TaxTMI 
TaxTMI 
2010 (12) TMI 800
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....am Spinning Mills has to be treated as capital gains and not income from other sources as decided by the A.O. 2. Briefly stated the facts are that an amount of Rs.1,35,45,000/- was paid to the assessee by M/s Sambandam Spinning Mills during the relevant period, for using assessee's name, i.e. "Sambandam" as a part of the name of the company and for/on the company's product. This is assessee is one of the promoters of the company which was incorporated during the year 1973. The Registrar of Companies approved the name of the company containing the word "Sambandam" only after obtaining assessee's no objection and other consent to use this name. From the year 1973 onwards the company is using this name. When the company was converted....
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....ssee, intangible assets include know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. Thus, according to assessee, it qualified the definition of capital asset as defined in section 2(14) of the Act. In this regard, the assessee relied on an old decision of Hon'ble Supreme Court in the case of S.C. Cambatta and Co. reported in 41 ITR 500 according to which, the payment for goodwill/patent right, etc. is a capital receipt and the profit arising so, out of it, is taxable as capital gains. The assessee also relied on the other decisions. But, the A.O. was not convinced and he taxed this receipt as income from other sources. But, in first appeal before the ld. CIT (Appeals....
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....held by the assessee's family) safely created the goodwill theory. This is clearly a colourable device as held by Apex Court in McDowell and Co. Ltd. vs. CTO (154 ITR 148). 9. The CIT (Appeals) failed to appreciate that Assessing Officer has come to correct conclusion that the transaction is an ex-gratia payment as per Apex Court observation in page 284 of Devidas Vithaldas and Co. vs. CIT (84 ITR 277) (SC). 10. The goodwill should have been evaluated by cost accountant as per jurisdictional High Court in CIT vs. K. Rathnam Nadar (71 ITR 433) as against valuation made by statutory auditors. 11. The CIT (Appeals) failed to note, that there is no transfer of asset as per 2(47) of the I.T. Act. There is no charge ....
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....ame of the company, the very same day this had been stood transferred when the consideration of Rs.1,35,45,000/- was received by the assessee. So, only capital gain has arisen which is taxable and the assessee has already offered the same to tax. We have gone through the correspondence which has been referred in the facts and are placed in the paper-book of the assessee. The correspondence between the company and the assessee as well as the requirement of no objection from the assessee from the Registrar's office to register the company's name shows that this word "Sambandam" had assumed colossal, commercial importance in the local mkt. The brand name is always treated as capital asset as defined in section 2(14) of the Act. The words used ....