TaxTMI 
TaxTMI 
2012 (3) TMI 209
X X X X Extracts X X X X
X X X X Extracts X X X X
....ort) is chargeable to capital gains tax under the provisions of the Act. 4. On 29-3-2001, the assessee-M/s.Kwality Biscuits Pvt. Ltd., executed three Deeds of Assignment assigning intellectual property rights (IPRs) being trade marks, designs and copyrights. In terms of the Deeds of Assignment, the said three IPRs were assigned to BIL for an aggregate consideration of Rs. 30 crores. In the return filed for assessment year 2001-02, no capital gains on transfer of IPRs was disclosed by the assessee on the ground that these IPRs were assessee's self-generated assets and, therefore, cost of acquisition was not determinable and therefore computation provisions of the Act relating to capital gains tax were not applicable. Thus, the assessee claimed the receipt of Rs. 30 crores as capital receipt not liable to tax under the head 'capital gains'. However, the AO assessed Rs.30 crores under the head 'long-term capital gains' (LGCG) in the assessment made under sec. 143(3) read with section 147 of the Act. In his opinion, in the course of transfer of IPRs, the assessee had transferred its right to manufacture, produce or process any article or thing. In terms of sec.55(2)(a) of the Act, '....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hat each of the amendments were made applicable prospectively and not retrospectively. In interpreting provisions of sec.55(2)(a), there is no scope for intendment because the expression used for bringing in the sweep of taxation capital assets or rights of different parties are not overlapping or synonymous. Each category of rights or each of such capital assets get included in sec.55(2)(a) are at different points of time are independent of each other and all distinct. On the other hand, Shri G.V. Gopala Rao, learned Departmental Representative submitted that the assessee transferred IPRs in the form of trade marks, designs and copyrights along with bundle of other rights including the non-compete agreement. The bundle of rights assigned by the assessee in favour of BIL include the right to manufacture produce or process the biscuits hitherto being manufactured, processed and sold by the assessee under the brand name of 'Kwality'. Thus, the IPRs transferred by the assessee had formed part and parcel of goodwill of the assessee reflected in the market. Thus, the comprehensive arrangements of transfer of these IPRs to BIL was in fact, comes under the sweep of transfer of their ri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dependent party, the assessee agreed to sell or transfer only its IPRs relating to 'Kwality' brand for a consideration of Rs. 30 crores. It is for this purpose separate assignment agreements were executed in which references were made to specific intellectual property rights i.e. trademarks, copyrights and designs. On assignment of these specific corporeal registered intellectual property rights, stamp duty as per law was also paid. Thus, assessee did not transfer any other right nor relinquished or extinguished its right to manufacture. Besides the IPRs relating to 'Kwality' brand, the assessee owned productive fixed assets, held requisite permission, registration and license for manufacture of biscuits which continued to own and hold and it is on this premise that BIL agreed to purchase entire share holding of the assessee from its existing shareholders. The arrangement between shareholders and BIL was in relation to the shares of the assessee and not in relation to assessee's biscuits business. The intention of the parties was always that the assessee would continue to own and hold all the productive fixed assets as hitherto held and the assessee would continue to manufacture bi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....owever, continued to be held and exercised by the assessee. The facts on record show that even after 29-3-2001 assessee continued to manufacture biscuits. For biscuits manufactured and marketed under brand 'Kwality', the assessee paid royalty to BIL. However, the assessee also manufactured biscuits for other biscuit marketing companies against job charges. Such income was earned in the capacity as manufacturer simplicitor and for which no royalty was paid. For earning income from manufacture of biscuits simplicitor, owing the IPRs was not a necessary condition. (ii) The learned AR of the assessee relied on the following decisions, (a) Shervani Industrial Syndicate Ltd. v. Dy. CIT [2006] 99 TTJ 123/10 SOT 27 (All.)(URO) (b) HCL Infosystems Ltd. v. Dy. CIT [2003] 81 TTJ 922 (Delhi) and (c) Associated Electronic & Electrical Industries Ltd. v. Dy. CIT (IT(SS)A No.9(Bang.) of 2009 dt.6-2-2009) for the proposition that the amendment made to section 55(2)(a), as far as 'trade mark' was concerned, it was w.e.f. 1-4-2002 only and it is not curative or retrospective. He also relied on the decision of the co-ordinate Bench (Mumbai) of the Tribunal in the case of Bombay Oil Ind....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o-ordinate Bench of Bangalore in the case of Associated Electronic & Electrical Industries Ltd. (supra) has no application to the present facts of the case as this related to assessment year 1996-97. (iv) the co-ordinate Bench (Bombay) of the Tribunal, in the case of Bombay Oil Industries Ltd (supra), has decided in a brief manner without deeply touching the issue but mainly relying on the decision of the Delhi High Court in the case of CIT v. Milk Food Ltd. [2006] 280 ITR 331/152 Taxman 50 which related to assessment year 1996-97, much before the amendments. Thus, the learned Departmental Representative pleaded that the Hon'ble JM has taken a right view. 9.1 In his rejoinder, the learned AR of the assessee submitted that: (i) In the case of Shervani Industrial Syndicate Ltd (supra), it could be seen that in paragraphs 36 to 39 of the order, the ITAT adjudicated on the issue of taxability of consideration received for transfer of IPRs on merits and hence, the decision of the Allahabad Bench was very much relevant. It is also relevant for the reason that in both the cases the IPRs transferred were identically the same. (ii) In deciding the issue o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ve to address two issues viz., (i) whether the amendment made to sec.55(2)(a) for bringing into the fold of the term 'cost of acquisition', 'trade mark' or 'brand name associated with the business' w.e.f. 1-4-2002 by the Finance Act, 2001 is curative (retrospective) or prospective, and (ii) whether the assessee, while transferring trade mark, patent and design to BIL has transferred the right to manufacture, produce or process any article or thing also. 11. Let me first take up the issue whether amendment made to sec.55(2)(a) is prospective or curative. It would be relevant to quote the provisions of sec.55 of the Act. Section 55(2)(a), as it existed on 1-4-2001 and applicable for assessment year 2001-02, was as follows: "55. Meaning of adjusted', 'cost of improvement' and 'cost of acquisition' (1)................................................. (2) For the purposes of sections 48 and 49, 'cost of acquisition', - (a) in relation to a capital asset, being goodwill of a business or a right to manufacture, produce any article or thing, tenancy rights, stage carriage permits or loom hours, - (i) in the case of acquisition of such asset by the assessee by purchase fro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....acquisition in relation to a capital asset, being goodwill of a business or a right to manufacture, produce or process any article or thing, tenancy rights, stage carriage permits or loom hours, shall be taken to be the purchase price in case the asset is purchased by the assessee from a previous owner and in any other case such cost shall be taken to be nil. It is proposed to amend clause (a) of sub-section (2) to provide that the cost of acquisition in relation to a trade mark or brand name associated with a business shall also be taken to be the purchase price in case the asset is purchased from a previous owner and nil in any other case. This amendment will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years." (emphasis supplied by me) From the above history of section 55(2)(a) and the Memorandum explaining the provisions of Finance Act, it transpires that the Finance Act 1997 brought 'goodwill of a business' or 'a right to manufacture, produce or process any article or thing, tenancy rights, stage carriage permits or loom hours' into the hold of section 55(2)(a w.e.f. 1st April 1998 (assessment....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... it may not be possible to compute capital gains arising from the transfer of such assets. 42.2 The Act has therefore amended clause (a) of sub-section (2) to provide that the cost of acquisition in relation to trade mark or brand name associated with a business shall also be taken to be the purchase price in case the asset is purchased from a previous owner and nil in any other case. 42.3 This amendment will take effect from 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-2003 and subsequent years." Hence, it cannot be interpreted to have retrospective effect. Also there is force in the contention of the learned C.A. of the assessee that the cardinal principle of interpretation of statutes that charging provisions of the Act cannot operate retrospectively but only prospectively. 12(ii) The Apex Court in the case of Guffic Chem (P.) Ltd. (supra), while dealing with the amendment made to sec. 28(va) w.e.f. 1-4-2003, held that compensation received under non-compete agreement became taxable as a capital receipt and not as a revenue receipt by specific legislature amendment vide sec.28(va) and that too w.e.f. 1st April 2003. In that ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....R 331. Therefore, for the relevant assessment year the sale receipt on account of transfer of trademark/brand name mentioned above was not liable to capital gains tax and, hence, the additional ground raised by the assessee was to be allowed." 12(vi) Reliance by the learned Departmental Representative on the decision of the Kerala High Court in the case of Vysali Chemotherapeutics (P) Ltd. (supra) has no relevance in this appeal because the case of the Hon'ble JM is not that of goodwill. The Hon'ble JM is also of the view that the capital asset transferred was 'trade mark'. 12(vii). In the CBDT circular No.14 of 2001, at para.42.1 the Board has observed as under: "42.1 Under the existing provisions ............. It was pointed out that certain similar self-generated intangible assets like brand name or a trade mark may not be considered to form part of the goodwill of a business, and consequently it may not be possible to compute capital gains arising from the transfer of such assets." By reading of the above, it would be clear that the CBDT was of the view that 'trade mark' or 'brand name' are different from 'goodwill' of a business. That is why perhaps, in para.42.2 o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....& 51 of the paper book. (c) Promoters of the assessee agreed not to carry on business competing with the biscuits business of the assessee. For accepting restricted covenant, the promoters were paid consideration of Rs. 8 crores (clause 6.1 at page 59) (d) The promoters of assessee agreed to provide certain advisory services to BIL for which separate consideration was agreed to be paid. The terms and conditions agreed in the 'Head of Agreement' were acted upon by the parties during the financial years 2000-01 and 2001-02. Simultaneously with execution of Heads of Agreement, the assessee executed three deeds of Assignments on 29-3-2001 details of which are as follows: (a) Agreement for Assignment of trademarks for consideration of Rs. 12.50 crores (pages 99 to 134 of the paper book) (b) Agreement for Assignment of designs for consideration of Rs. 1 crore (pages 135 to 142 of the paper book) (c) Agreement for Assignment of copyrights for consideration of Rs. 16.50 crores (pages 143 to 148 of the paper book). The consideration as provided in the Agreements was paid by BIL on 29-3-2001 and effective from that date the IPRs became property of BIL. The co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ified in the section or memorandum etc., while reading the mind of the Legislature. Hence, in my opinion, distinction made by the Hon'ble JM between company having manufacturing activity and company not having manufacturing activity does not hold good. Further, if that was the intention of the Legislature, as rightly pointed out by the Hon'ble VP, they need not have added trademark and brand name by the subsequent Finance Act when "right to manufacture, produce or process any article or thing' is already in the particular section. Thus it clearly transpires that right to manufacture, produce or process any article or thing is different from trademark, brand name etc. 19. The learned C.A. of the assessee submitted that prior to 29-3-2001, right to manufacture and right to market biscuits under IPRs were owned, held and exercised by the assessee. After 29-3-2001, IPRs became BIL's property. Right to manufacture, however, continued to be held and exercised by the assessee. Facts on record establish that even after 29-3-2001, assessee continued to manufacture biscuits. For biscuits manufactured and marketed under the brand name "kwality", assessee paid royalty to BIL. However, the a....