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TMI Blog2024 (10) TMI 980X X X X Extracts X X X X X X X X Extracts X X X X ..... mark, the intellectual property whereas Business is the reputation. As brought to notice that the Goodwill Valuation Report also reveals that the valuation was of the goodwill of Remfry Sagar as a going concern and it was not the value of a trade mark, Remfry Sagar - the valuation took into account is the long standing of the Firm, the professional manner in which the Firm was run and handled its clients and the probability of their returning to the Firm. It is clear that valuation was for an intangible property but being different from the Intellectual Property( Trade Mark). The perusal of the documents makes it patently clear that the appellant company has not simply lent the name Remfry Sagar to the partnership firm of the legal practitioners/Consultants but it also maintained complete hold on the conduct of business to ensure the Goodwill therein associated with name Remfry Sagar . It stands established that Dr. Vidya Sagar being 76 years age without any Lawyer as his legal heir, in the first place separated the Goodwill of 173 years old practice and profession from his proprietorship Firm and institutionalized the same by way of gift. The said Goodwill of the practice and pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice recipient in the form of specific support. The essence of 'business support service' is to outsource a specified work to another person in lieu of compensation. On the contrary, 'manpower recruitment or supply agency' service is limited to supply of manpower that too by Manpower Supply Agency to another - in the instant case, the Appellant is completely responsible to the Law Firm for all bad quality of work delivered using Appellant's employees and Appellant's equipment. Top of that appellant is not a Man Power Supply Agency. Hence the order under challenge has wrongly confirmed the demand of Service Tax under Manpower supply service. Invocation of extended period of limitation - HELD THAT:- There is no denial to the fact that the appellant was regularly paying tax vis- -vis the taxable activity of providing business support service and was filing the regular returns. Even Nil returns were being filed vis- -vis the license fee and other income received. This acknowledgement is sufficient to hold that there is no act of suppression, as alleged, has been committed by the appellant - extended period has wrongly been invoked while issuing the SCN. Hence it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2001 was entered into by the appellant-assessee company with the law for License to the use of Goodwill . The clause of this agreement as referred by the department is: In consideration of R S Consultants permitting the said Legal Practitioners and the said Partnership to use the name Remfry Sagar in the carrying on of the Continued Practice and in connection therewith, the said Legal Practitioners and the said Partnership shall pay to R S Consultants a sum calculated at the rate of 25% of the amount of bills raised by the said Partnership during the currency of this Agreement. The payment shall be made on monthly basis within fifteen days of the end of each month in respect of bills raised during the previous month. 3. It was further informed that subsequent to this transfer, a law firm consisting of lawyers including Dr. Vidya Sagar himself continued carrying on the practice and the profession under the name and style of Remfry Sagar . The law firm has till date been paying royalty for use of the goodwill of the name Remfry Sagar and it is this income which is being booked by them under the head license fees. Copies of gift deed dated 01.06.2001 and agreement dated 05.06.2001 bet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.AABCR7466PST001 for providing services under the category of Business Support Services . It is submitted that Show Notice is presumptive when it says that Dr. Vidya Sagar transferred the Goodwill of Name. Ld. Counsel impressed upon that Dr. Vidya Sagar had Purchased the Firm of Sir Henry Remfry existing and practicing IPR since 1897. He institutionalized said practice of more than 150 years as none of his children were legal practitioners by gifting the said business of continued practice with the name thereof to the appellant company. The assessee- appellant is thus the owner of the goodwill of business and all rights associated with the name Remfry Sagar . It is submitted that decision based on such presumptive SCN is liable to be set aside. Ld counsel further elaborated the events as follows:- 8. The impugned Company was established during the year 1827 under the name of Grant Remfry by a British immigrant, Mr. Henry Oliver Remfry. The firm has been a reputed Intellectual Property (IP) law firm practicing with professional recognition all over the world. For over one hundred and eighty years, the Firm has been engaged in providing counsel, support and other professional serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luation report reveals that the valuation was of the goodwill of Remfry Sagar as a going concern and it was not the value of a trade mark, Remfry Sagar . Ld. Counsel impressed upon that the valuation took into account the long standing of the Firm, the professional manner in which the Firm was run and handled its clients and the probability of their returning to the Firm. As the owners of the goodwill in the name Remfry Sagar and the underlying professional practice of the firm, R S-C agreed to provide the right to use of goodwill of the firm through the license agreement dated 05.06.2001 to a partnership of attorneys comprising Dr. Vidya Sagar himself as senior-most Consultant along with Mr. R. Sampath Kumar, Mr. Ashwin Julka, Mr. Ramit Nagpal and Mr. Prem Sewak as other partners. As part of the multitude of rights associated with the goodwill in Remfry Sagar , the clientele and files in respect of the practice were also taken over by the said firm. An appropriate mechanism of checks and balances was installed by R S.C so as to ensure that the highest order of professional standards were achieved and sustained during the subsistence of the agreement. 12. Ld. Counsel for appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l further mentioned that license of use of goodwill to the continued practice is otherwise not a service transaction. The transaction herein is purely a license and not a service. For this reason also the demand has wrongly been confirmed. Service Tax is otherwise a tax on service and cannot be a tax on the Licenser. Decision of Hon ble Supreme Court in the case of All India Federation of Tax Practitioners and others vs. Union of India and others reported as (2007)7 SCC 527 (S.C.). It is further submitted that the license to use goodwill, in alternative, may be construed to be a transfer of right to use goods. Such a transfer in terms of Article 366 (29A), (d) of Constitution of India does not attract service tax, transaction being a transaction of deemed sale. 15. Ld. Counsel has also submitted that a demand of Rs.35,06,868/- alongwith the interest and penalty for the period of 16.06.2005 to 30.04.2006 has been confirmed under the taxable category of Manpower Recruitment or Supply Agency Service . The appellant had provided the secretarial accounting and other Supporting Services to the Law Firm and thus has classified the activity as Business Support Services (BSS) taxable w.e.f. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the definition of Intellectual Property and transfer against license fee thereof shall amount to rendering Intellectual Property Right (IPR) Services for the purpose of service tax statute. Further submitted That the fact that goodwill is a 'capital asset' is recognized under Income Tax Act 1961. 19. Ld. DR has relied upon the case law as follows:- 1. M/s. Cyber India Online Ltd. vs. Asst. Commissioner of Income Tax, Circle 3 (1) in IT Appeal No.1299/Del./2010. 2. Pr. Commissioner of Income Tax-1 vs. M/s. Eltek SGS Pvt. Ltd. in ITA No.475-476/2022 in order dated 01.08.2023. 3. Ramdev Food Products Pvt. Ltd. vs. Arvinbhai Rambhai Patel Ors [2006 (8) TMI 528-S.C.] 4. Laxmikant v. Patel Versus Chetanbhat Shah Anr. [2001(12) TMI 839 S.C.] 5. Uniply Industries Ltd. v. Unicorn Plywood (P) Ltd. [2001 (5) TMI 975- S.C.] 6. East End Hosiery Mills Private Ltd. vs. Agarwal Textiles Mills [1970 (8) TMI 99- Calcutta High Court] 20. Reliance is also placed on the decision of Hon ble Supreme Court in the case of Commissioner of Income tax vs. Smifs Securities Ltd in Civil Appeal No.5961/2012 dated 22.08.2012 wherein it has been held that goodwill is an intangible asset eligible for de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen 76 Years age) transferred the Goodwill of his 173 years old practice profession of attorneys-at-law by executing a Gift Deed dated 01.06.2001 in favour of the appellant Company where his non-lawyer children are shareholders. (vi) The Appellant company entered into a license agreement dated 05.06.2001 permitting the legal practitioners use of Goodwill in practice established by Remfry Sagar . We observe that the agreement is in between appellant company as first party with 5 legal practitioners including Dr. Vidya Sagar, the donor, also. (vii) Additionally Appellant made two more agreements to allow the said legal practitioners with IP Support Service India Pvt. Ltd. (IPSS), a Law Firm, to use infrastructure, personnel and systems of the appellant. (viii) Partnership law firm formed exclusively to continue the practice of Remfry Sagar . 24. From these apparent and admitted facts we observe that the name composition of impugned legal business kept changing. However, based on these facts only, the department has alleged that the transfer of Goodwill by appellant company to the firm of legal practitioners is the transfer of Trade Mark which amounts to rendering of Intellectual Prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lectual property whereas Business is the reputation. As brought to notice that the Goodwill Valuation Report also reveals that the valuation was of the goodwill of Remfry Sagar as a going concern and it was not the value of a trade mark, Remfry Sagar . In view thereof, we hold that what that the valuation took into account is the long standing of the Firm, the professional manner in which the Firm was run and handled its clients and the probability of their returning to the Firm. It is clear that valuation was for an intangible property but being different from the Intellectual Property( Trade Mark). 27. The above quoted admitted facts also reveal that Name and composition of the impugned business / legal profession kept changing since 1887 till the year 1990.The Gift Deed also clarifies that Dr. Vidya Sagar was in practice and the profession of attorneys-at-law under the-frame and to be style of Remfry Sagar and thus was the owner of the goodwill of the business of the Firm including the name. Said goodwill was gifted to the assessee company vide deed of gift dated 01.07.2001. By virtue of this gift deed, the assessee company M/s. Remfry Sagar Consultants Pvt. Ltd. ( R S Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mously nominate a Senior Partner from amongst themselves and review the powers to be exercised by him. Should such remaining Partners fail to achieve unanimity either with respect to the nomination of a Senior Partner and/or with respect to the powers to be exercised by him, the decision of R S Consultants shall prevail and the remaining Partners shall respect such decision . (iv) The Law Firm is obligated to work in every possible manner to enhance the value of the Goodwill while maintaining its characteristics, reputation and ethical standards of the Continued Practice. (v) Any augmentation to the Goodwill by virtue of operation of this Agreement or otherwise will accrue to the Appellant and not to the Law Firm. (vi) The Law Firm in the normal course of carrying on the Continued Practice shall not enter into any bond or obligation or cause or suffer to be done anything whereby the Goodwill or the Continued Practice may be exposed to jeopardy. (vii) Termination of License Agreement will result in termination of practice of the Law Firm and terms of partnership shall dissolve upon expiry of License Agreement and/or other agreements with R S. Even after the termination of this Agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of business to ensure the Goodwill therein associated with name Remfry Sagar . This observation stands further corroborated from the fact that: a). The agreement clearly stipulated that the License Agreement, the Deed of Partnership, the Agreement for use of infrastructure and the Agreement for Support Services as executed simultaneously were all an integral part. b). Vide Partnership dated 5th June 2001 between Dr V. Sagar and four other partner it was agreed to carry on the practice and profession of Attorney-at-Law with the specialization in the area of IPR and Corporate Law with the object of carrying on, without break and in continuity, the practice, hither to carried on by Dr V. Sagar. Thus, what is licensed by R S is goodwill and associated rights to practice, and not the trademark or any other similar intangible property. c). By gifting the goodwill to the Appellant, Dr. Vidya Sagar ensured continuity of the practice. By just transferring the name, the practice would not have been transferred . Accordingly, only by transferring the goodwill of the practice, the right to continue the practice can get transferred. Had it been the transfer of name, it would not have been me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same License Agreement dated 05.06.2000, for permitting the use of Goodwill was under consideration before the Income Tax Appellate Tribunal also in the case of the Law Firm praying for allowing the license fee paid therein as business expense to the Law Firm. The Income Tax Tribunal, after analysing the gift deed, license agreement and other corroborating documents held as follows: Dr V. Sagar arranged his affairs by way of gift deed and subsequent license agreement in such a way to entrust the goodwill earned by him over the years to his non-lawyer children. The documentation shows that this is a very well thought out strategy by Dr V. Sagar to retain his hard earned as well as purchased goodwill and to use it for his future generations, irrespective of the fact whether they were in the practice of law or not. 35. After the factual analysis, as above, we proceed to look into the statutory provisions. Section 65(55a) defines Intellectual Property Right to mean any right to intangible property, namely, trademarks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright As per section 65(55b) intellectual p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the continuity of the undertaking being preserved in the shape of the right to use the old name and otherwise. It is something more than a mere chance of probability of old customers maintaining their connection, though this is a material part of the practical fruits. 'Goodwill' may be the whole advantage belonging to the firm, its reputation as also connection thereof. It, thus, means that every affirmative advantage as contrasted with negative advantage that has been acquired in carrying on the business whether connected with the premises of business or its name or styles everything connected with or carrying the benefit of the business. (i) Goodwill on the other hand is an intangible asset developed over a period of time, due to distinct reputation gained on account of several factor, like, quality of service, connection with clients/customer etc, together with the circumstances which make the connection durable; In Halsbury's Laws of England (Fourth Edition) Volume 35 at page 114, Goodwill is defined in the following terms: 201. Goodwill generally; right to use name; sale to a partner. The goodwill of the business carried on by a partnership forms part of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his is a material part of a practice fruit. Thus, Goodwill is a whole advantage belonging to the firm, its reputation and connected material thereof. The Hon ble court clarified that there exists no law in India which either recognises or protects Goodwill as an intellectual property right in India. The department was alleged to have extended the meaning of any other similar intangible property in section 65(55b) of Finance Act, 1994 to include Goodwill also by erroneous interpretation. 41. Also Section 37 of Trade and Merchandise Marks Act, 1958 provides for assign ability and transmissibility of registered Trade Marks as under; Notwithstanding anything in any other law to the contrary, a registered Trade Mark shall subject to the provisions of this chapter, be assignable and transmissible, whether with or without the goodwill of the business concerned and in respect either of all the goods in respect of which the trade mark is registered or of only some of those. A joint reading of the judgements above vis- -vis the provision of Trade and Merchandise Act, 1958 makes it clear that irrespective the Goodwill is also an intangible asset but Goodwill and Trade Mark are two separate an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court after making a reference to the decisions reported as IRC v. Muller and Co. s Margarine Ltd. [1901] AC 217 (HL); Rustom Cavasjee Cooper v. Union of India [ 1970] 40 CC 325; CIT v. B.C. Srinivasa Setty MANU/SC.0285/1981 ; [1981] 128 ITR 294 (SC); Hon ble Supreme Court culled out the following principles: (i) The goodwill of a business is an intangible asset. It is the advantage or reputation and location found with the customer. It is that component of the total value of the undertaking which is attributable to the ability of the concern to earn profits over a course of years because of its reputation, location and other features. (ii) The goodwill is comprised of a variety of elements. The location, the service, the standing of the business, the honesty of those who run it are some of the factors which contribute to the goodwill of the business, (iii) The goodwill is acquired during the course of a number of years of business. It is founded on the belief and faith of the customer. It rarely springs from the very inception of the firm. (iv) Under the Estate Duty Act each and every right which passes on death has to be valued on the assumption that there is a willing purchaser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er person in lieu of compensation. On the contrary, 'manpower recruitment or supply agency' service is limited to supply of manpower that too by Manpower Supply Agency to another. The distinctive nature can be established through the fact that under 'business support services' a particular work, assignment or project is outsourced to be handled by another person, whereas, under 'manpower supply' executives or personnel are supplied by one person to another. 45. In the present case, the Appellant has been engaged by the Law Firm to provide specialized services in the fields of secretarial, accounting and other similar support areas by use of its own manpower, equipment and its expertise. The Appellant is privy to the transaction and is responsible for the effective outcome from the assigned work. In the arrangement of 'manpower supply', the service provider generally cannot be held responsible for the quality of work. But in the instant case, the Appellant is completely responsible to the Law Firm for all bad quality of work delivered using Appellant's employees and Appellant's equipment. Top of that appellant is not a Man Power Supply Agency. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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