TaxTMI 
TaxTMI 
2022 (1) TMI 920
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....design, trade names relating to the logo and slogans used in relation thereto a/w the getups incorporating the logo (hereinafter referred to as "the Brand") over a period of time since 1996. It was submitted before the Assessing Officer that EIL on 29th March 2012 had contributed the brand "Essar" to the corpus of the assessee trust as a voluntary gift. The "Essar" brand having been settled without consideration, was thus, not recognized in the financials of the assessee trust. The assessee trust entered into brand licensing agreements with operative Essar group entities. In terms of the brand licensing agreements, a non-exclusive license to use the "Essar" brand in India was granted to the licensees (i.e. the operating companies under the group), in consideration of which license fees was earned by the assessee. The license fees earned by the assessee trust was accounted for by it during the year under consideration and, consistently thereafter, as per the cash system of accounting in accordance with the provisions of Section 145(1) of the Act. 3. The Assessing Officer (hereinafter referred to as 'the A.O') observed that the abovementioned license fees was not included b....
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....D. The provisions of section 28(iv) are not applicable as the receipt of the Brand is not arising during the course of carrying on of any business. E. Cash system of accounting followed consistently by the assessee was accepted and addition made by the AO taxing the difference between mercantile system and cash system was deleted. 6. Aggrieved with the order passed by the CIT(A) the revenue is in appeal before us raising multiple grounds of appeal. Subsequently, the revenue had filed revised grounds of appeal and additional grounds of appeal before us. 7. The Ld. D.R, Shri P.C. Chhotaray, Sr. Standing Counsel, submitted and argued for admission of additional grounds of appeal and also filed written submissions. First let us deal with the additional grounds of appeal. "Additional Grounds of Appeal 1. Whether, on facts and circumstances of the case and in law, Essar Investment Ltd (EIL) was the genuine owner of the "Essar" brand, trademarks and copyrights, and whether the purported settlement of the "Essar' brand, trademarks and copyrights by EIL in favor of the assessee, M/s.Balaji Trust was a bona fide transaction? 2. Without prejudice to the above other grounds, whet....
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....f the same by EIL in favour of the assessee was a bonafide transaction, was trying to make a complete volte face. Qua the additional ground of appeal no. 2, it was submitted by the ld. A.R that the same too was in clear contradiction of the stand that was taken by the department in the assessment order. Elaborating on his aforesaid contention, it was submitted by the ld. A.R that the provisions of Sec. 69A are triggered in the assessment year in which the assessee is found to be the owner of the asset in question. Backed by his aforesaid contention, it was submitted by the ld. A.R that as the brand "Essar" was received by the assessee from EIL on 29.03.2012 i.e the period relevant to A.Y 2012-13 and not the year under consideration, therefore, de hors the receipt of the said brand during the year under consideration the additional ground of appeal no. 2 did not merit admission. It was further submitted by the ld. A.R, that as the provisions of Sec. 69A can be triggered only if the A.O is satisfied that the assessee had failed to prove the 'nature' and 'source' of acquisition of the asset in question, therefore, in the absence of any opinion of the A.O regarding the explanation furn....
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....rovisions, say, Sec. 147, Sec. 263 and Sec. 154 of the Act, as redundant, otiose and in fact meaningless. In support of his contention that the additional grounds of appeal raised by the revenue did not merit admission the ld. A.R had relied on a host of judicial pronouncements, as under : * DCIT Vs. Padinjarekkara Agencies Ltd. (53 ITD 317) (Cochin) * ACIT Vs. DHL Operations BV (108 TTJ 152)(Mum) * Prakash L. Shah 115 ITD 167 (Mum)(SB) * Mahindra & Mahindra Ltd. Vs. DCIT 122 ITD 216 (Mum)(SB) * CIT Vs. S.A Builders Ltd. (38 taxmann.com 255)(P&H) Apart from that, the assessee had also assailed the additional grounds of appeal qua the merits therein involved. 9. We have heard the ld. Authorized representatives for both the parties qua the issue pertaining to admission of the additional grounds of appeal that have been raised by the revenue before us. As stated by the ld. D.R, and rightly so, as held by the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT (1998) 229 ITR 383 (SC), the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of t....
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....eal no. 1, we find that the revenue has sought our indulgence, for adjudicating, as to whether EIL was the genuine owner of the "Essar" brand, trademarks and copyrights, and also, as to whether the settlement of the "Essar" brand, trademarks and copyrights by EIL in favour of the assessee was a bonafide transaction. After giving a thoughtful consideration, we are of the considered view, that as stated by the ld. A.R, and rightly so, the aforesaid additional ground of appeal no. 1 raised by the revenue clearly militates against the department's own stand that the assessee had received the brand "Essar" from EIL. As is discernible from the assessment order, the very genesis of the controversy involved in the present case is the receipt of the brand "Essar" by the assessee trust from EIL. However, the department by raising the aforesaid additional ground of appeal, and therein questioning as to whether EIL was the genuine owner of the "Essar" brand, trademarks and copyrights; and as to whether the settlement of the same by EIL in favor of the assessee was a bonafide transaction, is undoubtedly trying to make a complete volte face. Although, we are in agreement with the claim of the ld....
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.... provisions of Sec. 69A of the Act, which reads as under : "Unexplainedmoney, etc. Where in any financial year the assessee is found to be the owner of any money, bullion, jewellery or other valuable article and such money, bullion, jewellery or valuable article is not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of acquisition of the money, bullion, jewellery or other valuable article, or the explanation offered by him is not, in the opinion of the [Assessing Officer], satisfactory, the money and the value of the bullion, jewellery or other valuable article may be deemed to be the income of the assessee of such financial year." 10. At the first sight, it appeared as if the seeking of our indulgence for adjudicating the aforesaid issue required looking no further beyond the records and was in conformity with the view taken by the A.O, but we are afraid that the facts are not so. As stated by the ld. A.R, and rightly so, the contention sought to be raised by the assessee vide additional ground of appeal no. 2 is in clear contradiction of the stand that was taken by the A.....
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.... our considered view, as the assessee by seeking admission of the additional ground of appeal no. 2 is trying to take a stand contrary to the one taken by the A.O, the same, we are afraid is not permissible under Sec. 254 of the Act. Our aforesaid view is fortified by the orders of the 'Special Bench' of the ITAT, Mumbai in the case of Mahindra & Mahindra Ltd. Vs. DCIT 122 ITD 216 (Mum)(SB) (2009) 122 TTJ 577 (Mum)(SB) and ACIT Vs. Prakash L. Shah (2008) 115 ITD 167 (Mum)(SB). As observed by us hereinabove, though there can be no second thought on the settled position of law that the Tribunal is vested with the jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee, notwithstanding that the same was not raised before the lower authorities, however, in the garb of such innate powers vested with the Tribunal the revenue cannot seek to change the entire complexion of the case by attempting an improvement of the assessment framed by the A.O. We concur with the ld. A.R that the legislature in all its wisdom had contemplated different remedies for the department to cure any such err....
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....rks, copyrights is the subject matter of appeal before the Tribunal as the CIT(A) had not decided the question of valuation, therefore, the request of the department for admission of the additional ground of appeal no. 3 cannot be accepted and is accordingly rejected. 11. Although, the assessee had also filed submissions assailing the additional grounds of appeal nos. 1 to 3 on merits, however, as we have declined to admit the said additional grounds of appeal nos. 1 to 3, therefore, we refrain from adverting to the contentions advanced by the ld. A.R (in writing) qua the merits of the said additional grounds of appeal, which, thus, are left open. 12. Resultantly, we decline to admit the additional grounds of appeal Nos. 1 to 3 raised by the revenue before us. 13. Coming to the main grounds of appeal, we prefer to address each amended ground raised by the revenue individually and independently in the below paragraphs:- Ground no. 1: Whether on facts and circumstances of the case and in law, the Ld. CIT(A) erred in admitting additional evidences under Rule 46A of the Income-tax Rules, 1962, ignoring that there was no sufficient cause for admitting the same. The relevant facts....
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...., the assessee preferred an appeal before the CIT(A) and also submitted additional evidence before him (Page 265-267 of the assessee's paper book) and submitted the following documents: a) 82 trademark certificates; b) 2 copyright certificates; c) Certified true copy of the Form 23 filed with the Registrar ofCompanies along withthe resolution passed by the shareholders in an Extraordinary general meeting. 13.3 After receipt of additional evidence, Ld CIT(A) directed the A.O to file a remand report with regard to admissibility of the additional evidence submitted by the assessee. In response, the A.O vide his remand report dated 13 February 2017 objected to the admission of the additional evidence on the following grounds : a. It was stated by the A.O that in the course of the assessment proceedings the assessee had in response to the notice dated 16.12.2015 and 08.03.2016submitted only one certificate of registration of trademark in the name of EIL, and the same was not accepted as the said certificate nowhere mentioned that the brand 'ESSAR' was registered in the name of EIL. It onlymentioned that Industrial oil, lubricants, etc. were registered in the name of....
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....s aforesaid letter the assessee had also submitted a certificate dated 12thMarch, 2014, which revealed that the trademarks were registered in the name of assessee trust after their contribution by EIL. Adverting to the claim of the AO in his remand report dated 12 February 2017, that the documents submitted were photocopies and they not having been authenticated by any authority, the CIT(A) was not persuaded to accept the same. It was observed by the CIT(A) that in case the A.O had any doubts as regards the photocopies of the documents that were filed by the assessee, then, nothing stopped himfromcalling for the original documents for verification. It was, thus, observed by the CIT(A) that a photocopy cannot be dispensed as no evidence unless material proving to the contrary is brought on record to show that the copies filed were fake documents. b. It was observed by the CIT(A) that objection of the A.O to the admission of documents that were filed by the assessee before him as additional evidence, for the reason, that the assessee had failed to file the same in the course of the assessment proceedings and had only submitted one certificate of registration of trademark in the nam....
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....nvestment Limited was owner of the brand. The opportunities given by the Assessing Officer are given below: (a) P 113 Assessment order Page 3. Para 3.2- By order sheet entry dated 16.12.2015, the Assessing officer asked the representative of the assessee to explain the modality of the Essar brand coming into existence, its valuation etc.. The AR of the assessee was asked to submit documentary evidence for substantiating its written submission. (b) P 116 Assessment order Page 6. - last para - AO records that EIL did not provide any registration details of "Essar" brand. It has been noted that Mrs. Manju Ruia, who is almost sole owner of EIL, does not have controlling interest in any flagship company of the Essar group. Then how could EIL be owner of the brand? (c) P 120 Assessment order Page 10 - A comprehensive show cause notice was sent to the assessee dated 8.2.2016. At page 11 para 2.3, the AO has recorded that no registration details of Essar brand along with trademarks, and copyrights were provided. At page 122, para 3.2, again it has been noted by the AO that no registration details or the cost of the brand has been provided. The AO also show caused to the assessee why ....
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.... is registered in the name of EIL in 1996, then why the value of the said brand or trade mark or copyright has not been recognised in the books of account of EIL. The reference made by the assessee to para 50 or para 51 of the Accounting Standard 26 is also irrelevant as these paragraphs should be read harmoniously with other provisions of the Accounting Standard 26, especially due to the fact that it may not be able to identify at what point of time the asset has been generated and at what cost. But arguably in the instant case, if the brand has been developed, created and registered in 1996, then the brand or trademark or copyright can be recognised in the Books of Account which will be the normal course of action for a prudent businessman as he will know the value of what he has created and at what cost." (h)Thus, up to the level of the Assessing Officer, the assessee did not produce the necessary evidence about the creation and ownership of the brand. (ii) But before the CIT(A) the assessee produced additional evidence in the form of a bunch of papers running into about 120 pages containing the certificate of registration of trademarks of various concerns of the Ruia group ....
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.... so many products of the Essar group were suddenly transferred to the assessee trust free of cost. (vi) In view of the above discussion, the following submission is made: (a) The assessee was given sufficient opportunity by the Assessing Officer to produce all evidence in support of its claim that EIL was the owner of the brand, trademarks and copyrights. It failed to produce them before the Assessing Officer. Hence, the CIT(A) erred in entertaining the additional evidence. (b) Moreover, what was produced was no evidence at all. They were irrelevant material perversely admitted by the CIT(A) without any application of mind. (vii) It is, therefore, prayed that the first ground of appeal raised by the Revenue may be allowed." 14. On the other hand, in rebuttal of the aforesaid submission of the ld. department representative, the Ld A.R supporting the admission of additional evidence by the CIT(A) had furnished his submissions before us, as under : "1. It is submitted that the registration certificate of the trademark submitted by the assessee vide the submission dated 15 March 2016 clearly states that trademark "Essar" is registered in the name of EIL. Similarly, the addit....
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....ustify so.The relevant portionof the judgment is reproducedasunder: "On a plain reading of rule 46A, it is clear that this rule is intended to put fetters on the right of the appellant to produce before the AAC any evidence, whether oral or documentary, other than the evidence produced by him during the course of the proceedings before the ITO except in the circumstances set out therein. It does not deal with the powers of the AAC to make further enquiry or to direct the ITO to make further enquiry and to report the result of the same to him. This position has been made clear by sub-rule (4) which specifically provides that the restrictions placed on the production of additional evidence by the appellant would not affect the powers of the AAC to call for the production of any document or the examination of any witness to enable him to dispose of the appeal. Under subsection (4) of section 250, the AAC is empowered to make such further inquiry as he thinks fit or to direct the ITO to make further inquiry and to report the result of the same to him.Sub-section (5) of section 250 empowers the AAC to allow the appellant, at the hearing of the appeal, to go into any ground of appeal n....
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....vidence was submitted before the Commissioner of Income-tax (Appeals). It cannot be said nor is it the case of the Revenue that additional evidence is not permissible at all before the first appellate authority. On the contrary, rule 46A of the Rules permits the Commissioner of Income-tax (Appeals) to admit additional evidence if he finds that the same is crucial for disposal of the appeal. In the facts of this case, therefore, we are of the opinion that on this aspect, no substantial question of law arises." 6. Similarly, the Punjab and Haryana in case of PCIT vs. Daljit Singh (247 Taxman 240) has held that under the provisions of the Act real income of the assessee is to be determined and if additional evidence is necessary to arrive at the real income of the person then it must be admitted for the purpose. The operative portion of the judgment is reproduced as under: "In view of the above facts and circumstances,we find that no doubt assessee did not co-operate with the Assessing Officer in completion of assessment proceedings but the fact remains that in the delivery of justice the real income of assessee has to be assessed and that too after hearing the assessee. The learn....
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....ction would have been rendered void ab initio." 15. Considered the rival submissions and the material placed on record in context of the aforesaid issue under consideration. As noticed by us hereinabove, the A.O in the course of the assessment proceedings vide his letter dated 08.03.2016 had, inter alia, called upon the assessee to furnish evidence that EIL was the owner of the "Essar" brand. In reply, the assessee had vide its letter dated 15.03.2016 filed with the A.O certain documents evidencing that the brand "Essar" was registered in the name of EIL and the same thereafter was settled with the assessee vide EIL's board and shareholder's resolutions dated 29th March, 2012. On a perusal of the record, we find that the following documents were filed by the assessee with the A.O alongwith its aforesaid reply dated 15.03.2016 : (i) Copy of one sample trademark registration certificate in the name of EIL since 1996 (alongwith renewal certificate in 2006) was filed by the assessee in the course of the assessment proceedings, vide its letter dated 15.03.2016. [Page 204-205 of the 'APB']. (ii). Copy of the certificate of registration of all the trademarks in the name of the assess....
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.... the Registrar of Companies along with the resolution passed by the shareholders in an Extraordinary generalmeeting. It was the claim of the assessee that after the submission of the letter dated 15th March, 2016 a/w supporting documents with the A.O, there was no further query raised on the latters part as regards the ownership of the Brand, and the assessee remained under an impression that nothing more was required to be filed for substantiating the ownership of EIL. It was, thus, on the basis of the aforesaid fact that the assessee had requested the CIT(A) for admitting the additional evidence. The CIT(A) called for a remand report from the A.O with regard to the admissibility of the additional evidence. The A.O vide his remand report dated 13th February, 2017 objected to the admission of the additional evidence as well as commented on the documents so filed by the assessee. However, the CIT(A) after considering the objections of the A.O admitted the additional evidence. 18. The revenue is aggrieved with the admission of the additional evidence by the CIT(A). As observed by us hereinabove, the A.O had in the course of the assessment proceedings, vide his letter dated 08.03.20....
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....s on record, but only substantiated the aforesaid factual position. In other words, the exhaustive list of evidence filed by the assessee with the CIT(A) only substantiates that the trademark "Essar" was registered in the name of EIL, a fact which is borne from the assessment record. Accordingly, as the additional evidence filed by the assessee was not with a purpose or motive of bringing any fresh facts on the record, but with a limited purpose of dispelling all doubts and substantiating to the hilt that EIL was the owner of "Essar" brand prior to its settlement in the assessee trust, therefore, on the said count also no infirmity can be related to the admission of the same by the CIT(A). We, thus, in terms of our aforesaid observations not finding any infirmity in the admission of the additional evidence by the CIT(A), uphold his order to the said extent. The Ground of appeal No. 1 is dismissed. Ground no. 2 and 3 - Whether on facts and circumstances of the case and in law, the Ld. CIT(A) erred in not upholding the AO's finding that the value of the 'Essar' brand, trademarks and copyrights purported to have been settled by EIL to the assessee without any consideration, const....
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....w. "12. Section 31 in terms provides that action under the said provision may be taken "without prejudice to the provisions of section 29 of this Act and of section 69 of the Transfer of Property Act, 1882. What is the import of the term without prejudice to the provisions of section 29 of the Act?" 13. On a conjoint reading of sections 29 and 31 of the Act, it appears to us that in case of default in repayment of loan or any installment or any advance or breach of an agreement, the Corporation has two remedies available to it against the defaulting industrial concern, one under section 29 and another under section 31 of the Act. The choice for availing the remedy under section 29 or section 31 of the Act is that of the Financial Corporation alone and the defaulting concern has no say whatsoever in the matter, as to which remedy should be taken recourse to by the Corporation against it for effecting the recovery. The expression "without prejudice to the provisions of section 29 of this Act as appearing in section 31 of the Act clearly demonstrates that the Legislature did not intend to confine the Corporation to take recourse to a particular remedy against the defaulting indust....
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....revent perpetration of a legal fraud and the courts are obliged to do justice by promotion of good faith, as far as it lies within their power. Equity is always known to defend the law from crafty evasions and new subtilities invented to evade law........." (iv) Apart from expounding the principle of equity, the above judgment would serve as a guide to the approach for a solution of the case under consideration. Here, the assessee has indulged in fraudulent transactions and has misled the Revenue at every stage. It is a unique and complex case. Hence, all the possible provisions of the Income-tax Act should be explored for application. The Assessing Officer has made great efforts in dealing with such a recalcitrant assesee. The CIT(A), instead of strengthening his order, gave wholesale relief with a superficial and perverse approach. One important point to be noted in this multiprong approach is that, the assessee is not being taxed more than once on the same amount. (v) Referring to the above judgment, the Assessing Officer held that section 56(2) will not exclude or limit the application of section 56(1) (p. 21 of assessment order). He consideration the application of this pr....
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....the ITAT). Nothing of the sort in the case of the assessee. Thus, there is absolutely no similarity of the case of the assessee with the case of KDA Enterprises (P) Ltd. Hence, it is difficult to understand how the CIT(A) observed in para 11.9 of his order (p.87) that the principles laid down in KDA Enterprises Ltd. will apply in toto to the case of the appellant trust. The order of the CIT(A) is passed without application of mind and is perverse. (viii) The chief contention of the assessee is that the brand is a capital receipt and hence it does not fall under the purview of section 56(1) which talks of "income". At the outset, it is respectfully submitted that the assessee has forfeited its right to raise this issue at all. For the purpose of arguing as to whether any receipt is capital or revenue, first there should be a receipt in existence in the books of the assessee. Here, admittedly, the brand is not recorded in the books of the assessee. The assessee did not give any value of the brand when specifically asked by the Assessing Officer. Hence, the assessee is not entitled raise this issue. The assessee is only reacting to the proactive step to determine the value of the ....
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....igh Court in reference held in favour of the assessee observing that the object behind section 2(24)(ix) was to rope in windfalls from lotteries, races including horse races, and card games etc. and does not cover receipts which involve skill in driving the vehicle as in that case. Thus all the authorities in appeal and reference gave decision against the Revenue. But the Hon'ble Supreme Court reversed their decisions and upheld the order of the Assessing Officer. That Hon'ble Supreme Court discussed and explained the theory of income. The excerpts of the judgment are given below: SUPREME COURT'S JUDGMENT P 4-Definition of 'income' in section 2(24) is an inclusive definition. P 5-It is not easy to define income. The definition in the Act is an inclusive one. As said by LordWright in Kamakshya Narayan Singh v. CIT ,11 ITR 513 PC: "Income .......is a word difficult and perhaps impossible to define in any precise general formula. It is a word of the broadest connotation". In Gopal Saran Narayan Singh v. Commissioner of Income-tax 3. ITR 237 PC, the Privy Council pointed out that "anything that can properly be described as income is taxable under the Act unless expressly exem....
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....t does not fall under any of the sub-clauses, to say that it does not constitute income. Even if a receipt does not fall within the ambit of any of the sub-clauses in section 2(24), it may still be income if it partakes of the nature of the income. The idea behind providing inclusive definition in section 2(24) is not to limit its meaning but to widen its net. This Court has repeatedly said that the word 'income' is of the widest amplitude and that it must be given its natural and grammatical meaning. Judging from the above stand point, the receipt concerned here is also income. May be, it is casual in nature, but it is income nonetheless. That even casual income is 'income' is evident from section 10(3). Section 10 seeks to exempt certain 'incomes' from being included in the total income. A casual receipt which should mean, in the context, casual income is liable to be included in the total income if it is in excess of Rs. 1000/-, by virtue of clause (3) of section 10. Even though it is a clause exempting a particular receipt/income to a limited extent, it is yet relevant to the meaning of expression "income". In our respectful opinion, the High Court having found that the receipt....
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....ssion of an extremely valuable asset which became a permanent source of high income, year after year. The assessee became suddenly richer by that amount. So according to the wide definition of income given by the Hon'ble Supreme Court, it falls under the category of income. (g) Hence, the presumption is that the value of the brand is income in view of the wide and inclusive definition of income given by the Hon'ble Supreme Court in Karthikeyan's case (supra). The assessee has no material to counter it because its books of account do not record the value of the brand. (xii) Applying the above judgment of the Hon'ble Supreme Court it is respectfully submitted that the value of the brand is income under section 2(24) of the Act and the said value (Rs. 1668.10 crores) has been rightly taxed by the Assessing Officer u/s 56(1) of the Act. (xiii) Capital Receipts Treated as Revenue Receipt Depending upon the facts of the case, capital receipts have been treated as revenue receipts. Reliance is placed in the judgment of the Supreme Court in the case of CIT v. T.V. Sundaram Iyengar & Sons 88 TAXMAN429 (SC) and the case laws cited there in the said judgment. [ Vide Departmental Paper....
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....l.) - Refund of custom and other duties were received on behalf of the customers. After payment to the customers some unclaimed surplus remained which was held taxable in the hands of the assessee. It was held that though the amount was not income when it was realised, it became his income when it was not claimed and the assessee showed it in its account as income. (e) CIT v. A.V.M Ltd. [1984] 146 ITR 355- (Mad.) The assessee was a distributor of films. It received deposits from the exhibitors which was adjusted against the collections. The surplus unclaimed deposit remaining with the assessee was held to be chargeable receipts from the trade in the hands of the assessee. (f) CIT v. Batliboi & Co. (P) Ltd. [1984]149 ITR 604 (Bom.). The assessee was a dealer in machinery. It used to take deposits from the intending purchasers. The deposits were adjusted against purchase price. The surplus unclaimed deposits after adjustment were held to be taxable in the hand of the assessee as trade receipts. A review of the above judgments would show that there is no watertight division between capital and revenue receipts. Considering the inclusive definition of income under section 2(24) a....
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....the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably. (See Srilekha Banerjee's case [1963] 49 ITR (SC) 112 at page 120) It is respectfully submitted that this decision is squarely applicable to our case under consideration. Here there is prima facie evidence against the assessee i.e. the receipt of the brand. The assessee has failed to rebut it. The said evidence, being unrebutted, can be used against the assessee by holding that the receipt is of an income nature. Hence, the entire amount of Rs. 1668.10 crores has been rightly taxed as income from other sources. (xv). Here, we are faced with a complex, unprecedented situation when the tax system is attacked in an audacious manner. The traditional approach with case laws will be of no help to tackle this situation. In this context, reference is made to Paragraph 13 (iv) above enunciating the Principle of Updating Construction and Paragraph 13(v) above advising the approach of the Courts to deal with newer techniques of tax evasion. Those principles need to be applied here.....
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....source: in that if the payments are not made the enforcement of the payments could be sought by the payee in a court of law. It does not, however, mean that every voluntary payment will constitute "income". Thus, voluntary and gratuitous payments, which are connected with the office, profession, vocation or occupation may constitute "income" although if the payments were not made the enforcement thereof cannot be insisted upon. These payments constitute "income" because they are referable to a definite source, which is the office, profession, vocation or occupation. It could, therefore, be said that such a voluntary payment is taxable as having an origin in the office, profession or vocation of the payee, which constitutes a definite source for the income. What is taxed under the Indian Income-tax Act is income from every source (barring the exceptions provided in the Act itself) and even a voluntary payment, which can be regarded as having an origin, which a practicalman can regard as a real source of income, will fall in the category of "income", which is taxable under the Act.Where, however, a voluntary payment ismade entirelywithout consideration and is not traceable to any sou....
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....ellant. The Tribunal did not infer that as remuneration for disbursing salary to Sita Devi's servants she was given large amounts ofmoney and jewellery. Description of the appellant in the cash memo issued by the Bombay Garage Ltd. as "private secretary to Princess Sita Devi" could have no evidentiary value. It is not claimed that there was evidence on the record that this was the general repute of the appellant. Description of the appellant as private secretary of Sita Devi in a stray cash memo issued by a third party about the source of whose knowledge there is not an iota of evidence, could not evidence a relationship of master and servant much less could it prove that what was given by Sita Devi to the appellant was remuneration for service rendered. The conclusion of the Tribunal is therefore based on matters which may at the highest create some suspicion, and upon its view that the burden of proving that the receipts were not taxable lay upon the appellant. But a conclusion recorded by the Tribunal by wrongly throwing the burden of proof upon the assessee cannot be regarded as binding upon the High Court in a reference under section 66 of the Income-tax Act....." 4. In ....
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....throwing the burden of proof upon the assessee cannot be regarded as binding upon the High Court in a reference under sections 66 of the Act. Whenever an amount is paid as a personal gift for the personal qualities of the assessee and as a token of personal esteem and veneration it cannot be subjected to tax as income arising out of business, profession or vocation under section 10 of the Act. Such a principle is quite apparent from the decision of the Supreme Court in Mahesh Anantrai Pattani v. Commissioner of Income-tax (1961] 41 ITR 481 (SC)..." 5. Similar view has also been taken by the Bombay High Court in case of Mehboob Productions (P) Ltd vs. CIT (106 ITR 758) (Born.) [Para 4] wherein the question was whether the benefit received by the assessee on account of waiver of payment of entertainment tax that was collected by the assessee was in the nature of "income" in the hands of the assessee. The Bombay High Court decided the issue in favour of the assessee holding as under: "...the term "income" in the Act connotes a periodical monetary return, coming in with some sort of regularity or expected regularity from definite sources. The source is not necessarily one which i....
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....vs. Vazir Sultan&Sons (36ITR175) (SC)whereinitwasobservedasunder (Pg.8 and10): "It would not be profitable to review the various English decisions bearing on this question as they have been exhaustively reviewed in the above decisions of this court. The position as it emerges on a consideration of these authorities may now be summarized. The first question to consider would be whether the agency agreement in question for cancellation of which the payment was received by the assessee was a capital asset of the assessee's business, constituted its profit-making apparatus and was in the nature of its fixed capital or was a trading asset or circulating capital or stock-in-trade of his business. If it was the former the payment received would be undoubtedly a capital receipt; if, however, the same was entered into by the assessee in the ordinary course of business and for the purpose of carrying on that business, it would fall into the latter category and the compensation or payment received for its cancellation would merely be an adjustment made in the ordinary course of business of the relation between the parties and would constitute a trading or a revenue receipt and not a cap....
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.... of the Brand by the assessee was not in the nature of income because:- (a) it was in the nature of a gift received fromEIL; and (b) the receipt was on capital account as it formed part of the profit making apparatus for the assessee as the asset received was employed to earn brand license fees. Therefore, since the receipt was not in the nature of "income", the provisions of section 56(1) do not apply as it covers a receipt which fall within the ordinary meaning of "income". In this regard, reliance is placed on the judgment of the Bombay High Court CadellWeaving Mill Co. (P.) Ltd. vs. CIT (249 ITR 265) (Born.) wherein it was held that if the amount received is not in the nature of "income" then the provisions of section 56(1) cannot come to the rescue of the Department. The relevant part from the judgment is reproduced as under(Pg.6): "11... However, the department submitted that if the cost of acquisition of a capital asset cannot be computed under the provisions of sections 45 to 55, then the capital gains which arise on transfer may not be chargeable under section 45 but they are chargeable under section 56 as income from other sources. For this purpose, the department has p....
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.... 1) wherein the question was whether the amount received on issue of shares in excess of fair market value of such shares would be chargeable to tax under section 56(1) of the Act and consequentlywhether the provisions of Chapter X would be applicable. The High Court rejected the argument of the Departmentholdingasunder (Pg.22): "42.It was contended by the Revenue that in any event the charge would be found in Section 56(1) of the Act. Section 56 of the Act does provide that income of every kind which is not excluded from the total income is chargeable under the head income from other sources. However, before Section 56 of the Act can be applied, theremust be income which arises. As pointed out above, the issue of shares at a premium is on Capital Account and gives rise to no income. The submission on behalf of the revenue that the shortfall in the ALP as computed for the purposes of Chapter X of the Act give rise to income is misplaced. The ALP is meant to determine the real value of the transaction entered into between AEs. It is a re-computation exercise to be carried out only when income arises in case of an International transaction between AEs. It does not warrant recomputa....
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.... The amount received on issue of shares is admittedly a capital account transaction not separately brought within the definition of Income, except in cases covered by Section 56(2)(viib) of the Act. Thus such capital account transaction cannot be brought to tax as already discussed herein above while considering the challenges to the grounds as mentioned in impugned order. The Bombay High Court quashed the reference dated 11.07.2011 by the AO to the TPO, order dated 28.01.2013 of the TPO, draft AO 22.03.2013 of the AO and order dated 11.02.2014 of the DRP on the preliminary issue of jurisdiction to tax, setting them aside as being without jurisdiction, null and void. 14. Similarly, the Mumbai Tribunal in the case of DCIT vs. DP World Pvt. Ltd. (140 ITD 694) has held that the receipt of gift in the form of residential flats by the assessee from its sister concern was not in the nature of income and, consequently, was not chargeable to tax either under section 56(1) or section 28(iv) of the Act. 15. Further, the Mumbai Tribunal in the case of DCIT vs KDA Enterprises Ltd (68 SOT 349) again held that gift received by the assessee fromfour group concerns in the formof transfer of di....
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.... the rightful owner of Essar brand along with trademarks and copyrights and the cost, if any, incurred in such registration of brands. f. Sec.2(24) of the Act defines the income, which is an inclusive definition and not exhaustive. Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income tax under the head income from other sources, if it is not chargeable to income tax under any other head specified in sec.14, items A to E. g. When this transaction is not covered under the sec.56(2) of the Act then it will certainly fall under the sec.56(1) of the Act for the simple reason that the sec.56(2) begins with "In particular, and without prejudice to the generality of the provisions of sub-section (1), the following income shall be chargeable to Income-tax.......". By relying on the case law, it is submitted that 'without prejudice' provision cannot limit the operation of the other provision, accordingly, it is submitted that operation of sec 56(2) do not in any way restrict other provisions from the sweep and ambit of sec 56(1) of the Act, reliance is placed on G.R Karthigeyan case(Supra). 22.1 We have observed from a perus....
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....as a gift by EIL to the corpus of the assessee trust formed the latters profit-making apparatus, that was exploited by it by entering into non-exclusive brand licensing agreements with its group entities and, earning substantial license fees therefrom, thus, the same formed its fixed capital. Accordingly, as the brand "Essar" (supra) was only a means by which the assessee had entered into non-exclusive brand licensing agreements with its operative group entities, therefore, it could not be anything but its capital asset. Our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the case of CIT Vs. Vazir Sultan and Sons (1959) 36 ITR 175 (SC). Also, support is drawn from the judgment of the Hon'le Apex Court in the case of CIT Vs. Bombay Burmah Trading Corporation (1986) 161 ITR 386 (SC); and that of the Hon'ble High Court of Bombay in the case of CIT Vs. Mahindra & Mahindra (1973) 191 ITR 130 (Bom). It is in the backdrop of the aforesaid settled position of law, that we shall hereinafter deal with the issue before us, viz. whether the transaction in question i.e contribution of brand "Essar" as a gift by EIL to the corpus of the assessee trust, which thereafte....
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....n of brand "Essar" as a gift by EIL to the corpus of the assessee trust did not involve any profit element which could be brought within the meaning of "Income" under Sec. 2(24) of the Act, therefore, it could not be subjected to tax under the residuary head i.e "Other sources" u/s 56(1) of the Act, thus, uphold his view to the said extent. Coming to reliance on case laws by the Ld. D.R, we shall first take up the case of G R Karthikeyan (supra) as had been relied upon by him. In this case the assessee had participated in the All India Highway Motor Rally and had won the first prize of Rs. 22,000. The ITO included the amount of prize money in the income of the assessee by relying upon the definition of `income' in cl. (24) of s. 2. On appeal, the AAC held that inasmuch as the rally was not a race, the amount received cannot be treated as income within the meaning of s. 2(24)(ix). Further, the appeal preferred by the Revenue was dismissed by the Tribunal. On a reference by the revenue, the Hon'ble Madras High Court answered the issue in favour of the assessee. On further appeal, the Hon'ble Supreme Court did not concur with the view taken by the High Court, and held, that if th....
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....an Narayan Singh Vs. CIT-3, (1935) 3 ITR 237 (PC), that "income' is a word difficult and perhaps impossible to define in any precise general formula, and anything that can properly be described as income is taxable under the Act unless expressly exempted. Admittedly, there is no doubt that the definition of "income" in Sec. 2(24) of the Act is an inclusive one, and the receipt may still be income if it partakes the nature of income. As observed by us hereinabove, as per the mandate of law the capital transaction cannot be brought to tax, unless specifically provided for. Although, there can be no second thought on the proposition that anything that can properly be described as income would be taxable under the Act unless expressly exempted, but then, the department as noticed by us hereinabove in the present case had utterly failed to discharge the burden cast upon it, and therein prove, that the contribution of brand "Essar" as a gift by EIL to the corpus of the assessee trust either fell within the meaning of "Income" as contemplated in Sec. 2(24) of the Act; or partook the nature of income Coming to the case of Bhagwandas Jai (supra), the Hon'ble Supreme Court observed that the....
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....the other cases referred in the case of T V Sundaram Iyengar (supra), pertain to unclaimed advances/deposits received by the respective assesses from their customers, which thereafter were either left as surplus with the said assessee's or were taken by them to their respective profit & loss a/c, being distinguishable on facts would by no means advance the case of the revenue before us. Coming to the case of Sumati Dayal (supra) relied upon by Ld D.R, we find that in the said case the assessee had, inter alia, declared income from winnings from races and claimed the same as being in the nature of a capital receipt. Observing, that the assessee lacked the knowledge of the race techniques, and her books of accounts did not indicate the expenses which were incurred by her for attending the races at Bangalore and Hyderabad, the Hon'ble Apex Court having regard to the conduct of the assessee and the material on record, applied the principle of preponderance of human probabilities and, concluded, that it could reasonably be inferred that the winning tickets were purchased by the assessee after the event, and the majority opinion of the Settlement Commission that was arrived at by applyi....
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....partook the nature of income, therefore, it could not be subjected to tax under the residuary head i.e "Other sources" u/s 56(1) of the Act, thus, uphold his view to the said extent. The Grounds of appeal Nos. 2 & 3 are dismissed. Ground no. 4: Whether on facts and circumstances of the case and in law, the Ld. CIT(A) grossly erred in holding that the provisions of section 56(2)(vii) of the Act would not apply to the value of the 'Essar' brand, trademarks and copyrights purported to have been settled by EIL to the assessee without any consideration. 24. The brief facts relating to this ground are, the Assessing Officer in his remand report, dated 27th March 2017 filed with the CIT(A) submitted, that as the registration of "Essar" brand that was gifted by EIL to the corpus of the assessee trust was done as an 'artistic work' under the Copyrights Act, 1957, therefore, the same falls within the category of "any work of art" contemplated in the definition of "property" under the 'Explanation' to section 56(2)(vii) of the Act. Accordingly, the A.O was of the view, that the receipt of the "Essar" brand was taxable by virtue of section 56(2)(vii) of the Act as it was in t....
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....s and description of the work' it is registered as Artistic work with the title of the work 'Essar' with a '+' sign and words 'POSITIVE ACTION'. Thus, the logo of the brand 'Essar' registered and which is transferred to the assessee for use is registered as 'Artistic' work. The assessee trust uses the name 'Essar' with +ve sign and words 'POSITIVE ACTION' by virtue of settlement of brand and by exploiting the logo of ESSAR it derives income by way of royalty. The definition of property as per the provision of sec 56(2)(vii)(d) is as under: '(d) "Property" means the following capital assets of the assessee namely (i)Immovable property being land or building or both; (ii) Shares and securities; (iii) Jewellery; (iv) Archaeological collections; (v) Drawings; (vi) Paintings; (vii) Sculptures; (viii) Any work of art; (ix) Bullion The registration of the brand "Essar" is done as artistic work in nature and, therefore, the same falls in the category of 'Any work of art' in the definition of property as per section 56(2)(vii) of the I.T. Act as the assessee uses the same logo. Hence, the explanation of the assessee that the transfer of the brand does not fall in the def....
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....TTER 1.Works neither used nor capable of being used in relation to goods or services Works neither used nor capable of being used in relation to goods or services may include but not limited to painting, photograph, sculpture, drawing, sketches, maps, charts etc. 2.Works used or capable of being used in relation to goods or services Works used or capable of being used in relation to goods or services may include but not restricted to labels, symbols, marks or logos, associated with a brand or a business 3. How to differentiate between artistic works capable of being used in relation to goods or services and artistic works which are not capable of being used in relation to goods or services. Such artistic works which have potential to eventually turn into trademarks, or such marks which are outwardly associated with any brand identity represented by a business protected under trademarks, are treated as artistic works capable of being used in relation to goods or services, for Copyright registration purposes and require submission of search Certificate (TM-C) issued by the Trade Mark Registry, in pursuance to section 45 proviso of Copyright Act. 1957. These include, brand l....
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....sh 7 Name, address, nationality of the author and, if the author is deceased, the date of his death Sudarshan Dheer,6, Kartar Bhavan, Minoo Desai Road, Colaba,Bombai-400005 Indian Mr. Michael CurtisStart Creative Ltd., 2,Sheraton Street, Soho, London, U,K.Indian They are the artists 8 Whether it is published or unpublished Published Published 9 Year and country of first publication and name, address and nationality of the publishers 1993, India, Add. As in col.2 above 2008, India, same as in col.2 above 10 Years and countries of subsequent publications, if any, and names and addresses and nationality of the publisher Published from time to time and last published in 1994 Published from time to time and last published in 2009 11 Names, address and nationalities of the owners of various rights comprising the copyright in the work and extent of rights held by each, together with particulars of assignments, and licenses, if any Essar Investments Limited, 13th Floor, Maker Chamber IV, Nariman Point, Bombay -400021, Indian Same as in col.2 above. 12 Names, address and nationalities of other persons, if any, a....
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....the word "work"is used to describe the subject matter of copyright. (v). On the basis of the above elaborate discussion with reference to the Practice and Procedure Manual 2018, issued by the Copyright Office, Government of India, the Essar Brand will fall under the definition of property under section 56(2)(vii) Explanation (d). (vi). The assessee objected and filed the submission to the remand report of the Assessing Officer raising the ground on applicability of the provision of 56(2)(vii), the assessee quoted Rule 11UA (refer P.74 of CIT(A)'s order). This rule is framed for the purpose of valuation u/s 56 of the Act. The relevant part of the said Rule is reproduced below: "11UA (1)(b) - Valuation of archaeological collections, drawings, paintings, sculptures or any work of art (x) the fair market value of archaeological collection, drawings, paintings or sculptures or any work of art (hereinafter referred to as artistic work) shall be estimated to be the price which it would fetch if sold in the open market on the valuation date. (ii) in case the artistic work is received by way of purchase on the valuation date from a registered dealer, the invoice value of the artis....
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....fined therein. Accordingly, while the meaning of the term propertymay have a wide amplitude for the purpose of section 2(14) the meaning under section 56(2) is restricted to only include the assetsmentioned therein. Further, it is submitted that `Brand' and `work of art' are different type of capital assets. In this regard, reference is drawn to the definition of "capital asset" under section. 2(14) of the Act, reproduced below: "2(14) "capital asset"means- (a) property of any kind held by an assessee, whether or not connected with his business or profession; (b) .....................but does not include- (i) personal effects, that is to say, movable property (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes- (a) .....; (f) any work of art." ..... On a perusal of the above definition of 'capital asset' u/s 2(14) of the Act, it may be noted that that though "work of art" is a capital asset, it can be treated as being in the nature of 'personal effects' considering that 'work of art' is specifically excluded from the category of capital assets treat....
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.... production of the beautiful invisible form, the handiwork of an artist, or something more than the mere labor of an artisan; and the termhas been said to include all works belonging fairly to the so-called fine arts, painting, drawing, and sculpture. The term"works of art', as descriptive of an authorized subject of copyright, is defined in C.J.S. Copyright and Literary Property 32, and as descriptive of importations, in C.J.S. CustomDuties 62." Cambridge Dictionary "an object made by an artist of great skill, especially a painting, drawing, or statue" MerriamWebster Dictionary "a product of one of the fine arts especially, a painting or sculpture of high artistic quality" Chambers Dictionary "a painting, sculpture or other production in the fine arts, especially one of high quality, anything constructed or composed with manifest skill" Collins Dictionary "a work of art is a painting or piece of sculpture which is of high quality" Macmillan Dictionary "something such as a painting or sculpture that is of very high quality" 6. In this regard it is submitted that a 'brand' as is commonly understood is a design, sign, symbol or a combination of these....
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....of art" is not a term of art, however, its meaning has to be construed in the context of the provision of section 5(1)(xii) and the expression "works of art" is employed along with other expressions like archaeological, scientific or art collections, books or manuscripts belonging to the assessee. Therefore, there must be an element of human skill involved or applied in the manufacture of the product which on a mere look up it can be regarded as works of art. In Halsbury's Laws of England, fourth edition, in paragraph 892, the expression "works of art" is defined as follows: "Works of art" applies to paintings, drawings and pastels executed by hand, original engraving prints and lithographs and original sculptures and statutory (sic) in any material." In Sampath lyengar's The Three New Taxes, the expression and term "works for art" (at page 388) is as under: "Works of art are those which are the result of human skill applied in various directions, such as, sculptures by Michael Angelo, paintings by Raphael, Ruben, Vandyke, Leonardo da Vinci, Botticelli, Rembrandt, etc., or portraits by Ravi Varma, etc. Leading examples of private art collections in India but to which ....
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....paintings of such legendary artists such as Rapheal, Ruben, Vandayke, Leonardo Da Vincy etc., we would perhaps site with an understanding adopted by the Andhra Pradesh High Court in the case of Sp. Zainab Noorul Sayeeda (supra). We would still emphasis that a "work of art" must be a creation through human skill and must present exquisite and rare aesthetic beauty. No article brought into existence by human effort can be called "work of art" but has to be something which is rare and/or exceptional aesthetic beauty with artistic input." 8.Similar view has been taken by Calcutta High Court in case of Rajendra Kumar Sethia vs. CWT (194 ITR 218) wherein it was held as under (Pg 2): "12 In our view, jewellery having been considered separately, it will not come within the purview of 'work of art' Even assuming that a piece of jewellery is a Work of art' and comes within the purview of Section 5(i)(xii), it cannot be ordinary piece of iewellery which ismeant for personal use and which, by it very nature, is liable to be sold whenever such occasion arises." 9. It is also submitted that registration of the logo "ESSAR" under the Copyrights Act, 1957 as "an artistic work" do....
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....hargeable to income-tax under the head "Income from other sources" u/s 56(2) of the Act. Controversy qua the issue in hand lies in a narrow compass i.e as to whether or not the 'Essar" brand registered as an 'artistic work' under the Copyrights Act, 1957 would ipso facto bring the same within the meaning of "any work of art" as contemplated in the definition of "property" in the 'Explanation (d) to Sec. 56(2)(vii) of the Act. Before adverting any further, we may herein observe, that as stated by the ld. A.R, and rightly so, the definition of "property" as contemplated in the 'Explanation' to Sec. 56(2)(vii) is restrictive in nature and exhaustively refers to the assets which would fall within the domain of the said definition. On a perusal of the definition of "capital asset" as envisaged in Sec. 2(14) of the Act, we find, that the same, inter alia, provides that it would not include "personal effects", with an exception carved out for "any work of art". For sake of clarity the relevant extract of the definition of "capital asset" as provided in Sec. 2(14) of the Act is reproduced as under : "2(14) "capital asset"means- (c) property of any kind held by an assessee, whether or n....
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....h artistic quality" Chambers Dictionary "a painting, sculpture or other production in the fine arts, especially one of high quality, anything constructed or composed with manifest skill" Collins Dictionary "a work of art is a painting or piece of sculpture which is of high quality" Macmillan Dictionary "something such as a painting or sculpture that is of very high quality" As per the dictionary meaning, the term "work of art" means an object made by an artist of great skill i.e something that is considered to have aesthetic value, is beautiful, intriguing, interesting, creative or extremely well done. Say, for example a painting by renowned artists such as Rapheal, Ruben, Vandayke, Leonardo Da Vincy etc. would fall within the realm of the definition of "work of art". Although the term "any work of art" as provided in the definition of "property" under "Explanation (d)" to section 56(2)(vii)(c) had not been defined under the Act, however, a similar term was used by the legislature in Section 5 of theWealth-tax Act, 1957. Considering the scope and gamut of the term"any work of art" as used in Sec. 5 of theWealth Tax Act, 1957, the Hon'ble Madras High Court in the case o....
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....public entry is permitted are: '(1) the Collections of Sir Salar Jang situate in Hyderabad, (2) the Mullick Art collections at Calcutta, (3) the Vizianagaram Collections at Varanasi, and (4) the Singhania Collections at "The Retreat", Kanpur' ". A reading of the above two extracts clearly shows that there must be an element of human skill employed in the making of the article and the result of human skill should be apparent in the article to regard them as works of art. It is not every article which is manufactured manually that can be regarded as works of art and there must be some artistic innovation which would turn them as works of art. The Tribunal on inspection of trophies and cups came to the conclusion that the said trophies carry certain engraved markings of the occasion and events in which the assessee won the cups and trophies and there was no human skill applied on the said trophies or cups. Since the Tribunal has come to the above conclusion on the visual inspection of the samples of articles produced before it, we are not in a position to accept the argument of the learned counsel for the assessee that the cups and trophies of the assessee should be regard....
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....s "an artistic work" would not ipso facto mean that it is in the nature of "a work of art". Our aforesaid view is fortified by the definition of "artistic work" in Sec. 2(c) of the Copyright Act, 1957, which reads as under : "(i) a painting, a sculpture, a drawing including a diagram, amp, chart or plan, an engraving or a photograph, whether or not any such work possesses artistic quality; On a perusal of the aforesaid definition of "artistic work" in Copyright Act, 1957, we find that the same provides that even if the drawing including a diagram, amp, chart or plan, an engraving or a photograph has no artistic quality, for the purpose of Copyrights Act, 1957, it is to be considered as an artistic work because the purpose of the Copyrights Act is to protect the rights of an artist who has created artistic work so that it cannot be reproduced by any other person without his permission. In the backdrop of the aforesaid meaning of "artistic work" in Copyright Act, 1957, we are of the considered view that the purpose for which the said term is used under the Copyright Act is different from the purpose with which "any work of art" is used by the Legislature in section 56(2)(vii) of t....
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....Act, however, alternatively, as observed by us hereinabove, the very method adopted by the A.O for valuing the same by applying DCF method is not as per the mandate of law. We, thus, in terms of our aforesaid observations concur with the view taken by the CIT(A) that the brand "Essar" contributed as a gift by EIL to the corpus of the assessee trust could not have been brought within the meaning of "any work of art" as contemplated in the definition of "property" in 'Explanation (d)" to Sec. 56(2)(vii) of the Act, and thus, on the said count be subjected to tax under the head "Income from other sources". The Ground of appeal No. 4 is dismissed. Ground no. 5: Whether on facts and circumstances of the case and in law, the Ld. CIT(A) grossly erred in holding that the provisions of section 28(iv) of the Act would not apply to the value of the 'Essar' brand, trademarks and copyrights purported to have been settled by EIL to the assessee without any consideration. 29. Before us, the Ld D.R submitted the below submissions relating to the ground no 5 alongwith the relevant facts: (i) This ground was raised by the Assessing Officer for the first time before the CIT(A) in his remand repor....
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....e. So, a view can be taken that the source is also business income. Nobody knows why the assessee got such a costly asset free of cost. Nobody can vouchsafe that the assessee was not having any business. Everything is shrouded in mystery. In this chaotic situation, since the assessee is showing business income, one legitimate inference can be drawn that the assessee has been the beneficiary of a complex and dubious business deal and has reaped benefit of Rs. 1668.10 crores. Hence, discarding the traditional approach, it can be safely held that benefit of Rs. 1668.10 crores arose to the assessee from this dubious business arrangement. (iv) Hence it is respectfully submitted that alternatively, the value of the brand is taxable under 28(iv) of the Act. It is prayed that this ground of appeal may be allowed. 30. In response, the Ld AR submitted that the AO raised this issue in his remand report and submitted as below: * The AO raised the contention as to the applicability of section 28(iv) of the Act for the first time in his remand report dated 13 February 2017. The AO in his remand report stated that the value of the Brand acquired by the assessee without making any payment tow....
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....the assessee would not trigger the provisions of section 28(iv) of the Act. The Brand was gifted to the assessee immediately on its coming into existence and, thereafter, the assessee exploited the Brand by executing royalty license agreements from which it now earns brand license fee. Prior to the gift of the Brand the assessee had neither commenced any business operations nor earned any income nor had any business activity. Given this undisputed fact section 28(iv) of the Act cannot have any application. 2.Reliance in this regard is placed on the decision of the Calcutta High Court of CIT v/s General Industrial Society Ltd. (2003) 262 ITR 1 (Cal), wherein the question was whether the amount received on transfer of a licence, which was acquired for setting up a new business and remained unutilized could be charged to tax by invoking the provisions of section 28(iv). The High Court held in favour of the assessee holding as under (Pg.6): "8. First, the licence was not an outcome of the business carried on by the assessee. It was in no way connected with the business carried on by the assessee.On the other hand, this licence was obtained for the purpose of setting up of altogethe....
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....held that a gift received by the assessee cannot be taxed under section 28(iv) of the Act: a. Reliance in this regard is placed on the decision of the Mumbai Tribunal in DP World (P) Ltd v. DCIT (140 ITD 694),wherein it is held that a transaction byway of a gift is considered to be a capital receipt and cannot be held as a benefit or perquisite arising from business as there is no direct nexus to the business dealings. The relevant extract of the decision is as under:- "20. We have carefully considered both the provisions. Let us first examine the provisions of sec.28[iv] of the Act relied upon by the CIT(A). "28. Profits and gains of business or profession. The following income shall be chargeable to income tax under the head "Profits and gains of business or profession", (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; " In our humble opinion, the transaction is of a giftwhich is a capital receipt in the hands of the assessee and therefore it cannot be said to be a case of any benefit or perquisite arising from business. The contention of the Ld. Departmental Representative that by....
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....bove, it is also submitted that the provisions of section 28(iv)of the Act do not apply to income which is in the nature of a capital receipt. In this regard, reliance is placed on the following judgments wherein it was held that a capital receipt cannot be taxed under section 28(iv) of the Act. a) CIT vs. Stads Ltd. (373 ITR 313) (Mad.) (Para 11] b) CIT vs. Softworks Computers Ltd. (354 ITR 16) (Bom.) (Para 7] c) PCIT vs. Rajasthan Co-operative Dairy Federation Ltd. (423 ITR 89) (Raj.) (Para 6] 5. In viewof the above, it is submitted that the receipt of the Brand is not taxable in termsof section 28(iv) of the Act. 32. Considered the rival submissions and the material placed on record. It is a matter of fact borne from record that the assessee is an irrevocable discretionary trust formed on 29thMarch 2012. The brands which are the property of the EIL were gifted to the assessee vide its board resolution and shareholders resolution dated 29th March 2012. In the backdrop of the fact that the assessee trust was formed on the same day when the brands were gifted to it by EIL, it cannot be held that they were generated out of the business carried on by the assessee. As per sec....
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....ed why the amount credited by various companies as royalty amounting to Rs. 29,59,17,233/-, appearing in Form 26AS should not be treated as its income for the year under consideration. AO held that the assessee had not substantiated the cash system of accounting. AO made a reference to Accounting Standard 9 issued by ICAI which mandates accrual method of accounting to be followed for royalty. (Para 6.2 of AO order) b) Parties making royalty payment have already deducted TDS and claimed expenditure on said payments (evident from Form 26AS). Therefore, cash method followed by the assessee is not acceptable. (Para 5.4.2 of AO order) c) The AO held that the amount of Rs. 26,63,25,508/- (i.e. Rs. 29,59,17,233 - Rs. 2,95,91,725) being the amount of income not declared in the return of income would be treated as business income. (Para 6.3 of AO order) 34. Aggrieved, the assessee filed detailed submissions before the CIT(A), who after considering the same deleted the additionwith the following observations: a. Cash method of accounting has been followed as provided for in section 145(1) of the Act in the current year and consistently in the subsequent years too. b. The companies f....
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....relevant Financial Year, and shall be adjusted with the Licence Fee payable for the next Financial Year." There is no explanation as to why the payment is not made according to the agreement. (iv) The Departmental Paper Book-I (pp 141-144) contains copy of Accounting Standard-9 (AS 9). It would be useful to reproduce the following extracts form AS-9. P.144 "Royalties accrue in accordance with the terms of the relevant agreement and are usually recognised on that basis unless, having regard to the substance of the transaction, it is more appropriate to recognise revenue on some other systematic and rational basis." Thus, the assessee has flouted all norms by not recognising the revenue this year. (v) The Licensees are group companies. If they could be commanded to sign the brand licence agreement on the same day, it is not understandable why they were not asked to make the payment to the assessee when they credited the amounts to the account of the assessee. The obvious conclusion is that it is a preplanned design whereunder the companies and the assessee would follow different methods of accounting and the companies would be asked to defer the actual payment of royalty. B....
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....system of accounting and the assessee trust follows cash system of accounting. The ESSAR entities claim expense by deducting TDS in the name of brand license fees but not actually paying the brand license fees. The assessee trust does not show the brand license income in the return of income and avoid paying due taxes. By this arrangement, the group as a whole has benefitted with avoiding taxation on Rs. 222,34,40,491/- over the past 7 years. The gap would widen over the years and there would be great scope for manipulation for tax evasion. There would also be serious problem of reconciliation when most of the returns centrally processed on computer and are accepted. ASSESSMENT YEAR Brand License Income as per Return of Income Brand License Income as per 26AS Difference (26AS - ITR) 2013-14 29591725 295917237 266325512 2014-15 1074570749 1039208633 35362116 2015-16 757650460 994822833 237172373 2016-17 781851421 1721716509 939865088 2017-18 3027033370 3065287196 38253826 2018-19 3181848370 2899119543 282728827 2019-20 1177189817 2237104452 1059914635 Total 10029735912 12253176403 2223440491 (ix) Hence, this being the ....
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.... (Refer paperbook pg. 230, para 13.1) 2. Considering the above, in the year under consideration, although, an income of Rs. 29,59,17,233/- had accrued to the assessee, since the same was not received, basis the cash method of accounting adopted, income of Rs. 2,95,91,725/-, being the taxes deducted at source by the licensees which was deemed to be received during the year was offered to tax as income by the assessee in accordance with section 198 of the Act. 3. In this regard, the assessee submits that as per section 145 of the Act, income chargeable under the head "Profits and gains from business or profession" or "Income from Other Sources" shall be computed based on the accounting method regularly followed by the assessee. The provisions of section 145(1) of the Act itself provides that an assessee can follow either method of accounting i.e. cash or mercantile, provided the chosen method is 'regularly employed' by it. Section 145 of the Act is reproduced as follows: "145(1) Income chargeable under the head "Profits and Gains of business or profession" or "Income from other sources" shall, subject to the provisions of subsection (2), be computed in accordance with....
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.... balance his books. But he has the option of valuing the closing stock either at cost or atmarket value, if themarket value is lower than the cost price.... That the option exercised by an assessee is detrimental to revenue can never be the basis for denying him that option...The valuation of the closing stock at cost instead of at market value was the method adopted by the assessee bank down to the end of 1950. It was a method of accounting within the meaning of section 13. The question is, whether section 13 or any other concept of revenue law bars an assessee from changing his method of accounting. As has been repeatedly pointed out by courts, it is the assessee and not the department that has the choice of the method of accounting. The department is bound by the choice of the assessee...." Further, reliance is placed on the following decisions where the Department cannot reject a method followed by the assessee. The option to choose a method of accounting lies with the assessee and the department cannot compel the assessee to follow a particular method of accounting. A choice is provided to the assessee for following any of the method of accounting as long as it is consiste....
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....ollow any system of accounting in respect of that source. It is further held that the assessee may follow even different systemof accounting in respect of different sources...." CIT vs. Pondicherry Industrial (254 ITR 748) (Mad.) (Para 3 & 4] CIT vs. Bikaner Trading Co. (180 ITR 286) (Raj.) (Para 5] 7. The AO in his remand report has alleged that method of accounting followed by the assessee in the subsequent years cannot be taken as base to establish method of accounting in the impugned year. The said allegation has not been substantiated and has been made without considering the rulings referred to by the assessee in the CIT(A) submission wherein it has been held that even for the first year of accounting, the method would be deemed to be regularly employed if the same has been consistently followed by the assessee in the subsequent year. The said rulings are referred hereunder for ready reference. The Gujarat High Court in the case of CIT vs Advance Construction Co Pvt. Ltd. (275 ITR 30) (Guj) has upheld the finding of the tribunal that: "In the present case, the Tribunal has categorically found that "the assessee has followed the standard accounting method as this being....
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....-II relating to disclosure of Prior period and Extraordinary items and changes in accounting policies have been notified under section 145 of the Act for the year under consideration. The AS-9 issued by ICAI is not specifically notified for tax purposes. The same is not relevant for determining total income under the Act for the assessee following cash method of accounting. In this regard, reliance can be placed on the decision of the Mumbai tribunal in the case of DCIT vs Stup Consultants P Ltd (13 ITR 468) (Mum tribunal). The relevant extract of the same is as under:- "Even with regard to the AS-9 of the ICAI which was the reasons assigned by the AO for rejecting the books of account of the assessee in asst. yr. 2006-07, we find that those accounting standards are applicable only to the assesses, who follow mercantile system of accounting. Since the assessee, in the present case follows cash system of accounting, we are of the view that the rejection of books of accounts on this basis cannot be upheld." 12. Hence, it is respectfully submitted that reliance placed on section 145(3) to reject the cash method of accounting by the AO is incorrect and unsustainable in law, especia....
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.... assessee, it is now settled that the year of taxability is AY 2013-14 is without any basis and factually incorrect. Without prejudice to the above, the assessee submits that the value of brand could have been subject matter of adjudication for taxation only in AY 2012-13 and not in AY 2013-14. ii)On facts and in circumstances of the case and in law, the CIT(A) erred in holding that the Respondent has to be treated and assessed as an 'individual' for the purpose of determining applicability of section 56(2)(vii) of the Act. iii)On facts and in circumstances of the case and in law, the CIT(A) erred in not adjudicating the ground raised disputing the valuation of "Essar" brand, trademark and copyrights carried out by the AO. The department's counsel in his written submissions at para 32 mentions that no cross objection has been filed by the assessee and hence the issue stands settled that the approach to compute the value of the brand by applying discounted cash flow is correct. This contention of the department's counsel is without any basis and factually incorrect as an application under rule 27 has been filed with regard to this specific ground. Part II- Ou....
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....f the proprietors,notifications of assignment and transmissions, the names, addresses and descriptions of registered users, conditions, limitations and such other matter relating to registered trade marks as may be prescribed... 18. Application for registration.-(1) Any person claiming to be the proprietor of a trade mark used or proposed to be used by him, who is desirous of registering it, shall apply in writing to the Registrar in the prescribed manner for the registration of his trade mark." Therefore, a person claiming to be the proprietor of the trademarks can only apply for the registration under the Trademarks Act, 1999 and once registration is granted, the trademarks are registered in the name of the proprietor. Thus, considering the trademarks are registered initially in the name of EIL and thereafter in the name of the assessee, both the assessee as well as EIL can be said to be the owner of the trademarks at the respective relevant periods. In this regard, reliance is placed on the following decisions wherein the courts have held that trademark registration is prima facie proof of ownership: Exide Industries Ltd. vs. Exide Corporation USA (CS (OS) No. 812/1997 (De....
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....le to tax. 10.Further, as stated earlier assuming the transaction between EIL and the assessee is not genuine and not bonafide as alleged, then, there is no gift of the Brand to the assessee. Accordingly, the assessee has not received the asset. Therefore, the AO cannot assess the assessee for the value of the Brand of which it is not an owner. 11.Hence, the argumentsmade by the department's counsel are without anymerits. 12.The department's counsel has also alleged that the manner and the haste in which all the transactions were conducted are abnormal. The department's counsel has referred to the fact that both the board resolution and the shareholder's resolution were passed on the same day i.e. on 29March 2012. Further, the transfer of the brand was also done on the same day. The department's counsel had also alleged that the date of notice convening the meeting of the shareholder's and the shareholder's meeting are on the same date. The department's counsel has also argued that the brand licensing agreements were signed in a casual manner, made retrospective and signed as if the partiesweremarking attendance. 13.As regards the department&....
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.... licensees have paid brand license fees to the assessee. In this regard, the department is seeking to tax the capital amount in the hands of the assessee as a consequence of the resolutions not being passed by the licensees/ on account of agreements alleged to be signed in a casual manner by the licensees, which is clearly impermissible and beyond the scope of assessment in the case of the assessee. The assessee has duly offered to tax the amount of brand license fees that it receives from these licensees as a result of the brand license agreements as per the method of accounting being regularly employed by the assessee. 17.The department's counsel has further argued that the registration of the trademarks in the name of the assessee was approved in March 2014, but the license agreements were entered into by the assessee much earlier that is on 6 February 2013, with effect from 1 April 2012. In this regard it is submitted that as stated above, under the Trademarks Act, 1999 a person who owns the mark is entitled to get it registered in its name. There is a registration process that is involved as per the Trademarks Act, 1999as provided in section 18 which requires an applicat....
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.... the allegedmotive is held to be true, it is not a ground on the basis of which the AO assumes jurisdiction to tax the value of the capital asset received by the assessee through which the assessee is receiving income. But the so called funds extracted from the companies by way of brand license fees suffers tax in the hands of the assessee and so the same is notwithout a tax cost. 21.Without prejudice to the above it is submitted that there is no tax benefit derived by the assessee as result of entering into such brand licensing agreements with the licensees. The licensees have claimed such amount as an expense however, the assessee has duly offered such income to tax at the maximum marginal rate applicable to the assessee and hence, no tax benefit is derived by the assessee. 22.The various arguments made by the department's counsel under this section is not relevant to the assessment of the income of the assessee in the current case. 23.The department's counsel has argued that all the apparent arrangements are unreal and fake. In this regard it is submitted that if this holds true the assessee cannot be said to be the owner of the brand and the entire assessment made....
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....eated for the identifying the product and services which are marketed under the brand, it does not fall within the meaning of "work of art" consequently, the provisions of section 56(2)(vii) are not applicable. 26. The department's counsel has also alleged that the assessee has evaded tax by adopting cash method of accounting. Additionally, the department's counsel has also alleged that no system of accounting is followed by the assessee as the assessee has not shown any expenses during the year under consideration. 27. In this regard it is submitted that the assessee has an option to choose a method of accounting being the cash method or the mercantile method under section 145 of the Act which is binding on the AO. Therefore, the method of accounting is in line with the provisions of the Act. Further, there is no tax evasion as the amount paid by the licensee companies are offered to tax by the assessee at maximum marginal rate. The year-wise revenue income offered to tax by the assessee, and the corresponding receipts reflected in Form 26AS is tabulated below: A.Y Brand License Income as per Return of Income Brand License Incomeasper 26AS Difference(26AS ) 201....
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....5(3) of the Act. Further, considering that assessment in the current case is completed under section 143(3) and detailed scrutiny of records duly provided by assessee time to time is undertaken, section 145(3) should not be applicable. 32. Further, the department's counsel in his arguments had heavily relied on the decision of Supreme Court in case of CIT vs. G.R. Karthikeyan (201 ITR 866). In this regard the facts of the case before the Apex court was that Mr. Karthikeyan had participated in a motor rally and won the first prize. Mr. Karthikeyan argued that the amount so receivedwas not of an income nature on the contention that it is not 'winnings' as contemplated in section 2(24)(ix) because the use of the term 'winnings' connotes something that accrues by way of chance. However, participating in a motor rally and winning it is a matter of skill and a test of endurance. Accordingly, he argued that it was not an income chargeable to tax. This argument was accepted by the Madras High Court. On reference to the Supreme Court, the Court held: "ix) If the monies which are not earned - in the true sense of the word -constitute income, why do monies earned by ....
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....y the Supreme Court in CIT v. G.R. Karthikeyan (1993] 201 ITR 866 that the definition is of inclusive character, the purpose is not to limit the meaning of the term but to widen its net and even if a receipt did not fall within the ambit of any of the clauses, it might still be income if it partook the nature of the income." 36. The Supreme Court reversed the above decision and held that the amounts received by the assessee/appellant in respect of an abortive sale transaction of rubber trees were capital receipts.Thus, the Supreme Court has itself after considering its earlier decision in the case of G. R. Karthikeyan (supra) has held that a capital receipt cannot be charged to tax - Aroon Purie vs. CIT (375 ITR 188) (Del.) (pars 10,11,12 & 44] V.C. Nannapaneni vs. CIT (407 ITR 505) (AP) [pare 20& 21] CIT vs. Tilak Raj Kalra (249 CTR 205) (P&H.) (pars 11] 37. In view of the above, it is submitted that the reliance by the department's counsel on the decision of the Supreme Court in the case of G.R. Karthikeyan (supra) to tax the value of the brand, being a capital receipt, in the hands of the assessee is incorrect. 38. In view of the above, it is submitted that under secti....
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....hat the aforesaid discrepancy is due to the variance in the method of accounting that was adopted by the group companies and the assessee trust. Be that as it may, the aforesaid difference is only due to timing difference and there is no tax avoidance in this case, as there will be difference every year due to settlement of payment between the parties. 37.1 Further, we notice, that the A.O had observed that as per Accounting Standard 9 (AS 9) it is mandatory to follow the mercantile method of accounting for accounting of royalty transaction. As it is rightly brought on record by the Ld A.R, the above said accounting standard, viz. AS 9 is not applicable to the assessees, a Trust. 37.2 Considering the facts on record and submissions of both parties, we are inclined to accept the finding of Ld CIT(A) on the aforesaid issue in hand, and based on our above observations as regards the method of accounting adopted by the assessee and non-applicability of the accounting standard 9 to its case, no infirmity emerges from the adoption of cash system of accounting by the assessee trust, which as observed by us hereinabove remained at a liberty to select the method of accounting specified un....