TaxTMI 
TaxTMI 
2018 (11) TMI 790
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.... "1. That on the facts and circumstances of the case the consideration of Rs. 15000000/- received by the assessee as non-compete fee was capital receipt not liable to tax." 4. The facts of the cases shows that assessee is a public limited company which is engaged in the business of manufacturing of housecleaning products such as floor cleaner, glass cleaner etc. The assessee also owns several trademarks and know-how in relation to the consumer products manufactured and sold by it. 5. The assessee company filed its return of income on 30/11/98 declaring taxable income of Rs. 1 034649/- under section 115JA of the income tax act, 1961. In the assessment year , The assessee has entered into an agreement dated 1/8/1997 for sale of its trademarks, know-how, product information, goodwill, et cetera to Henkel Spic India Limited at a total consideration of Rs. 4.5 crores. The assessee also gave the breakup of the above consideration into sale of trademarks of Rs. 1.75 crores, goodwill of trademark Rs. 25 lakhs, sale of knowhow Rs. 25 lakhs, sale of product information Rs. 75 lakhs and consideration towards noncompetition of Rs. 1.5 crores. In the return of income filed by the assessee,....
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....o produce and market of its entire range of products to another company vide the agreement dated 31/7/97 and factually did not sell any products or to any other party, except for Henkel thereafter. Therefore, it was held by the learned assessing officer that the above company could not have rendered any marketing services to the assessee company after 31/7/1997. Therefore, the service charges paid of Rs. 1 85978/- for the month of August to October were disallowed. 9. Accordingly, the assessment order under section 143 (3) of the act was passed on 20/2/2001 determining the total taxable income of the assessee of Rs. 29473513/- against the returned income of Rs. 1 034649/-. 10. The assessee carried matter before the learned commissioner of income tax appeals - V III, New Delhi. The learned commissioner appeals vide order dated 21/3/2002 has held that the Rs. 1.75 crores received by the assessee toward sale of trademarks is not chargeable to tax being a capital receipt. He further held that Rs. 25 lakhs received on account of transfer on sale of knowhow and Rs. 75 lakhs on account of product information is no towards the right to manufacture a product and also not chargeable to tax....
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....her stated that the delay was neither willful nor unreasonable. The assessee relied heavily on the decision of the honourable Supreme Court in 167 ITR 471. Therefore, it was stated that there is a sufficient cause for delay in filing of the cross objections. Hence, delay may be condoned and the cross objection filed by the assessee may be decided on the merits. 14. The learned departmental representative vehemently objected to the application for condonation of delay. It was stated that the delay of 552 days is a mammoth delay, which could not be explained by the assessee by showing the sufficient cause. It was further stated that merely because the assessee has received the advice it cannot be stated that the delay was for sufficient cause. It was further stated that even otherwise the assessee has not shown when the advice was received and when the assessee filed across objection and it also did not explain the delay with that aspect. 15. We have carefully considered the rival contention and perused application of the assessee for condonation of delay. Considering the facts before us it is apparent that delay is not occasioned on account of any deliberate or culpable negligence....
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....annot be raised before the coordinate bench for the first time. 18. Countering the claim of the assessee, The learned departmental representative submitted that the assessee in the return of income voluntarily filed the amount received against the non compete fee to the extent of Rs. 1.5 crore was voluntarily showed as exigible to tax. This issue was not even raised before or considered by the CIT appeal during the appellate proceedings before him. He further stated that according to the provisions of section 253 (4), the assessee cannot file the cross objection in a case where the issue has not been considered or dealt by the lower authorities. He vehemently relied upon the decision of coordinate benches and stated that the cross objection cannot be entertained at this stage. 19. The learned authorised representative submitted that the provisions of section 253 (4) of the act provides that wherein appeal is filed by the appellant against the order of the learned commissioner of income tax appeals, respondent is entitled to file cross objections before the tribunal. The aforesaid section clearly provides that the memorandum of cross objections shall be disposed of by the tribunal....
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....e assessee then revenue is a respondent and if the appeal is filed by the revenue then assessee is a respondent, and the respondent in both the situation is granted arrived to file cross objection in the appeal filed by the appellant. According to the provisions of section 253 (4), the assessee on receipt of notice that appeal against the order of the commissioner Appeals has been preferred by the Commissioner, may file a memorandum of cross objections in the prescribed manner against any part of the order of the Commissioner (appeals). Undoubtedly, the grounds of cross objection cannot be limited to the grounds raised in the appeal of the revenue. However, the question that arises is that whether in the cross objection the assessee or revenue (AO) can raise an issue, which was not at all a matter of dispute before the assessing officer or before the 1st appellate authority. The provisions of section 253 (4) authorizes the other party to file cross objection against any part of the order of the Commissioner (Appeals). Therefore, it is apparent that the issue must have been decided in the order of the 1st appellate authority, then only the assessee can file a cross objection. In the....
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....t year 1953 - 54. However, in that particular case the issue was before the appellate assistant Commissioner where the assessee objected to the inclusion of the dividend income as income pertaining to the relevant previous year and also objected to the increasing the quantum of dividend received by adopting the market value of the specie in which it had been received. The appellate assistant Commissioner rejected both the contentions. Therefore, in that particular decision, there was an issue, which was already decided by the appellate assistant Commissioner, and therefore the assessee could agitate before the tribunal. Furthermore the decision cited before us does not deal with the right of the assessee under section 253 (4) of the act. Therefore, the reliance placed by the learned authorised representative on that decision is improper for the issue before us. 24. The learned authorised representative has also relied upon the decision of the honourable Bombay High Court in case of B R bamasi versus Commissioner of income tax (1972) (83 ITR 223) (BOM). On careful reading of that decision it says that that the new ground of the appeal would serve only as a weapon of defence against....
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.... revenue the assessee in cross objection challenged the issue of registration of the firm. Therefore in that particular case both the issues were before the assessing officer emanating from the order of the AO. Hence the facts of that case are quite distinct from the facts before us. 26. The next decision relied upon by the learned authorised representative is of Asam company India Ltd versus Commissioner of income tax (2002) 256 ITR 423. The facts in that particular case is that in the return of income the applicant company claimed deduction under section 35B of the act in respect of warehouse charges paid abroad. In the assessment the learned assessing officer allowed the weighted deduction of warehouse charges under section 30 5B (1) (b) (iv) of the act read with rule 6AA of the income tax rules 1962. The Commissioner revised the order under section 263 and withdrew the said deduction. The assessee filed an appeal before the ITAT against the order under section 263 of the income tax act. The tribunal dismiss the appeal of the assessee and confirmed the order of the Commissioner. In the press assessment proceedings the assessee objected to the withdrawal of weighted deduction on....
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....) of the act. The assessee challenged the same before the learned commissioner appeals who held that the assets in the nature of trademark and knowhow are different from goodwill and therefore the consideration received against a transfer of such assets cannot be equated with the transfer of goodwill. He held that assessee has not transferred its right to carry on the business of manufacturing, but observed that the assessee had only undertaken an negative covenant of non-competition with the transfer the for a limited period Of 2 years, which is not covered within the provisions of section 55 (2) (a) of the act. Accordingly he deleted the addition of Rs. 2.75 crores made by the assessing officer in respect of consideration received against the transfer of trademarks, know-how and product information. 30. The learned departmental representative vehemently referred to the order of the learned assessing officer and extensively that the same and relied upon it. 31. The learned authorised representative submitted that the consideration received against the transfer of various assets such as trademark, knowhow does not constitute transfer of goodwill. He further referred to the variou....
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....how and the product information in respect of the various housecleaning products manufactured by it for a total consideration of Rs. 4.5 crores. The only dispute in appeal of revenue is with respect to the sale of trademark, sale of goodwill related to trademark, sale of know-how and sale of product information amounting to Rs. 3 crores. According to the assessee these consideration is exempt from tax as the same is in the nature of capital receipt. The learned assessing officer held that these are the capital receipt as it is received for the sale of goodwill or for the right to manufacture. The AO further held that the appellant has transferred its right to manufacture, process or produce the goods by transferring the know-how and product information in respect of those goods as the appellant lost its right to produce and market those goods for the agreed period of 2 years. For holding so, the learned assessing officer stated that since the appellant has sold its major trademarks which contributed towards substantial part of its turnover and that after the date of the said agreement no sale of any other product was made by the appellant the sale of trademark is to be considered a....
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....the trademark as part of or is goodwill. The learned commissioner of income tax has held that goodwill and trademark are distinct entities in law though both are intangible assets and both grow over. On time, both of them have the potential of history behind them as they are commonly related to the business. He has given a clear-cut distinction that the goodwill is latent and the trademarks are express. He further stated that in case of the goodwill the provisions of the income tax act provides that the cost of acquisition shall be taken as nil, however in case of the trademark the cost of registration of trademark is not the cost of acquisition but it is the cost of registration of those intangible assets which are already there. He has further held that goodwill is an advantage of the reputation and connections formed with the customers together with the circumstances making the connection is durable it is that component of the total value of the undertaking which is attributable to the ability of the concerned 1 profits over the course of years or in excess of normal amounts because of reputation, location and other features. Therefore he held that goodwill and trademarks are di....
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....r of these two capital assets will result into the transfer of right to manufacture, produce or process or any article or thing. It is contested by the assessee that non compteteion fees of Rs. 1.5 crores the assessee has agreed to not to use the right to knowhow and to the product information for a limited period of 2 years and the same amount has already been offered to tax. Therefore, the contention of the assessee is that after the expiry of the 2 years the appellant can make use of its right to know how and the product information to manufacture or produce its own goods. Therefore, according to the assessee there is no transfer of any right to manufacture, produce or process. On careful consideration of this argument it is apparently clear that by transferring the know-how and the product information in respect of goods the appellant has not ceased its right to manufacture, produce or process the goods. Even otherwise, it is only for the 2 years that the assessee has entered into a noncompete agreement. Therefore we find ourselves in agreement with the finding of the learned CIT appeal that the said capital receipt is not liable to tax within the meaning of the provisions of s....