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TMI Blog2015 (12) TMI 1470X X X X Extracts X X X X X X X X Extracts X X X X ..... business cannot be construed as a goodwill of a business, as already held, these are two distinct separate intangible assets, both cannot be intermixed. We have perused the relevant clauses of the settlement deed entered into between the parties extracted supra, which clearly indicates, the assignment made by the assessee company to M/s Sharp Corporation, is only transfer of trademarks and the goodwill associated with the trade marks. It cannot be misconstrued to that of goodwill of a business. It is observed in the judgment of the ITAT, "it is common ground before us that the assessee did not sell its entire business undertaking to Sharp Corporation". This admitted fact itself proves that the assessee has transferred only the trade marks and not the goodwill of a business. Even assuming the goodwill related to the trade mark is transferred, it cannot be construed as the goodwill of a business. If the arguments of the revenue that the transfer of trade mark itself is goodwill of a business is accepted, then there was no necessity for the Legislature to amend Section 55(2)(a) of the Act inserting the words "trade mark" or "brand name" associated with the business by Finance Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not the goodwill of the business. This order is impugned in this appeal raising the following substantial questions of law: Whether the Appellate Authorities were correct in holding that a sum of ₹ 3,99,75,400/- paid by Sharp Corporation, Japan to the assessee for transfer of the right to use the trade mark SHARP which consisted of both goodwill as well as the right to use associated with 14 items out of 21 items did not attract capital gains tax without taking into account the agreement and assignment deed in the proper prospective and consequently recorded a perverse finding by holding that the same cannot be brought to tax both in the Block Assessment as well as regular assessment? 3. Learned Counsel Sri. K.V. Aravind, appearing for the Revenue, would contend that section 48 of the Act would contemplate mode of computation for the income chargeable under the head 'capital gains'. The same is computed by deducting from the full value of consideration: [a] cost incurred in connection with transfer of the capital asset [b] cost of acquisition of the asset and cost of improvement. The meaning of 'cost of acquisition' is provided unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the title of or use by the Assignee hereto. 6. Learned Counsel places reliance on the following Judgments, to contend that goodwill of the business is also transferred along with trademark from the assessee to M/s. Sharp Corporation and as such, the income of 'capital gains' is assessable to levy of tax under the Act. [a] 'S.C. CAMBATTA CO., [P] LTD., v. COMMISSIONER OF INCOME TAX' [(1961) 41 ITR 500 [SC]] [b] 'GUZDAR KAJORA COAL MINES LTD., v. COMMISSIONER OF INCOME TAX' [(1972) 85 ITR 0599] 7. Per contra, learned Counsel appearing for the Assessee - Respondent, would contend that there is a clear distinction between goodwill of a business and a trademark. What is transferred in the present case is only the trademark and not the goodwill of a business. It is contended that the Assessee is continuing its business and manufacturing the six products as a licence holder. This would be suffice to hold that the Assessee has transferred only the trademark 'SHARP' to M/s. Sharp Corporation, which is clearly placed on record by the Tribunal in its Judgment. According to the learned Counsel, profit is Sine qua non to the goodwill. Thus, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 4,5 and 12 of this agreement The draft of the license agreement will be submitted by SC to AEEI by July 15, 1995 and will be finalized by July 30.1995. 3. PAYMENTS a) SC agrees to remit from Japan to AEEI ₹ 35.000,000 (Rupees Thirty five Million) in an account to the designated by AEEI for the assignment of registered trademarks, pending trademark and copyright applications, common law rights and goodwill and copyrights as contemplated in Article 2(i),(ii) and (iii) and for the covenant and undertaking from AEEI to cease the use of SHARP trade mark in respect of goods under registered trademarks and all other goods (Some of which are presently being manufactured by AEEI and others are not being manufactured by AEEI for diverse business and other reasons) except in accordance with the license form SC as hereinafter provided AEII also assures SC the absolute unfettered and free use of the trade mark SHARP in India and for the purpose guarantees to extend all cooperation. 4(a) SC agrees and undertakes to grant a Non-assignable, non-transferable royaltyfree and sole license (excepting licenses granted or that may be granted to SC's wholly owned subsidiaries) to A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Capital gains shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto; 13. Section 55[2] of the Act reads thus: 55. Meaning of 'adjusted', 'cost of improvement' and 'cost of acquisition' (1) xxx xxx xxx (2) For the purposes of sections 48 and 49, cost of acquisition - (a) in relation to a capital asset, being goodwill of a business [or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carriage permits or loom hours,- (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price; and (ii) in any other case [not being a case falling under sub-clauses(i) to (iv) of sub-section(1) of section 49, shall be taken to be nil; 14. A reading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee therein by Deed of Conveyance executed by the liquidators of Guzdar Kajora Colliery Co., Ltd., all the colliery lands, hereditaments and premises, mines, minerals, powers and privileges and all other hereditaments together with the machinery thereon belonging to the latter company. It is held that even if it is not expressly mentioned that goodwill has been sold, it can be shown and ascertained by evidence whether the same has been purchased or not by the Assessee. 18. In the case of R.C.COOPER vs UNION OF INDIA (AIR 1970 SC 564), the Apex Court has held that goodwill of a business is an intangible asset representing the whole advantage of reputation and connection formed with the customers together with the circumstances making the connection durable. 19. In Corpus Juris Secondum, it has been observed that goodwill has no existence except in connection with the continuing business. 20. In the case reported in IRC vs MULLER CO.'S MARGARINE LTD. (1901 AC 217) Lord Machnaghten has observed thus: What is goodwill? It is a thing very easy to describe, very difficult to define. It is the benefit and advantage of the good name, reputation, and connection of a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Guzdar Kajora Coal Mines case (supra) enunciates that the goodwill of a business depends upon the variety of circumstances or a combination of them, locality, service, standing of the business, honesty of the person/persons who are engaged in competition/lack of competition, such factors contribute to the goodwill of a business. The different clauses of the settlement deed entered into between the parties, wherein the draft of the assignment deed relied on by the revenue is a part of the settlement deed enumerates that the assessee company has not lost its right to manufacture the products to which licence is granted by M/s Sharp Corporation, Japan. Thus, the business activity of the assessee is continued. The assessee company still subsists. It is engaged in the manufacturing activity of certain products thus, continuing its business. Running company with its business as a whole is not transferred to M/s. Sharp Corporation. The clauses of assignment deed relied on by the revenue refers to 'goodwill relating to trade marks' which is different from 'goodwill of a business'. 25. The locality, competency/expertise, service remains the same so far as the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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