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TMI Blog2017 (2) TMI 791X X X X Extracts X X X X X X X X Extracts X X X X ..... f assessee MAT computation on Disallowance u/s 14A - Held that:- As no addition should have been made u/s.14A for the year under consideration. Following the same, we hold that addition confirmed by the FAA for computing the book profit u/s.115JB has to be deleted. Consideration received on assignment of patent - applicability of provisions of section 55(2) - Held that:- The patent was for the purpose to have right to manufacture /produce/ process some article/thing. The patent was registered for commercial exploitation of the same in India as well as in the international market. It was transferred to the assignee for exploiting it commercially. Section 55(2)(a) talks of right to manufacture, produce or process any article or thing.Therefore, as per the amended provisions, the right to manufacture/ produce/ process would be taxable under the head capital gains and cost has to be taken at Rs. nil. In these circumstances, in our opinion the FAA has rightly invoked the provisions of Section 55 and taxed the disputed amount under the head capital gain. - Decided against the assessee. Sum received on sale of patent / know-how known as “Profofal” - capital receipt OR trading re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee stated that it had not incurred any expenditure for earning exempt income. Referring to the case of Godrej and Boyce Mfg. Ltd. of the Hon'ble Bombay High Court he made a disallowance of ₹ 1,25, 21, 298/-.The same amount was also added to the book profit while computing income u/s. 115 JB of the Act. 3.1. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA), before whom it made elaborate submissions. After considering the submission of the assessee and the assessment order he referred to the case of Daga Capital Management (P.) Ltd. (117 ITD169), Cheminvest Ltd.(124TTJ577); Walfort Shares and Stock brokers Ltd.(310ITR421) and held that the AO was not satisfied with the claim of the assessee, that AO could follow a reasonable method of apportionment of expenditure, that he had rightly applied section 14A r.w.r.8D of the Rules. 3.2. During the course of hearing before us, the Authorised Representative (AR)contended that assessee had not claimed any exempt income in the return of income, that in absence of claim of tax free income no disallowance could be made u/.s14A.He referred to the case of Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book profit of the assessee. 4.1. After considering the submission of the assessee, the FAA held that the assessee had borrowed funds in foreign currency, that in order to hedge against the exchange fluctuation it had entered into foreign currency swap agreements, that the contracts were of one year, that the loss claimed by the assessee could not be allowed for the year under consideration, that it was a notional /contingent loss, that it was allowed in the next assessment year. 4.2. Before us, the AR relied upon the case of M/s. D.Chetan Co.(Income tax Appeal No. 278 of 2014 dt.1/10/2016); Woodward Governor India Pvt. Ltd.(312ITR254); Oil and Natural Gas Corporation Ltd.(322ITR18).The DR supported the order of the FAA. 4.3. We have heard the rival submissions and considered the available material. We find that in the case of M/s. D.Chetan Co. the Hon'ble Bombay High Court had considered the following question of law: Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in deleting the addition of Mar to Market Loss of ₹ 78.10,000/- made by the Assessing Officer on account of disallowance of loss on foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... research facility in the P L account, that the claim made by it in not incurring any cost for developing the patent was not acceptable. Finally, he held that receipt from sale of patent was a revenue reciept.He added ₹ 1.50 crores to the total income of the assessee. 7.2. During the appellate proceedings, before the FAA, the assessee argued that it had an inhouse research laboratory, that over a period of time it had developed several products, that product research and development was highly uncertain matter requiring substantial research work, that it had developed several patents, that one of the products developed by it was Profofal , that in order to continue further development it assigned the know-how of Profofal for a consideration of ₹ 1.50 crores, that the patents are legal rights created to protect the know-how which was a self generated asset, that it could not be equated with a commercial asset/ inventory held for business, that know-how or patent was an Intellectual Proprietary Right (IPR), that it had personal attachment to the developers, that the know-how was unique and could not be generalised, that the appellant perceived its IPR holdings to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fruit of the labour are enjoyed by the person who tirelessly pursues a goal for years together.It is a culmination of extensive research work and logical analysis. Patent is a legal document that is granted by the Sovereign and gives an inventor exclusive right to make/use/sale an invention for a specified number of years. Previously invented items can also be subject matter of patents, provided they demonstrate significant improvement. Patent prevents all others, not only the imitators, but even the independent entrepreneurs, having the same idea but not implemented till that date, from using the invention for a specified period. It may pose serious difficulty for the competitors, but the proverbial earlybirds are always rewarded. Though a patent could affect a large number of people, patents are not freely available for all improvements. Only patentable inventions are recognised by the authorities concerned. A patentable invention must pass three basic tests namely it must be novel, it must be non-obvious and it must be useful.In other words, invention should not previously exist and it should be a significant improvement to the existing technology. Besides, patents cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods sold, and not in the article which is manufactured and sold. That article is open to the whole world to manufacture and sell; and all that the owner of the trade mark is entitled to prevent is the use of his trade mark by other traders. On the other hand, a patent right protects the substance of the article, i.e., the stock-in-trade and any unauthorised manufacture is prohibited. 7.7. Now, we would like to discuss about the patented medicine. Profofal , marketed as Diprivan among others, was discovered in 1977.It is available as a generic medication. It is on the World Health Organization's List of Essential Medicines. It is not a pain medication. It has been referred to as milk of amnesia because of the milk-like appearance of the intravenous preparation. It is a short-acting medication that results in a decreased level of consciousness and lack of memory for events. Its uses include the starting and maintenance of general anesthesia, sedation for mechanically ventilated adults and procedural sedation. It is also used for status epilepticus if other medications have not worked. Common side effects include an irregular heart rate, low blood pressure, burning sensation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y invoked the provisions of Section 55 and taxed the disputed amount under the head capital gain. 7.8. We are also of the opinion that the cases relied upon by the assessee, are of no help to it.In the case of Kwality Biscuits Pvt. Ltd. (supra), the issue before the Tribunal was different. In that case, the Tribunal has dealt with trade mark and brand name. In the earlier part of our order, we have brought out the distinction between patent and trade-mark. It is also found that in that matter the assessee continued to carry out manufacturing and trading business of biscuits. Considering those facts, it was held by the Tribunal that the assessee had not transferred right to manufacture, produce or process biscuits. Similarly, in the case of Fernhill Laboratories and Industrial Establishment(supra), the Hon ble Bombay High Court was deciding the issue of applicability of the amendments from a particular date. We hold the facts under consideration are totally different from that case. Considering the above, we decide last ground against the assessee. I.T.A./3375/Mum/2012: 8. Effective Ground of appeal raised by the AO is about treating the sum of ₹ 1.5crores, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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