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TMI Blog2013 (9) TMI 1241X X X X Extracts X X X X X X X X Extracts X X X X ..... llaneous Application No. 67/PN/2012 dated 12.10.2012 recalled the order of the Tribunal dated 03.04.2012 to the limited extent of hearing and adjudicating afresh the Ground of Appeal No. 2 contained in the Memo of Appeal, which reads as under :- "2. The learned Commissioner of Income Tax (Appeals) II erred in disallowing expenditure of ₹ 72,38,533/- on LTGC." In the aforesaid background, the rival contentions have been heard. 3. Briefly put the relevant facts are as follows. The appellant is a partnership firm primarily engaged in Research and Development activities in the field of balanced plant nutrition. The assessee firm had registered trademarks, logos, copyrights in its own name in respect of various products, charts evolved by it over a period of 40 years. During the year under consideration, assessee sold certain intangible assets, in the form of 'trademarks' for a consideration of ₹ 1,51,00,000/-. The assessee received net consideration of ₹ 1,45,19,231/- after deducting the VAT of ₹ 5,80,769/- and it computed Long Term Capital Gain (LTCG) of ₹ 72,80,698/- after considering the cost of acquisition at ₹ 72,38,533 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apital gain, in the present case fail as a 'trademark' does not have any cost of improvement, being a self-generated asset and in the absence of any such cost of improvement being prescribed in Section 55(1)(b) of the Act, the computation provisions fail in the light of the judgment of the Hon'ble Supreme Court in the case of B.C. Srinivasa Setty (supra) read alongwith the parity of reasoning laid down by the Hon'ble Bombay High Court in the case of Evans Fraser & Co. Ltd. (supra) and hence there is no liability on the assessee to pay capital gain on the sale of trademarks. 5. On the other hand, the plea raised by the learned Departmental Representative is to the effect that the 'cost of acquisition' as well as the 'cost of improvement' is liable to be taken as 'Nil' in terms of Sections 55(2)(a)(ii) and 55(2)(a)(ii) of the Act respectively and therefore, the capital gain is liable to tax. 6. We have carefully considered the rival submissions. The controversy in the present case relates to Chapter - IV of the Act dealing with 'Computation of Income From Capital Gains'. Section 45 of the Act is a charging section and Sub-section (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of being available on the expenditure of money to a person seeking to acquire it. As per the Hon'ble Supreme Court, none of the provisions pertaining to the head "Capital gains" suggest that they include an asset in the acquisition of which no cost at all can be conceived and that when goodwill generated in a business was sold and the consideration was brought to tax, what was being charged to tax was the capital value of the asset and not any profit or gain on its transfer. As per the Hon'ble Supreme Court, in the case of 'goodwill' generated in a new business it was not possible to determine the date when it came in existence whereas the date of acquisition of the asset was a material factor in applying the computation provisions pertaining to capital gains. Under these circumstances, it was held that the transfer of goodwill initially generated in a business does not give rise to a capital gain because the computation provisions cannot be applied in the absence of cost of acquisition and the date when it came to existence. 7. In terms of the judgment of the Hon'ble Supreme Court in the case of B.C. Srinivasa Setty (supra), a premise that can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore us, the 'trademark' under transfer has been developed by the assessee on its own and has not been acquired from any third party therefore by operation of Section 55(2)(a)(ii) of the Act the 'cost of acquisition' for the purposes of Section 48 of the Act is deemed to be taken as 'Nil'. Since the statutory provisions provide for 'cost of acquisition' to be 'Nil' in case of a 'trademark', the computation provisions do not fail on the basis of the above plea of the assessee. 9. So, however, the next point sought to be made out by the assessee is that in clause (ii) of Section 48 of the Act not only is the cost of acquisition of the asset mentioned but it also contemplates an asset which has the 'cost of any improvement' thereto. In other words, according to the assessee in the present case the computation provisions failed in so far as what is contemplated by clause (ii) of Section 48 is not only an asset in the acquisition of which it is possible to envisage a cost but also an asset that it capable of improvement upon incurrence of cost also. Since according to the assessee, the asset under transfer i.e. trademark is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of acquisition at Nil for the purposes of Section 48 of the Act, it should also be understood to mean that 'cost of any improvement' of such asset for the purposes of Section 48 is also to be taken as Nil. In our considered opinion, a conjoint reading of Section 55(2)(a) and Section 55(1)(b) of the Act, which ascribe the meaning of 'cost of acquisition' and 'cost of any improvement' respectively for the purposes of Section 48, belies the plea of the Revenue. Clearly Section 55(2)(a) of the Act prescribes cost of acquisition of a trademark for the purposes of Section 48 at Nil, whereas no such prescription is contained in Section 55(1)(b) of the Act defining the 'cost of any improvement' of a trademark for the purposes of Section 48 of the Act. Therefore, the plea of the assessee to the effect that a self-generated trademark is not capable of improvement at an ascertainable cost in terms of money and 'cost of any improvement' thereto has not been defined for purposes of Section 48 in Section 55(1)(b) of the Act, is well founded. 12. The nest question is as to whether in the present case where the transfer of trademark is not capable of impro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of acquisition' and 'cost of any improvement' for the purposes of Section 48, the decision of the Hon'ble Bombay High Court would not be applicable as of now in case of a transfer of goodwill. So, however, in case of other tangible assets, which are not capable of improvement by investing of money, its transfer would continue to be governed by the parity of reasoning laid down in the case of Evans Fraser & Co. Ltd. (supra), so long as such an asset has not been ascribed 'cost of any improvement' by the legislature in terms of Section 55(1)(b) of the Act. In the case before us, the asset under transfer is self-generated trademarks and it is not in dispute between the parties that the same is not capable of improvement at an ascertainable cost in terms of money and therefore in the absence of any possibility to determine the 'cost of any improvement' referred to in Section 48(ii) of the Act, the computation of capital gains fail and accordingly it is outside the scope and ambit of the charge envisaged under Section 45(1) of the Act. 13. In view of the aforesaid discussion, we therefore, conclude by holding that there was no capital gain exigible to ..... 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