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TMI Blog2025 (2) TMI 443X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals), National Faceless Appeal Centre (hereinafter referred to as the learned CIT(A)] under section 250 of the Income-tax Act, 1961 (hereinafter referred to as the 'Act), on the following grounds. each of which are without prejudice to one another. On the facts and in the circumstances of the case and in law the learned CIT(A) has: General 1. erred in confirming the assessed income of INR 24,27,74,650 as determined by the Assessing Officer without providing sufficient opportunity: Treating gains on sale of trademarks as 'Short Term Capital Gains' instead of 'Long Term Capital Gains 2. erred in upholding the action of the learned AO of treating the gains on sale of trademarks viz. Coldarin' and 'Raricap as Short Term Capital Gains by invoking the provisions of section 50 of the Act as against Long Term Capital Gains claimed by the Appellant; 3. ought to have appreciated that provision of section 50 of the Act cannot be invoked in the present case since the said trademarks did not form part of the block of intangible assets and therefore, the Appellant has never claimed depreciation thereon; 4. without prejudice to the above, should the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. During the assessment proceedings, upon perusal of the profit and loss account and computation of income, it was observed that during the relevant previous year, the assessee sold two trademarks "Coldarin" and "Raricap". The gains accrued on the transfer of both these capital assets gave rise to income chargeable to tax under the head "Capital Gains". Accordingly, the assessee offered an income under the head "Capital Gains" amounting to INR 3,28,00,000 and INR 20,99,39,058 on the sale of trademarks "Coldarin" and "Raricap", respectively, as long-term capital gains. Accordingly, during the assessment proceedings, the assessee was asked to furnish the sale agreement of "Coldarin" and "Raricap" along with the justification for offering this income as long-term capital gains and not as short-term capital gains. In response, the assessee submitted that "Coldarin" trademark was acquired on 16/03/1998 and "Raricap" was acquired on 29/07/1992. Thus, it was submitted that the provisions of section 32(1)(ii) of the Act do not apply to the aforementioned trademarks as the assessee acquired the same before 01/04/1998, i.e. before the provision in respect of depreciation on intangible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (USA) vide purchase agreement dated 16/03/1998 for a total consideration of INR 9,84,61,701. As per the accounting policy, the cost of the trademark "Coldarin" was claimed in the profit and loss account over a period of 7 years in equal instalments. However, for tax purposes, the cost so charged to the profit and loss account as instalments was disallowed every year and added back to the taxable income by the assessee. Further, the deduction was claimed under section 35AB of the Act in six equal instalments from the assessment year 1998-99 to the assessment year 2003-04. There is no dispute among the parties regarding the aforesaid basic facts. 9. As per the Revenue, since the cost incurred by the assessee for the acquisition of both trademarks was amortised by the assessee, the allowance granted to absorb such expenditure is depreciation, and the nomenclature used by the assessee does not change the real character of the allowance. Accordingly, as per the Revenue, the capital gains accrued to the assessee from the transfer of both trademarks squarely fall within the ambit of the provisions of section 50 of the Act and thus are taxable as short-term capital gains. On the contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the beginning of the previous year, as increased by the actual cost of any asset falling within that block of assets, acquired by the assessee during the previous year and the income received or accruing as a result of such transfer or transfers shall be deemed to be the capital gains arising from the transfer of short-term capital assets." 11. Therefore, the provisions of section 50 of the Act provide for the procedure for computation of capital gains in case of transfer of capital asset which forms part of the block of assets and in respect of which depreciation has been allowed under the Act. The said intent of this provision is also clear from the "Heading" of the section, which is reproduced as follows: - "Special provision for computation of capital gains in case of depreciable assets." 12. Therefore, for the applicability of the provisions of section 50 of the Act, the following conditions are required to be fulfilled: - (a) There must be a capital asset; (b) The capital asset must form part of the block of assets; and (c) Depreciation in respect of the said block of assets has been allowed under this Act. 13. Insofar as the first requirement for the applicabilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purposes of the business or profession, the following deductions shall be allowed" 16. In this regard, it is also pertinent to note the following extracts of the Memorandum explaining the provisions of the Finance (No. 2) Bill, 1998, which read as follows: - "Depreciation to be allowed on intangible assets Under the existing provisions, depreciation is allowable when building, plant, machinery or furniture is used by the assessee for the purposes of his business or profession. It is proposed to widen the scope of this section so as to provide that depreciation will also be allowed where intangible assets are owned wholly or partly by the assessee and are used by such assessee for the purposes of his business or profession. Intangible assets, such as know-how, patent rights, copyrights, trade marks, licences, franchises or any other business or commercial rights of the assessee will form a separate block of assets. As and when any capital expenditure is incurred by an assessee on acquiring such intangible assets the amount of such expenditure will be added to the block of intangible assets and depreciation will be claimed on the written down value at the end of the financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame percentage of depreciation is prescribed;" 19. Thus, it is evident that prior to the amendment by the Finance (No. 2) Act, 1998, neither the depreciation nor the block of assets included within its ambit the intangible assets. Further, as noted in the foregoing paragraph, such intangible assets, for the purpose of depreciation, are also required to be acquired on or after 01/04/1998. However, undisputedly, in the present case, both trademarks, i.e. "Coldarin" and "Raricap", were acquired by the assessee vide purchaser agreements prior to 01/04/1998. Further, in the year of acquisition of the aforesaid trademarks, i.e. the financial year 1992-93 and 1997-98, there was no provision in the Act which mandated the inclusion of the intangible assets in the block of assets. Consequently, no question arises for allowance of depreciation on the block of assets, which includes intangible assets in the present case. Therefore, the other two conditions for the applicability of the provisions of section 50 of the Act are not satisfied in the present case. Thus, in view of the facts and circumstances of the present case and legal position as noted above, we are of the considered view sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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