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TMI Blog1982 (5) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... filed on 10-2-1976 disclosing dividend income on 21,000 equity shares held by it in an Indian company by the name Albright Morarji & Pandit Ltd. During the course of proceedings for the assessment year 1972-73, the ITO came to learn that the assessee-company has sold its technical know-how relating to its designs, drawings, specifications. etc., and also certain patents to the Indian company under an agreement dated 10-2-1966 and that in consideration thereof the Indian company had allotted 21,000 equity shares of Rs. 50 each out of its initial issue of shares to the assessee free of cost during the financial year ending on 31-3-1967. 2. The ITO felt that the aforesaid amount of Rs. 10,50,000 being the face value of the shares representing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India. 3. The Commissioner (Appeals) has observed that even though the first ground of appeal was against the ITO's action in initiating proceedings under section 147(a), Mr. Pawari had fairly not made any submissions as it was manifest that if there was any income liable to charge and there being no return filed by the assessee, the ITO's action would be eminently proper. On merits, it was contended that what was transferred by the assessee was nothing but a self-generated asset and, therefore, as held by the Bombay High Court in CIT v. Home Industries & Co. [1977] 107 ITR 609 the surplus, if any, would not be taxable. Reliance was also placed in this behalf on the Madras High Court's decision in the case of CIT v. K. Rathnam Nadar [1969 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for the assessee, submitted that this ground goes to the very root of the assessment and that even though not specifically pressed, it would be open to the assessee to urge the ground before us. On merits, Shri Dastur invited our attention to the reasons recorded by the ITO which do not indicate that the ITO was aware of the transfer of two Indian patents. Referring then to the Board's Circular No. 21 [F. No. 7A/40/68-IT(A-II)], dated 9-7-1969 [see Taxmann's Direct Taxes Circulars, Vol. 1, 1980 edn., p. 231], Shri Dastur submitted that the mere fact that the assessee was allotted 21,000 equity shares of Rs. 50 each of the Indian company in consideration of its know-how, etc., would not provide a reason to believe that income had escaped ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1981] 130 ITR 1 is distinguishable. Accordingly, we uphold the ITO's action in initiating the proceedings under section 147(a). 6. On merits, Shri Dastur stated that there was no material difference between the sale of know-how as such and the know-how patented. According to him, 'patent' is not a positive right ; it is a negative right, viz., once the know-how is patented others would perhaps be not able to exploit it in a given territory. That is how what holds good of the knowhow should hold good for the patents. On the other hand, Shri Krishnan, the departmental representative, submitted that even though theoretically Shri Dastur might be right, technically once a know-how is patented, it becomes tangible commodity and does not remai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p but once the gold is converted into an ornament what is sold is the ornament and not the gold and workmanship separately. 8. Next contention raised on behalf of the assessee has been that it is almost impossible to determine the cost of the patent. However, the learned counsel fairly admitted that the non-resident assessee-company was maintaining a huge research and development department and that the know-how including patented ones are the results of the research conducted in that department. He contended that it was almost impossible to determine the cost of any know-how patented or not patented in the nature of things. In support, Shri Dastur placed reliance on the Supreme Court's decision in the case of CIT v. B.C. Srinivasa Setty [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost nothing to the assessee and a capital asset which has admittedly cost something but it is difficult to ascertain its cost with some definiteness. While the transfer of the capital asset, the cost of which is nil, will not attract liability to capital gains as held by a number of High Courts decisions and the Supreme Court's decision in the case of B.C. Srinivasa Setty, we do not think that it would be so in the case of transfer of a capital asset falling in the latter category. Since the two Indian patents transferred by the assessee in this case fall in the latter category, we hold that the transfer thereof attracts liability to capital gains. 10. Now we come to the departmental appeal. The departmental representative invited our at ..... X X X X Extracts X X X X X X X X Extracts X X X X
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