TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 1312
X X X X Extracts X X X X
X X X X Extracts X X X X
....ignment of know-how, be taxed as capital gain as per the provisions of section 55(2) instead of Business Income as held by AO, without appreciating the fact that know how acquired is due to its R&D activities which is a normal business activity of the assessee and it has already claimed all the expenses for research & development in the P&L A/c. As, such the sum received on assignment of know-how ought to be assessed as revenue income. 2. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the AO be restored. 3. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary." 4. The assessee has raised the following grounds.:- "1. The Ld. Commissioner of income tax(Appeals) erred in holding that consideration of Rs. 5,25,00,000/- received on assignment of know-how is chargeable to tax as Capital Gains'. It is submitted that 'know-how 'assigned is as self generated asset does not have identifiable cost or acquisition and as such the consideration received on assignment of 'know-how' is a capital receipt not chargeable to tax. 5. The brief facts of the case are that the assessee filed its return of in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpt being capital receipt. The AO taxed the said amount in view of the provisions u/s 41(3) of the Act whereas the CIT(A) is of the view that an amount in question is liable to be taxed in view of the provisions u/s 55(2) of the Act. Before going further, we deemed it necessary to advert the finding of the CIT(A) on record.:- "2 3 I have considered the submission of the appellant and perused the assessment order. Appellant received Rs. 5.25 Crores from BSV Research and Development Pvt. Ltd. as consideration for assignment of know how relating to scientific, medical and technical documents relating to development and manufacture of nonpegylated liposomal doxorubicin an oncology product under development. 2 3.i First grievance of the appellant is AO treating the receipt as reimbursement of expenses incurred over a period of time chargeable to tax under Section 41(3) of the Act. In my opinion the provisions of Section 41(3) are attracted only if an asset representing expenditure of a capital nature on scientific research is sold Know-how assigned during the year is a self generated capital asset and was an asset acquired or purchased from outside, sources. Therefore, same could no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssociated with a business) (or right to manufacture, produce or process any article or thing) (or right to carry on any business), tenancy rights, stage carriage permits or look hours (emphasis supplied)" The above provision clearly covers a right to manufacture, produce or process any article or thing as taxable capital asset and cost to be taken at Nil. 2.3.iv. The facts of the present case is squarely covered by the provision of sec. 55(2), hence, the receipt of Rs. 5.25 crores is to be taxed as capital gain. The AO is directed to act accordingly." 7. On appraisal of the above said finding, we noticed that the assessee received a sum of Rs. 5,25,00,000/- from BSV Research and Development Pvt. Ltd. as consideration for assignment of know how relating to the scientific, medical and technical documents relating to development and manufacture of non-pegylated liposomal doxorubicin an oncology product under development. CIT(A) discussed the term and condition of the Agreement dt 26-10-2005 executed between Assessee and BSV research and development Pvt, Ltd. Accordingly, It is clear that the transfer was for commercial exploitation. On seeing the nature of the transaction,we are ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the said product to a stage where it could be commercial exploited would be highly expensive with no certainty of achieving that stage. It would also require substantial clinical research work and development, which was beyond the work which was carried out by the assessee. Therefore, the assessee was of the view that further research and development in respect of the said product should be carried out in a joint venture. With this end in mind on 14.10.2005, the assessee formed a 100% subsidiary being BSV Research and Development Private Limited. On 26.10.2005, the assessee entered into an agreement with BSV Research and development Private Limited for assignment of technical know-how with respect to 'Non-Pegylated Liposomal Doxorubicin', which was still under the development stage for a consideration of Rs. 5,25,00,000/-. On 18.11.2005, Cadila Healthcare Ltd. acquired 50% stake in BSV Research and Development Private Limited, and hence, the transferee Company become a 50:50 Joint Venture between the assessee and Cadila Healthcare Ltd. 11. In its return of income the amount of Rs. 5,25,00,000/- was treated as a capital receipt not chargeable to capital gains as the know-how was....