenging the facts found by the Tribunal. These propositions are well-settled and in this case in the decision of the High Court, these principles, in our opinion, have not been breached." In this case it has been held that the burden of proving that a receipt is of revenue character initially rests on the revenue. The revenue was required to initially establish that the amount of Rs.3.5 crores ..... X X X X Extracts X X X X X X X X Extracts X X X X
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