AI Drafter 
TaxTMI 
TaxTMI 
2015 (12) TMI 1470
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....he common law rights and goodwill accompanying it. In respect of Block Assessment 1988-89 to 1998-99, the entire amount of Rs. 3,99,75,400/- was brought to tax on substantive basis under the head 'capital gains'. The Assessing Officer brought to tax the entire amount of Rs. 3,99,75,400/- holding that under the Settlement Agreement, the registered trademark 'SHARP' along with its goodwill and all other benefits accompanying it came to be transferred in favour of M/s. Sharp Corporation, Japan. The Appellate Commissioner confirmed the additions made under the head 'capital gains' in the hands of the Assessee in Block Assessment though the same was deleted in regular assessments. On further appeal before the Tribunal by the Assessee, the Tribunal proceeded to hold that in the case of transfer of good will, the cost of acquisition attributed to 'capital gains' could be taken at Rs. 'Nil'. So far as trade mark is concerned, it is liable to tax under section 55(2)(a) of the Act with effect from 01.04.2002. It is held, what was transferred by the Assessee-Company to M/s. Sharp Corporation, Japan, was only the trademark and not the goodwill of the bus....
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....ee is entitled to manufacture 6 products out of 21 products relating to which trademarks and goodwill were transferred for a consideration of Rs. 3,99,75,400/-. 5. Learned counsel has placed reliance on the clauses of the Deed of Assignment and the relevant clauses are excerpted hereunder: 3. The Assignee is desirous of acquiring the said trade marks along with the goodwill and the said copyrights and the Assignor has agreed to assign unto the Assignee the said trade marks together with the goodwill of the Assignor's business in the goods to which the said trade marks relate and the said copyrights. Now this deed witnesseth as follows: 2(c) The goodwill of the business relating to the goods in respect of which the said trade marks have been used. 3(i) The Assignor will not hereinafter use the said trademarks either as a trademark or as part of its business or corporate name in any manner whatsoever or, do any other thing, as may lead to the infringement of said trademarks or passing off except under a valid licence from the Assignee nor will the Assignor hereinafter challenge the validity of the trademarks or copyrights or the title of or ....
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....trade mark registrations for the said mark for some products. c) Certain disputes and differences had arisen between the parties hereto leading to a multiplicity of proceedings in various courts and tribunals in India as set out in Annexure 'A' (the 'proceedings'). 2.(ii) AEEI represents and confirms to SC that Annexure B hereto is a complete list of all of its registrations of and in regard to the trade mark SHARP of copyrights and of all pending Trade Mark and copy rights applications and of trade marks similar to or resembling or in association with the mark SHARP. (iii) ASSIGN AEEI's common law rights and goodwill relating to and in trade mark SHARP and other trade marks similar to the trade mark Sharp in favour of SC as set out in the said draft Deed of Assignment. [iv] a) AEEI discontinues the use of the trade mark SHARP or any similar mark other than and strictly in accordance with the license agreement. The "License agreement" referred to in this Agreement is the license agreement to be signed by SC in favour of AEEI for the goods identified in Annexure "C" hereto, interalia, containing the terms provided in Articles 4....
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....parties, has rightly come to the conclusion that the 'capital gains' income is only towards the transfer of trademarks associated with the product 'SHARP' and not to the business of the assessee as a whole. The transfer of trademark is liable to tax only from 1.4.2002 and not to the relevant assessment year in question. Accordingly, he seeks for dismissal of the appeal filed by the Revenue. 10. We have heard Sri. K.V. Aravind, learned Counsel appearing for the Revenue as well as Sri. A. Shankar, learned Counsel appearing for the Assessee and perused the material on record. 11. Section 45 of the Act is the charging section for 'capital gains'. Section 45[1] of the Act reads as under: "45. Capital Gains: (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F, 54G and 54H be chargeable to income-tax under the head "Capital gains" and shall be deemed to be the income of the previous year in which the transfer took place." 12. Section 48 of the Act reads thus: "48. Mode of Computation The income....
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....y if the capital asset transferred was the 'goodwill of the business' of the company. 16. The expression 'goodwill' has been considered and explained by the Apex Court in 'S.C. CAMBATTA & CO., [P] LTD.,'s case [supra], wherein their Lordships having considered the Judgments of various Courts, have held as under: "6. It will thus be seen that the goodwill of a business depends upon a variety of circumstances or a combination of them. The location, the service, the standing of the business, the honesty of those who run it, and the lack of competition and many other factors go individually or together to make up the goodwill, though many other factors go individually or together to make up the goodwill, though locality always plays a considerable part. Shift the locality, and the goodwill may be lost. At the same time, locality is not everything. The power to attract custom depends on one or more of the other factors as well. In the case of a theatre or restaurant, what is catered, how the service is run and what the competition is, contribute also to the goodwill." 17. The Hon'ble Apex Court in GUZDAR KAJORA COAL MINES LTD.,'s case [supr....
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....à-vis the provision of Trade and Merchandise Marks Act, 1958 makes it clear that the 'trade mark' and 'goodwill' are two distinct separate concepts. Section 55(2)(b) of the Act prior to the amendment provided for the levy of tax on capital gains in relation to a capital asset, being goodwill of a business. Insertion of the words, "registered trade marks or brand name associated with the business" by the Finance Act, 2001 depicts the intention of the Legislature to levy tax in relation to capital asset, being a trade mark or brand name associated with the business, which was not exigible to tax during the relevant assessment year. 23. It can be ascertained from the terms of the settlement deed that the assessee company being a company dealing with products under the brand name "sharp" situated in Bengaluru has assigned/transferred the trade mark "sharp" to an international company, M/s Sharp Corporation, Japan for a consideration. This transaction very well fits into the latter part of Section 55(2)(a) of the Act i.e., relating to trade mark or brand name associated with the business leviable to tax with effect from 01.04.2002. 24. Goodwill of a business....