Trade mark assignment with associated goodwill is distinct from business goodwill; prospective tax amendment did not apply.

Transfer of a trade mark with associated goodwill was treated as distinct from transfer of the goodwill of the business as a whole, so capital gains on goodwill did not arise where the assessee continued the business and retained a limited manufacturing licence. The court also noted that the insertion of trade mark or brand name into section 55(2)(a) of the Income-tax Act operated only prospectively from 1 April 2002, so it did not apply to the relevant assessment year. The Revenue's contention failed and the transaction was confined to the assigned trade mark and its associated goodwill.

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Issues: Whether the transfer of the trade mark and associated rights under the settlement and assignment documents amounted to transfer of the goodwill of the business so as to attract capital gains tax for the relevant assessment year, and whether the amendment inserting trade mark or brand name within section 55(2)(a) of the Income-tax Act, 1961 applied to the transaction.

Analysis: Capital gains arise on transfer of a capital asset, and the computation mechanism under section 48 depends upon the cost of acquisition. For goodwill of a business, the statute treated the cost of acquisition as nil, whereas the insertion of trade mark or brand name associated with a business into section 55(2)(a) was brought in only with effect from 1 April 2002. The documentary terms showed that the assessee continued its business and retained a limited licence to manufacture certain goods, while only the trade mark and the goodwill associated with that trade mark were assigned. The goodwill of a business and the goodwill attached to a trade mark are distinct concepts. The transaction did not amount to transfer of the entire business undertaking or of the goodwill of the business as a whole.

Conclusion: The transfer was held to be only of the trade mark and the goodwill associated with that trade mark, not of the goodwill of the business, and the amended provision did not apply to the relevant assessment year. The substantial question of law was answered against the Revenue and in favour of the assessee.

Ratio Decidendi: A transfer of a trade mark with associated goodwill does not, by itself, constitute transfer of the goodwill of a business for capital gains purposes unless the business as a going concern is transferred; the 2001 amendment bringing trade marks or brand names within section 55(2)(a) operates only prospectively from 1 April 2002.

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