1994 (8) TMI 10 - HC - Income Tax

Tribunal decision upheld: Goodwill sum not excluded for surtax, payment for capital assets.

Commissioner Of Income-Tax Versus Maschmeijer Aromatics (India) Pvt. Ltd.

Commissioner Of Income-Tax Versus Maschmeijer Aromatics (India) Pvt. Ltd. - [1995] 214 ITR 22, 127 CTR 221 Issues involved: Whether the sum of Rs. 2 lakhs standing in the balance-sheet as goodwill should be excluded from the computation of capital for the purpose of levy of surtax for the assessment years 1973-74, 1974-75, and 1975-76.Summary:The case involved a dispute regarding the treatment of Rs. 2,00,000 shown as goodwill in the balance-sheet of the assessee-company for the purpose of surtax assessment. The assessee had entered into a collaboration arrangement with a Dutch company, where the foreign company provided technical know-how, patents, trademarks, designs, etc., in exchange for shares and cash. The Commissioner of Income-tax initially considered the inclusion of Rs. 2,00,000 as capital illegal, but the Tribunal later held that it should be treated as capital. The Department sought a reference on this matter, leading to the High Court's consideration.The High Court analyzed the nature of the payment made by the assessee to the foreign collaborator, emphasizing that the amount was paid for the use of patents, trademarks, and technical know-how, which are capital assets. The Court rejected the argument that the amount should be treated as revenue expenditure, highlighting that the payment was made in exchange for a purchasable commodity and was correctly shown as goodwill in the balance-sheet. Referring to a similar case, the Court affirmed the Tribunal's decision that the amount should be considered as capital for surtax purposes.Therefore, the High Court upheld the Tribunal's view, ruling against the Department and concluding that the Rs. 2,00,000 should not be excluded from the computation of capital for surtax purposes.