9911796707
TMI Blog2024 (9) TMI 423X X X X Extracts X X X X X X X X Extracts X X X X ..... f registration of trademark and other relevant costs during the course of business. It can be termed as a capital asset and as far as the trademark as a capital asset, the assessee also made a submission before the AO agreeing that it is a capital asset as defined under section 2(14) of the Act. Since it is the capital asset, the transfer of such capital asset will come under the head capital gains. Since the cost of registration of the trademark is already claimed as an expenditure it can only be a short term capital asset chargeable to tax as short term capital gain. Therefore, the present transaction of transfer of trademark to ITC is a capital asset chargeable to tax under the head capital gain. Revenue authorities treated the same as business receipt by linking above transaction with non-compete clause mentioned in the agreement. In our considered view, any transaction with intellectual property like trademark, the non-compete clause is automatic and part of the any agreement entered with parties. Therefore, what is relevant is transfer of intellectual assets not consequential clause mentioned in the agreement. Therefore, present transfer is chargeable to tax under the head ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvocate For the Revenue : Shri Subhra Jyoti Chakraborty, CIT DR ORDER PER S. RIFAUR RAHMAN, AM: The assessee has filed appeal against the order of the Learned Commissioner of Income Tax (Appeals)-XI, New Delhi [ Ld. CIT(A) , for short] dated 30.10.2009 for the Assessment Year 2001-02 by raising following grounds of appeal :- 1. That on facts and in law the CIT(A) erred in upholding that the sum of Rs. 11 crores (received by the assessee on account of sale of Trade Mark) was liable to tax. 1.1 That on facts the CIT(A) erred in observing that the consideration of Rs 11 crores was received by the assessee a account of a decline in the turnover of Vanaspati business. 2. That on facts and in law the CIT(A) erred in upholding the disallowance of Rs. 9,16,000/- being the Provision made for Leave Encashment. 2.1 That on facts and in law the CIT(A) erred in relying upon the amendment made in section 43B(f) inserted by Finance Act 2001 w.e.f. 01st April 2002. 3. That on facts and in law the CIT(A) erred in not accepting the capital loss of Rs. 1,16,17,56,990/- suffered on surrender of land to DDA in the year of account. 4. That on facts and in law the CIT(A) erred in not adjudicating upon gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is an admitted fact that assessee was also deriving income from business of Vanaspati as a result of sale of trademark Rath, Vanaspati business did not stop. In fact from November 1996, the assessee was getting the Vanaspati manufactured from third parties and is still getting it manufactured. They did not get out of the business of manufacturing Vanaspati. He observed that assessee also stated in their submission that the sale of their product fell down after the transfer of the trademark and consideration of Rs. 11 crores was received from the decline in the sale indicates that what was received is a consideration in lieu thereof. He further observed that the assessee was in the business of manufacturing and sale of Vanaspati still continued to do the business, consideration received with respect to the commodity is a trading receipt and hence taxable. 6. Further, the AO observed that the receipt on account of transfer of trademark was a capital receipt was also considered. As per the provisions of section 32, any intangible assets including trademark is entitled for depreciation. Further, under the provisions of section 50 of the Act, any receipt on account of depreciabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... But when the agreement with the ITC was entered in May 2000 the outsourcing was stopped. He also brought to our notice various submissions made before ld. CIT (A). He also brought to our notice page 94 of the paper book which is deed of assignment as per which assessee has transferred the trademark Rath to ITC. He also brought to our notice the main agreement of sale and purchase agreement with SIEL and ITC Agro. He brought to our notice that SIEL is the owner of the intellectual property and it had agreed to sell and assign intellectual property assets along with the goodwill to ITC and he also brought to our notice various clauses of this agreement and relevant compensation for transfer of the trademark Rath. He also brought to our notice the relevant clause of non-compete. He also brought to our notice page 90 of the paper book in which ownership of the intellectual property was disclosed in the abovesaid agreement as per which a brand was owned exclusively by SIEL. With regard to turnover of Vanasapti, the Bench directed the ld. AR for the assessee to submit break-up of sales and service revenue of Vanaspati during the year and details of trademark owned by the assessee, in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale indicates that what was received is a consideration in lieu thereof' is factually incorrect. (e) We reiterate that Rs 11 crores is a consideration for transfer of tradename Rath which is a Capital Asset as per provisions of section 2(14) of the Income Tax Act. Without Prejudice, even if it is construed that sum of Rs 11 crore (or part thereof ) was received on account of non-compete covenant under the agreement then too it is capital receipt not liable to tax. Apex Court in case of Gufic Chem (P) Ltd 332 ITR 602(SC) has held that where compensation is received for loss of agency then it is taxable as revenue received, however, receipts attributable to negative covenants for not to carry on a business is capital receipt not liable to tax. In Rohit Chand reported in 306 ITR 242(Oel) it is held that receipt of non-compete fee may not alter the structure of assessee s activity ... but it certainly impairs the carrying on of his activity. To that extent it is a loss of a source of income .... Kindly also refer ITAT order dated 31-01-2024 in case of 'A' for AY 1997-98 in ITA No. 2659/Del/2004 - relevant at paras 13 to 18. (2) What are the Trademarks of 122.40 lakh at pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demark are distinct. (iv) Further again in case of Kwality Biscuits (P) Ltd reported in 135 ITO 35 (Bang) (TM) at para para 12 (vii) and 12(viii) the Hon'ble Third Member has held that tradename is different from goodwill It is now well settled law that prior to A Y 2002-03 consideration received for sale of trade name is not taxable. Refer: (a) Modern Home Care Products (supra) / (b) Kwality Biscuits (P) Ltd (supra) @ paras 11 and 13 {amendment made in section 55(2)(a) is not retrospective} (c) Institute of Micronutrient Technology reported in 43 taxmann.com 426(Pune) @ para 12 10. On the other hand, ld. DR for the Revenue supported the findings of the lower authorities and submitted that business of manufacturing and selling of Vanaspati was not stopped by the assessee. Since the assessee has continued to sell the Vanaspati it is their revenue receipt for the business and he submitted that in the similar issue under consideration, ITAT, Ahmedabad Bench in the case of ACIT vs. India Gelatine Chemicals Ltd. (2011) 12 taxmann.com 475 (Ahmedabad-ITAT) held that whether to become a revenue or capital receipt, the distinction is whether the assessee s source of income continues to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd there, therefore, as per the facts on record, trade name was the asset of the company without being capitalized in the balance sheet and relevant expenditures were already written off by the assessee in the regular course of business. We are not in a position to agree with the assessee that the assessee has not incurred any cost on registration of the trade name Rath . No doubt, its value has increased over the years, which is closely linked to the turnover of the assessee company over the period. Therefore, it cannot be claimed that no expenditure incurred to register the brand and it is factual matter that the goodwill and trademark are two different concepts. Before us, it was claimed that it is a self-generated non-depreciable asset, the assessee has relied on the decision of B.C. Srinivasa Setty (supra). However, facts on record are distinguishable to the facts of the above case. 13. As discussed in the above paragraph, assessee has already claimed the cost of registration of trademark and other relevant costs during the course of business. It can be termed as a capital asset and as far as the trademark as a capital asset, the assessee also made a submission before the AO a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if the future date on which the liability shall have to be discharged is not certain. 20. Respectfully following the above decision, ground raised by the assessee is allowed. 21. With regard to ground no.3, the relevant facts are, the assessee has surrendered the land as per the decision of Hon ble Supreme Court to DDA of Rs. 116,17,56,990/- and the same was claimed by the assessee as capital loss. However, the AO has disallowed the abovesaid claim. The issue under consideration is that the assessee has surrendered the land based on the order of Hon ble Supreme Court and, same was elaborately discussed at page 8 of the assessment order and the DDA has actually acquired the possession in AY 2004- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -96 {fact relevant to AY 1997 -98} - reported in (1996) 4 see 750, the Hon'ble Supreme Court directed that 168 industries listed in the order (which included the SFFI unit of the 'A') shall stop functioning and operating in the city of Delhi w.e.f., 30-11-1996. It was also directed that the closure order w.e.f., 30-11-1996 shall be unconditional and that even if the relocation of industries is not complete they shall stop functioning in Delhi w.e.f., November 30. 1996. Later an application (IA No.129) was filed by Mr. M. C. Mehta and the main prayer of the petitioner was that the order of the Hon'ble Supreme Court dated 10th May, 1996 should be ordered to be implemented. The grievance of the petitioner was that though the industries have been closed, a large number of them had not surrendered the excess land to the DDA. After hearing the parties, the Hon'ble Court vide order dated 28-4-2000 {fact relevant to AY 2001-02} - reported in (2009) 17 see 541, directed that within one month all the industries which were required to surrender the land in terms of the Court's order dated 10th May, 1996 should voluntarily surrender the same to the Delhi Development Aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ble Supreme Court observed that the contention about the compensation was not raised either because Perhaps they were happy to have an increase FAR which would have enabled them to construct more and would have offset and loss of land without payment of money . The contention of the assessee, therefore, that the surrender was without consideration, is not relevant in view of the , above observation of the Supreme Court. The loss, if there is any, on account of surrender is offset by the use of the land which remains in the possession of the assessee. The following observation of the Supreme Court is relevant: In view of the huge increase of price of land in Delhi, the reuse of the vacant land is bound to bring lots of money which can meet the cost of reallocation. In view of this, therefore, assessee's claim is not permissible first on account of the fact that the loss if any did not relate to the assessment year in question as the Supreme Court has already passed the order in 1996, secondly, the consideration is received in terms of the reuse of the land to enable the assessee to construct for FAR. CIT(A) in quantum proceedings (refer page 6, para 2.12 of CIT(A) in ITA 451 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f penalty under Section 271(1)(c) in A. Y.2001-02. In my order dated 18.03.2013, I had cancelled the order of levy of penalty both on the legality of the issue and on the facts of the case. In my considered view, I had held that since the appellant had unconditionally ejected itself permanently which was the only condition precedent in the surrender in terms of the order of the Supreme Court and had conveyed to the DDA within one month of the Supreme Court's order for taking possession of the said land, keeping in view the binding nature of the Hon'ble Supreme Court's order, the appellant had transferred the rights in the land to the DDA on 25.05.2000, relating to A. Y.2001-02. In view of the above, I hold that the appellant could not have claimed the loss on the same transfer of land in the current A. Y. as well. Accordingly, the Long Term Capital Loss of land transferred to DDA is held to be not allowable in the current year as the transfer of land had taken place in F. Y. 2000-01 and not in the Financial Year 2003-04 relating to the current Assessment Year. 25. Further, ld. AR for the assessee submitted that the coordinate Bench had not allowed the claim of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct and it amounts to concealment, penalty is levied 100% of the tax sought to be evaded to the extent of Rs. 50,33,42,168/-. 31. Aggrieved with the above order, assessee filed an appeal before the ld. CIT (A). Ld. CIT (A) considered the detailed submission of the assessee and decided the issue in favour of the assessee by deleting the penalty levied. 32. Aggrieved, Revenue is in appeal before us by raising following ground of appeal :- On the facts and the circumstances of the case and in law, the Ld. CIT (Appeals) has erred in cancelling the order of penalty u/s 271(1) of the I.T. Act. 33. At the time of hearing, ld. DR for the Revenue brought to our notice relevant facts on record and submitted that the issue under consideration is already in appeal before the Bench and the issue under consideration is already dismissed by the ld. CIT (A) in quantum appeal, therefore, he relied on the penalty imposed by the AO. 34. On the other hand, ld. AR for the assessee brought to our notice findings of the ld. CIT (A) and relied on the order of ld. CIT (A). 35. Considered the rival submissions and material placed on record. We observed that the assessee has claimed receipt from transfer of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such total income is compared with the prescribed percentage of the book profits computed under section 115JB of the Act. The higher of the two amounts is regarded as total income and tax is payable with reference to such total income. If the tax payable under the normal provisions is higher, such amount is the total income of the assessee, otherwise, book profits are deemed as the total income of the appellant in terms of section 115JB of the Act. In the present case, the income computed as per the normal procedure was less than the income determined by the legal fiction, namely, book profits under section 115JB of the Act. On the basis of normal provision, the income was assessed in the negative, i.e., at a loss of Rs. 36,95,21,018. On the other hand, assessment under section 115JB of the Act resulted in calculation of profits at Rs. 4,01,63,180. In view thereof, in conclusion, the assessment order records as follows: Assessed at Rs. 4,01,63,180 under section 115JB, being higher of two. Interest under sections 2348 and 234C has been charged as per the provisions of the Income-tax Act, 1961. Penalty proceedings under section 271(1)(c) of the Income-tax Act, 1961 have been initia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uly covered by the decision of the Jurisdictional High Court in the case of (IT v. Nalwa Sons Investments Ltd. (Supra), no penalty could be levied u/s 271(1)(c) on these grounds. 6.3 Without prejudice to the above, the penalty levied on the three claims which were denied by the Ld. AO (and upheld by the CIT (Appeal)) also cannot be sustained on the merit of the case. The Ld. AO could not substantiate the nature of default in respect of the above claims as to whether there was concealment or filing of inaccurate particulars of income. In respect of claim for sale of trade mark for a consideration of Rs. 11 crores the company had specifically made disclosure in the Accounts as well as in the return of income. The AO had made the disallowance in the order making certain wrong observations. Since full facts were duly explained, and keeping in view the decision (IT v. B.C. Srinivasa Setty, 128 ITR 294 (SC) the claim could not have been disallowed being a receipt on transfer of a capital asset, being the non-compete fee which was specifically brought to taxation by the Finance Act 2002 prospectively w.e.f 1.4.2003 whereby clause (va) to Section 28 was inserted penalty u/s 271(1)(c) could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been levied. The fact of the matter is that the Appellant did not get any benefit in disclosing the loss in the current year and it was informed that its claim in A.Y. 2004-05 on this issue would have been even more beneficial to the Appellant and therefore, it cannot be said that claim was made in A.Y. 2001-(92 with any malafide intention keeping in view the decision in the case of CIT v. Reliance Petroproducts Pvt. ltd r 322 ITR 158 (SC)) and CIT v. Brahmaputra Consortium ltd., ITA No. 1582/2011. Regarding the third issue in respect of the claim in respect of provision for leave encashment, prior to amendment in Section 438 the same was duly allowable in the year under appeal as per the law applicable to the year since the provision was made on actuarial basis. Necessary disclosure in respect of accounting policy was there in Final Accounts. The Appellant's case is squarely covered in the decision of the Hon'ble Supreme Court in the cases of Bharat Earth Movers v. CIT 245 ITR 428 (SC) and CIT Vs. Shyam Tex International limited, 148-DTR [Del.] 19. Keeping in view the above, even on merit of the additions sustained by the CIT (Appeal), there was no case for levy of pena ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
