2018 (5) TMI 1175 - HC - Income Tax

Court sides with assessee in tax appeal, upholding goodwill valuation over trademark for capital gains.

The Commissioner of Income Tax- I Versus Bisleri International Pvt. Ltd.

The Commissioner of Income Tax- I Versus Bisleri International Pvt. Ltd. - TMI Issues:Assessment of capital gain tax on the transfer of goodwill, valuation of goodwill in comparison to trademark, validity of Assessing Officer's substitution of declared consideration, interpretation of agreements for transfer of assets.Analysis:The judgment pertains to the assessment of a company for the year 1994-1995 concerning the transfer of trademark, goodwill, technical knowhow, and franchise rights to another company. The primary issue was the valuation of goodwill in comparison to the trademark for the purpose of capital gain tax. The Assessing Officer questioned the lower valuation of goodwill by the assessee, leading to a dispute. The assessee contended that the goodwill had no value of acquisition and cited a Supreme Court judgment to support their position. They also argued that the declared consideration of &8377; 15.67 lakhs for the goodwill transfer should not be substituted by the Assessing Officer. However, the Assessing Officer rejected these contentions and substituted the goodwill value with a higher amount based on the mean of the total consideration received for trademark and goodwill transfers.The Commissioner of Income Tax [Appeals] reversed the Assessing Officer's decision, emphasizing that the transfer of trademark inherently included goodwill, and the separate agreement for goodwill transfer did not alter this fact. The Tribunal upheld this view, leading to an appeal by the Revenue. The substantial question of law framed by the Court focused on the correctness of the valuation of goodwill.The Court considered arguments from both sides, with the Department contending that the assessee undervalued goodwill intentionally to avoid capital gain tax. On the other hand, the assessee argued that the valuation was justified, and the Assessing Officer had no basis to substitute the declared consideration. The Court highlighted that the issue was not about the taxability of capital gain but the valuation of goodwill. It noted the lack of scientific basis for the assessee's valuation but decided not to disturb the Tribunal's view due to detailed reasoning provided by the Commissioner of Income Tax [Appeals].The Court emphasized that the Assessing Officer's simplistic method of substitution lacked justification and referenced a previous case to caution against doubting declared consideration without supporting evidence. Ultimately, the Court ruled in favor of the assessee, dismissing the Tax Appeal and upholding the Tribunal's decision.