TaxTMI 
TaxTMI 
2016 (1) TMI 982
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....submissions the ld. AR of the assessee has confined his submissions in respect of following grounds only: 1. The learned CIT(A) erred in holding that the capital gains of Rs. 1 Cr. was chargeable to tax in the hands of the appellant. 1A. He failed to appreciate that the appellant had assigned his rights in specified trade marks to M/s. Thakur V. S. Bidi Works by an Agreement and the amendment to section 55(2) for binging the trade marks in capital gain tax net was brought on stature w.e.f. 2002-03 and hence, for the year in question the capital gains in this case were not chargeable to tax. 1B. He was not justified in holding that the appellant had transferred the rights to manufacture bidids and hence, in view of the provisions of section 55(2), capital gains was chargeable to tax. 1C. He failed to appreciate that the ratio of S.C. in the case of B.C. Shriniwas Shetty 128 ITR 294 was squarely applicable to the facts of the case. The other grounds raised in the appeals by the assessee were not pressed. 3. The Revenue has raised following grounds in its appeal: 1) On the facts and In the circumstances of the case and in Law, the CIT(A) erred in not upholding the deci....
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....ls of this present case are totally different. 5) The order of the CIT(A) may be vacated and that of the Assessing Officer be restored. 6) The appellant craves leave to add, amend, alter or delete any of (he above grounds of appeal during the course of appellate proceedings. 4. The basic issue involved in the present set of appeals is taxability of Rs. 1 crore received by the assessee on transfer of trade mark to M/s. Thakur V.S. Bidi Works. The assessee has claimed the said amount as capital receipt exempt from tax by placing reliance on the decision of Hon'ble Supreme Court of India in the case of CIT Vs. B. C. Srinivasa Setty, 128 ITR 294 (SC). On the other hand the Assessing Officer has held the amount received by the assessee on transfer of trade mark as business income taxable u/s. 28(iv) of the Act. Aggrieved by the assessment order dated 31-03-2003, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) vide impugned order has held that the amount received by the assessee on transfer of trade mark is capital receipt taxable u/s. 45 r.w.s. 55(2) of the Act. The Commissioner of Income Tax (Appeal....
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....preme Court of India in the case of CIT Vs. B. C. Srinivasa Setty (supra). It is this amount of Rs. 1 crore received by the assessee in pursuance to the assignment agreement dated 02-10-1997 which is the subject matter of dispute in the present appeal. 6. The stand of the assessee is that the trade mark that has been assigned by the assessee is a self generated asset for which cost cannot be ascertained. Thus, in view of the ratio laid down in the case of CIT Vs. B. C. Srinivasa Setty (supra), the consideration received by the assessee on assignment and transfer of its rights in trademark of the specified brand of the bidis as well as the specified areas is not taxable. During scrutiny assessment proceedings, the Assessing Officer rejected the contentions of the assessee and held that the said receipts are taxable as business income u/s. 28(iv) of the Act. The Assessing Officer rejected the contentions of the assessee for the following reasons: * The assessee had acquired the alleged brand name in a consent order from the Company Law Board (CLB). The CLB is not a platform for deciding the rights of the shareholders. Thus, the brand names were never owned by the assessee and henc....
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....rd to taxability of Rs. 1 crore u/s. 28(iv) of the Act. The Commissioner of Income Tax (Appeals) held that the amount received by the assessee on assignment of trade mark and brand names is a capital receipt. The Commissioner of Income Tax (Appeals) held that the ratio laid down in the case of CIT Vs. B. C. Srinivasa Setty (supra) will not apply in the present case. The Commissioner of Income Tax (Appeals) observed that both the assessee and Shri Vijay S. Thakur, Proprietor of M/s. Thakur V. S. Bidi Works were holding similar rights to manufacture specified brands of bidis to be sold in the specified areas of Rajasthan State in accordance with the Memorandum of family arrangement dated 17-08-1997. The assessee was not engaged in the manufacturing and selling of specified brand of bidis in the specified area that has come to its share. In the agreement between the assessee and M/s. Thakur V. S. Bidi Works dated 02-10-1997, what has been transferred to the assignee is not new rights but only a guarantee that the assessee would not compete with the assignee. There was no restriction on the assignee in the family arrangement regarding the quantity of bidis to be manufactured in the spe....
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...., Shri G.B. Thakur and his legal heirs (hereinafter referred to as GBT group) and Shri K.B. Savadekar and his legal heirs (hereinafter referred to as KBS group). Before the Company Law Board the matter was amicably settled between the parties by family arrangement which was reduced to writing on 17-08-1997. According to the family settlement, the trademark was divided territory wise between the warring factions. Consequently, SRT group received exclusive ownership of the trademark/brands for certain districts of Rajasthan. Thereafter, SRT group entered into a family arrangement between themselves on 18-08-1997, wherein the assessee and the Shri V.S. Thakur jointly got 1/3rd area falling in the share of SRT Group comprising in the districts of Udaipur, Jaisalmer and Jodhpur. Thus, the assessee and Shri V.S. Thakur were permitted to use trademarks/brands in the three district of Rajasthan i.e. Udaipur, Jaisalmer and Jodhpur. 11.1 The ld. AR further submitted that the Assessing Officer has erred in coming to the conclusion that the income arising from assignment and transfer of rights in trademarks/brands is a business income. The Assessing Officer has erred in holding that the asses....
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....g the applicability of amended provisions of section 55(2)(a) when the words of 'trademark' or 'brand name' were inserted has been adjudicated in various cases. The Hon'ble Bombay High Court in the case of CIT Vs. Fernhill Laboratories & Industrial Establishment reported as 76 DTR (Bom) 398 has held that the amendment provisions of section 55(2)(a) are effective from assessment year 2002-03 onwards. Prior to amendment of section 55(2)(a) w.e.f. 1st April, 2002, sale of self generated trade mark was not liable to capital gains tax. Similar view has been taken by the Mumbai Bench of Tribunal in the case of Bombay Oil Industries Ltd. Vs. Dy. CIT reported as 28 SOT 383 (Mum.) and the Bangalore Bench of the Tribunal in the case of Kwality Biscuits (P.) Ltd. Vs. ACIT reported as 135 ITD 35 (Bangalore) (TM). The ld. AR submitted that the case of the assessee is squarely covered by the decision of Hon'ble Supreme Court of India in the case of CIT Vs. B. C. Srinivasa Setty (supra) and therefore, transfer of trademarks/brands will not be subject to income tax under the head 'capital gains'. 11.3 The ld. AR stated at the Bar that except for ground no. 1 including ground nos. 1A, 1B a....
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....e. From the grounds of appeal and the submissions made two issues emerge for adjudication before us: i. Whether the amount of Rs. 1 crore received by the assessee for transfer of trademark to M/s. Thakur V.S. Bidi Works is to be assessed as capital receipt or business income? ii. If the aforesaid amount is held to be capital receipt, Whether the same is exempt from tax in view of the decision of Hon'ble Supreme Court of India in the case of CIT Vs. B. C. Srinivasa Setty (supra) or is taxable under the amended provisions of section 55(2)(a) of the Act? 15. The assessee has acquired rights in trademarks/brands through family arrangement and settlement. The brands/trademarks under dispute were developed/generated over the period of time staring from the year 1955 by three persons viz: Shri G.B. Thakur, Shri K.B. Savadekar and Shri S.R. Thakur. The assessee is one of the legal heirs of Shri S.R. Thakur. The aforesaid three persons were engaged in the business of manufacturing bidis since 1955 in partnership under the name and style of Thakur Savadekar & Co. Over the period of time these three persons developed trademarks, notably the 'Langar' or 'Anchor'. The trademarks/brands....
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....luding the use of trademarks and manufacturing of products under the said trademarks and sale in specified areas. 16. It is a well settled law that goodwill and the trademarks are intangible assets and are shown as Assets in the balance sheet. Thus, any income generated on transfer of rights attached to capital assets is a capital receipt. The Commissioner of Income Tax (Appeals) has rightly rejected the findings of Assessing Officer in holding that the receipt of Rs. 1 crore by the assessee on transfer of trademarks is taxable u/s. 28(iv) as business income. As corollary to above findings we hold that the income generated from transfer of rights in trademarks to M/s. Thakur V. S. Bidi Works is a capital receipt. 17. The next issue before us is; Whether the capital receipt is taxable u/s. 45 r.w.s. 55(2)(a) of the Act. The Commissioner of Income Tax (Appeals) in his order has observed that both the assignor i.e. the assessee and the assignee were the owners of trademarks/brands and had similar rights from the year 1997. The agreement under consideration confers no fresh rights to the assignee. What has been transferred to the assignee was not a new right but only a guarantee that....
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.... acquisition",- (a) in relation to a capital asset, being goodwill of a business [or a trade mark or brand name associated with a business] [or a right to manufacture, produce or process any article or thing] [or right to carry on any business], tenancy rights, stage carriage permits or loom hours,- (i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price ; and (ii) in any other case [not being a case falling under sub-clauses (i) to (iv) of sub-section (1) of section 49], shall be taken to be nil;" 19. Thus, from the perusal of the provisions of sub-section (2) of section 55 it is evident that any cost paid for acquiring trademark has to be determined in accordance with the provisions of said section. However, this amendment has been brought w.e.f. 01-04-2002. The Hon'ble Bombay High Court in the case of CIT Vs. Fernhill Laboratories & Industrial Establishment (supra) has held that the amendment is effective from assessment year 2002-03 onwards. The relevant extract of the findings of the Hon'ble High Court are as under: "8. We have considered the rival submissions. Section 45 of the....
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....is purchased by the assessee from a previous owner, and nil in any other case. It was pointed out that certain similar self generated intangible assets like brand name or a trademark 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. 42.2 The Act has therefore amended clause (a) of sub‐section (2) to provide that the cost of acquisition in relation to trademark 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." 9. From the above circular, it would be clear that the amendment bringing self generated intangible assets such as trademark to capital gains tax only with effect from Assessments Year 2002‐03 onwards. In this case, we are concerned with Assessment Year 1999‐2000 and therefore, the amendment would not have any effect. Further as held by the Supreme Court in ....
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....rights to manufacture, produce or process any article or thing which is chargeable as capital gain and (ii) any sum received on account of transfer of a right to carry on any business, which is chargeable as capital gains. Although the amendment is w.e.f. 01-04-2003 and shall have no application in the impugned assessment year, however the amount paid herein shall fall in the exception to clause (a). 23. In the case of CIT Vs. B. C. Srinivasa Setty (supra) the Hon'ble Supreme Court of India has held that where goodwill is generated in a newly commenced business, it cannot be described as "asset" within the meaning of section 45 of the Act and thus, the transfer of goodwill initially generated in a business does not give rise to a capital gain for the purposes of income-tax. Thus, ratio laid down in the case of 'goodwill' squarely applies on 'trademarks' also, as both are intangible assets and are generated in similar manner over the period of time. 24. In view of the facts of the case and the decisions referred above, we hold that the amount of Rs. 1 crore received by the assessee on transfer of rights in trademark is a 'capital receipt' not liable for tax u/s. 45 under th....