TaxTMI 
TaxTMI 
2022 (1) TMI 920
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....yrights, service marks, certification marks, 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 t....
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....n 56(2)(vii) of the Act as they are not in the nature of "work of art". 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 asses....
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....nd of appeal and questioning the genuineness of the ownership of the "Essar" brand, trademarks and copyrights by EIL; and as to whether the settlement of 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 pro....
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....me would render the preconditions and the time frame for exercise by the department of the remedies provided by the legislature in the other statutory provisions, 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 Powe....
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.... of which the A.O had framed the assessment, or are based on facts which are not discernible from the records. A).Re : Admission of 'additional ground of appeal no. 1' : As regards the additional ground of appeal 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 copyright....
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....of the case and in law the value of "Essar" brand, trademarks and copyrights could be brought to tax in the hands of the assessee under Sec. 69A of the Act. Before proceeding any further, we think it apt to cull out the 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 w....
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....e for in clear contradiction of his said stand had in a volte face sought to assess the assessee trust under Sec. 69A, on the basis, that the brand "Essar" was not received by the assessee but represented its undisclosed investment. In 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 en....
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....essee trust from EIL. Backed by the aforesaid facts, we are of the considered view that as neither the facts as regards the alleged error on the part of the A.O are discernible from the record, nor the valuation of the Essar brand, trademarks, 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.....
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....Trust. The Assessee could not explain from where these Trademarks have been transferred to the Balaji Trust or to furnish any evidence, in this regard. The Assessee has also not brought any evidence on record with regard to the 'Essar' brand and its origin." 13.2 Aggrieved, 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....
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....vidence: a. The assessee trust had in the course of the assessment proceedings vide its letter dated 15thMarch, 2016 filed a sample copy of registration certificate of trademark held by one of the trustees i.e EIL,which revealed that EIL was the owner of the trademark "ESSAR" since 1996. It was noticed by the CIT(A) that alongwith its 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....
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.... admission of the additional evidence by the CIT(A), the revenue has, inter alia, assailed the same before us. The Ld D.R had assailed the admission of the additional evidence by the CIT(A), as under : "(i) In this case in spite of several opportunities given by the Assessing Officer, the assessee did not produce evidence before the Assessing Officer that Essar Investment 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 Pa....
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....ust or to furnish any evidence in this regard. The assessee has also not brought any evidence on record with regard to the "Essar" brand and its origin. Moreover, the moot question which will arise at this juncture is that if such a brand was in existence, why the same was not commercially exploited earlier by EIL. It has not been established by the assessee or EIL that if arguably the contention of the assessee that the brand 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 th....
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....enhancing the value of the brand considering all these trademarks. It is also important to note that the trademark at page no.57 was selected to be furnished before Assessing Officer because it represented the product - industrial oil etc. which may not raise an eye brow as it may be linked with the company Essar Oils Ltd. It was not a mere coincidence or a sample. The assessee may be held guilty of suppressing vital materials from the Assessing Officer. (v) So it is a mystery why the trademarks of 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, therefo....
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....itted that the CIT(A)was right in admitting the additional evidence submitted by the assessee vide letter dated 13 October 2016. 4. In this regard reliance is placed on the judgment of the Bombay High Court in Smt. Prabhavati S. Shah v. CIT (231 ITR 1)wherein it has been held that the provisions of rule 46A do not put a fetter on the power of the CIT(A) to entertain additional evidence as the powers of the CIT(A) are very wide and it is incumbent upon himto exercise the discretion under section 250(4) of the Actwhen the facts andcircumstancesof the case justify 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 pro....
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....y reiterated the contentions in the assessment orders. It is only after considering the remand report, the Commissioner of Income-tax (Appeals) had admitted the additional evidence. It cannot be disputed that this additional evidence was crucial to the disposal of the appeal and had a direct bearing on the quantum of claim made by the assessee. The plea of the assessee which was taken before the Assessing Officer remains the same. The Assessing Officer had taken adverse note because of non-production of certain documents to support the plea and it was in these circumstances, the additional evidence 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 Tax....
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....at EIL is the owner of the Brand basis the documents furnished during the course of the assessment proceedings or, in the alternative, a view is taken that basis the documents on record EIL is not the owner of the Brand but, in that event, it must necessarily follow that since EIL is not the owner of the Brand, the assessee has also not received the same from EIL and, consequently, the question of treating the value of the Brand so received as the income of the assessee does not arise. 10. In view of the above, it is submitted that even if the additional evidence was not admitted by the CIT(A), the assessee would not have been chargeable to tax as the entire transaction 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 br....
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.... (around 80) in the name of the assessee trust, however, no evidence was filed as to from where these trademarks had been transferred. It was also stated that the assessee had not brought on record any evidence with regard to "Essar" brand and its origin. 17. In the backdrop of the aforesaid observations of the A.O, the assessee vide its letter dated 13th October, 2016 in order to dispel all doubts as regards the ownership of the Brand "Essar" by EIL prior to its settlement in the assessee trust had submitted certain documents as additional evidence before the CIT(A), as under : (i). 82 trademark certificates (ii). 2 copyright certificates (iii). Certified true copy of the Form 23 filed with 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 ....
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....rior to its settlement in the assessee trust, therefore, its case clearly falls in the circumstances provided in Rule 46A(1)(d) of the Income-tax Rules, 1962. We, thus, backed by our aforesaid observations find no infirmity in the admission of the aforesaid documents as additional evidence by the CIT(A) and uphold his order to the said extent. 19. Apart from that, we are of the considered view that as the fact that EIL was the owner of the brand/trademarks since 1996 was a fact that was available in the domain of the A.O even during the course of the assessment proceedings, therefore, the additional documentary evidence filed by the assessee with the CIT(A) vide its letter dated 13th October, 2016 did not bring any new facts 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 ....
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....licability of the general provision of section 56(1). He pointed out that the section 56(2) starts with a without prejudice clause as under: "In particular and without prejudice to the generality of the provisions of section 56(1) ....". The Assessing Officer relied on the Judgment of the Hon'ble Supreme Court in the case of Andhra Pradesh State Financial Corporation v. Gar Re - Rolling Mills, AIR 1994 SC 2151 which explains the implication of the use of the words "without prejudice". (iii) A copy of the said judgment of the Hon'ble Supreme Court in Andhra Pradesh State Financial Corporation v. Gar Re - Rolling Mills, AIR 1994 SC 2151is placed in Departmental Paper Book No.II. The relevant extracts of the said judgment are reproduced below. "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 re....
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....ed by the Corporation has not been complied with or honored by the defaulting party or is otherwise insufficient to satisfy the dues of the Corporation and the Corporation withdraws and abandons to pursue further proceedings under section 31 of the Act. Passing a money decree for recovery of the outstanding dues, not being under the jurisdiction of the court under section 31 of the Act, the Corporation retains its right to recover the dues by invoking the provisions of section 29 of the Act in the manner prescribed therein notwithstanding any order, final or interim, obtained by it under section 31 of the Act by withdrawing from and abandoning those provisions at any stage of the proceedings. A court of equity, when exercising its equitable jurisdiction under Article 226 of the Constitution must so act so as to prevent 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....
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....ft so received was claimed as capital receipt and therefore credited to the capital reserve account in its books(p.91 of the order of ITAT). In our case the brand is not recorded in the books. There is no trace of the receipt of the brand. Had the case not been taken for scrutiny through CASS system, the whole transaction would not have come to light. (d) In the case of KDA, the books of account were prepared as per the requirement of the Companies Act, and the same have been audited and approved by statutory auditors and also adopted by the shareholders in the Annual General Meeting of the assessee. (p.92 of the order of ITAT). Nothing of the sort in the case of the assessee. (e) In the case of KDA receipt of gift as well as making of gift are authorized by respective Memorandum and Articles of Association of the companies and the assessee (p. 99 of the order of 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 ....
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....tion and All India Highway Motor Rally should not be brought to tax?" The Income-tax Officer included the same in the income of the assessee relying upon the definition of 'income' in clause (24) of section 2. [Please note - the Assessing Officer has done the same in the case under consideration] The Appellate Assistant Commissioner held that in as much as the rally was not a race, the amount received cannot be treated as income within the meaning of 2(24)(ix) and allowed the appeal. The ITAT dismissed the appeal of the Revenue. It gave the following reasoning: (a) The rally was not a race. It was predominantly a test of skill and endurance as well as reliability of the vehicle. (b) The rally was not a game within the meaning of section 2(24). (c) The receipt in question was casual in nature. It was nevertheless not an income receipt and hence fell outside of the provisions of section 10(3) of the Act. The Hon'ble High 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 ....
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....tended that the word income means realisation of monetary benefit and that in the absence of any such realisation, by the assessee, the conclusion of any amount by way of notional income under section 23(2) of the Act in the chargeable income was impermissible and outside the scope of entry 82 of list-1 of the Seventh Schedule to the Constitution. The said contention was rejected affirming that the expression income is of the widest amplitude and that it includes not merely what is received or what comes in by exploiting the use of the property but also that which can be converted into income." Page 7 ........ Further, even if a receipt does not fall within sub-clause (ix) or for that matter any of the sub-clauses in section 2(24), it may yet constitute income. To say otherwise, would mean reading several clauses in section 2(24) as exhaustive of the meaning of "income" when the Statute expressly say that it is inclusive. It would be a wrong approach to try to place a given receipt under one or other sub-clauses in section 2(24) and if it 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 ....
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....ously done that. (b) This is an extraordinary case where the books of accounts do not record any value to help in determining whether it is revenue or capital receipt. (c) It is a rarest of the rare case, where the value of the brand i.e the value of the source of the royalty income had to computed by working backward by Discounted Cash Flow method where the value of the source was determined on the basis of the value of the annual yield. (d) Further, it defies all logic to hold that so much income will be earned by the assessee year after year out of nothing i.e without spending anything for the source. (e) The Hon'ble Supreme Court has repeatedly emphasized that section 2(24) gives an inclusive definition of income. Therefore, no attempt should be made to fit in the value of the brand in one of the items appearing in section 2(24) as has been done by the CIT(A). (f) As explained by the Hon'ble Supreme Court, the word "income" is of widest amplitude and it must be given its natural and grammatical meaning. In this case the assessee became suddenly in possession of an extremely valuable asset which became a permanent source of high incom....
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.... has rightly brought this amount to tax. The other judgments referred in the above judgment of the Hon'ble Supreme Court in the case of T. V. Sundarm Iyengar and Sons Ltd. are briefly summarized below. (b) Punjab Steel Scrap Merchants Association Ltd. v. CIT[1961]43 ITR 164 (Punj.).- The assessee was a dealer in scraps. It received advance deposit from the constituents for supply of scraps. After adjusting the sale price some excess unclaimed amount remained with the assessee which was transferred to the profit and loss account. This excess amount of advance received from its constituents was held to be taxable as it was essentially a trading receipt. (c) Punjab Distillery Industries Ltd. v. CIT [1959] 35 ITR 519 (SC) - The assessee was a distiller of country liquor. It received some deposit for empty bottles and security deposit from the wholesalers which were recorded in a separate register. The amounts were refunded when the bottles were returned. After the bottle were returned, the assessee was left with a surplus amount. It was held to be trade receipts and taxable. (d) Poineer Consolidated Co of India Ltd. v. CIT [1976] 104 ITR 686 (All.) -....
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....mitted that the books of account did not indicate the expenses which have been incurred by the assessee for attending races at Bangalore and Hyderabad. (Please note the similarity- The assessee in our case under consideration did not show any expenditure.) The Settlement Commission upheld the view of the Assessing Officer. It observed as under: "5. It is no doubt true that in all cases in which a receipt sought to be taxed as income, the burden lies upon the Department to prove that it is within the taxing provision and if the receipt is in the nature of income the burden of proving that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee. (See Parimisetti Seetharamamma [1965] 57 ITR 532 at page 536). But in view of section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income-tax as the income of the assessee for that previous year if the explanation offered by the assessee about the nature and source thereof is, in opinion of the Assessing Officer, not satisfactory. In such a case, there is, prima facie, evidence against the assessee, viz., the rec....
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....ved a gift of trademark and copyrights to brand "ESSAR" from EIL. Therefore, the question arises whether a gift received by the assessee is in the nature of income within the meaning of the said term in section 2(24) of the Act and, accordingly, chargeable to tax. In this regard, it is submitted that receipt of property by way of a gift is not in the nature of income under section 2(24) of the Act. In this regard, reliance is placed on the judgment of the Bombay High Court in the case of H.H. Maharani Shri Vijaykuverba Saheb of Morvi vs. CIT (49 ITR 594) (Born.) wherein the question was whether the payment received by the assessee from his son of Rs. 10,000 every month after he abdicated his gaddi is in the nature of income chargeable to tax. The High Court held that a voluntary payment which is not referable to any binding obligation and depends on the will of the donor is not in the nature of income chargeable to tax under the Act. The relevant para of the decision is reproduced below (Pg. 5): "There is no doubt that under the Indian Income-tax Act even payments, which are voluntarily made may constitute "income" of the person receiving them. It is not necessary that in ....
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....ome chargeable to tax under the provisions of the Act. The relevant part of the judgment is extracted as under (Pg. 4): "In so observing, the High Court, in our judgment, has committed an error of law. Ely sections 3 and 4 the Act imposes a general liability to tax upon all income. But the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision.Where however a receipt is of the nature of income, the burden of proving that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee. The appellant admitted that she had received jewellery and diverse sums of money from Sita Devi and she claimed that these were gifts made out of love and affection. The case of the appellant was that the receipts did not fall within the taxing provision: it was not her case that being income the receipts were exempt from taxation because of a statutory provision. It was therefore for the department to establish that these receipts were chargeable to tax. .......
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....f it is a personal gift for personal qualities to the assessee and as a token of personal esteem it cannot be subjected to tax. It is well settled that by sections 3 and 4 of the Act, the Act imposes a general liability to tax upon all income, but the Act does not provide that whatever is received by a person must be regarded as income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies upon the department to prove that it is within the taxing provision. Where however a receipt is of the nature of income, the burden of proving that it is not taxable, because it falls within an exemption provided by the Act, lies upon the assessee. Where the case of the assessee is that a receipt did not fall within the taxing provision, the source of the receipt is disclosed by the assessee and there is no dispute about the truth of that disclosure, the income-tax authorities are not entitled to raise an inference that the receipt is assessable to income-tax on the ground that the assessee has failed to lead all the evidence in support of his contention that it is not within the taxing provision. See Parimisetti Seetharamamma v. Commissioner of Income-tax....
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....fall-a windfall as to the factum and not a windfall as to mere quantum. On both the counts, therefore, the answer to the question whether these receipts constitute income of the assessee must be in the negative and in favour of the assessee, viz., that they did not constitute income." 6. In view of the above, it is submitted that the gift of the Brand received by the assessee from EIL is not in the nature of income as the said term is defined in section 2(24) of the Act. 7. It is submitted that the word "income" in its normal connotation does not include an amountwhich is in the nature of a capital receipt. An amountwhich is received on capital account is regarded as incomewithin themeaning of the said termin section 2(24) of the Act only if specifically included so by the Legislature. Inthe instant case theBrandreceived by the assessee is on capital account as the same has been employed by the assessee to earn brand license fees from various licensee companies during the year. Therefore, the Brand received by the assessee formed the profit making apparatus of the assessee and was in the nature of fixed capital which was utilised to earn income during the year. Th....
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....ective territories. This asset really formed part of the fixed capital of the assessee's business. It did not constitute the business of the assessee but was the means by which the assessee entered into the business transactions by way of distributing those cigarettes within the respective territories. It really formed the profit-making apparatus of the assessee's business of distribution of the cigarettes manufactured by the company. If it was thus neither circulating capital nor stock-in-trade of the business carried on by the assessee it could certainly not be anything but a capital asset of its business and any payment made by the company as and by way of compensation for terminating or cancelling the same would only be a capital receipt in the hands of the assessee." 8. Similar view has been taken in the following judgments holding that the amount received which is relatable to the fixed capital employed by the assessee would not fall within the ordinary meaning of the word "income" and is in the nature of a capital receipt. a) CIT vs. Bombay Burmah Trading Corpn. (161 ITR 386) (SC) b) CIT vs. Mahindra &Mahindra Ltd. (91 ITR 130) (Bom.) ....
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....bay High Court stands approved by the Supreme Court in CIT vs. D.P. Sandu Bros. Chembur (P.) Ltd. (273 ITR 1) (SC) wherein it was held as under (Pg.5): "16. There is no dispute that a tenancy right is a capital asset the surrender of which would attract section 45 so that the value received would be a capital receipt and assessable if at all only under Item E of section 14. That being so, it cannot be treated as a casual or non-recurring receipt under section 10(3) and be subjected to tax under section 56. The argument of the appellant that even if the income cannot be chargeable under section 45, because of the inapplicability of the computation provided under section 48, it could still impose tax under the residuary head is thus unacceptable.If the income cannot be taxed under section 45, it cannot be taxed at all. (See : S.G. Mercantile Corporation (P.) Ltd. v. CIT (1972] 83 ITR 700 (SC)]. 17. Furthermore, it would be illogical and against the language of section 56 to hold that everything that is exempted from capital gains by statute could be taxed as a casual or non-recurring receipt under section 10(3) read with section 56. We are fortified in our view by a....
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....d28January2015the relevant part of which is reproducedas under: The Union Cabinet, chaired by the Prime Minister Shri Narendra Modi, in a major decision has decided to accept the order of the High Court of Bombay and not to file SLP against it before Supreme Court in the case of Vodafone India Services Pvt. Ltd ("VISPL'). VISPL, is a wholly owned subsidiary of a non-resident company, Vodafone Teleservices (India) Holdings Limited, Mauritius. VISPL issued shares (at a premium of Rs. 8,509) receiving a total consideration of Rs. 246.39 crore from Vodafone Mauritius, on issue shares and this was shown as "Capital Receipts" in the books of accounts. VISPL reported this transaction as an "International Transaction" and stated that this transaction does not affect its income. The DRP held that the premium determined by the TPO, to the extent not received, is an income arising from issue of shares. The High amongst other things observed, that the tax can be charged only on income and in the absence of any income arising, the issue of applying the measure of arm's length pricing to the transactional value does not arise. Further, if its income which is chargeable to tax, u....
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....eceipt as long as consideration is not received as a part of revenue account. b. Mumbai Tribunal in the case of DCIT vs Nerka Chemicals Pvt Ltd (4423/Mum/2014,4585/Mum/2015, 4850/Mum/2016) held that the receipt of shares by way of a gift shall not be taxable under section 56(1) of the Act unless the said capital receipt is specifically covered under the definition of income whereby, the same would be taxed under section 56(2)(viib) of the Act had they been in force. Similarly, the same shall not be taxable under section 28(iv) of the Act as the receipt of shares without consideration had no direct nexus with the assessee's business. 17. If the Revenue's contention was to be accepted the consequence would be that section 56(2)(v), (vi), (vii), (viia) and (x) of the Act are all surplus and would be rendered otiose. It is submitted that a construction that would render the entire section redundant cannot normally be countenanced. 22. Considered the rival submissions and the material placed on record. We notice that the issue raised by the revenue in the present grounds is as follows: d. The Essar brand along with trademarks registered or not had b....
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....eholders, further fortifies the genuineness of the assessee's claim that the assets in the form of brands/trademarks/copyrights which were earlier used by the EIL were transferred to the assessee trust. We find that the assessee trust had declared the aforesaid receipt of royalty or brand utilization charges from the licensees i.e its group entities in its books of account, and had offered the same for tax as per the cash system of accounting that was followed by it during the year under consideration, and consistently in the ensuing years. On a perusal of the records, we find that the department had only after taking note of the brand license fees that was receivable by the assessee trust from the brand licensees i.e its group entities, had after taking the same as a base determined the value of brands. We are asking ourselves, what happens if the group companies decide to reduce the royalty by 90% of what they have paid in this assessment year by passing proper resolutions. Will the tax authorities rework the value of brands?. 22.2 In our considered view, the tax authorities have no role to play or question the validity of the transaction when the shareholders had unanimously ....
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....) of the Act; or it should be such that it has an element of revenue that can be classified as an income. In the case before us, we are of the considered view, that that the brands received by the assessee trust does neither carry any element of profit, nor falls under any category of income specified under sec. 2(24), sec. 56(2) or sec. 56(1) of the Act. It is the claim of the ld. D.R that as the transaction under consideration is a special kind of transaction, therefore, it has to be evaluated in a special manner so that it fits in the general residual section i.e Sec. 56(1) of the Act. We are not able to accept the aforesaid proposition of the ld. D.R that irrespective of the nature of the transaction, the transaction has to brought under any category of income, doesn't matter how. As observed by us hereinabove, the transaction in question does not involve any exchange of consideration between the parties, and is in the nature of a Gift of a profit-making apparatus which has huge potential to generate royalty income, which too is possible only when the group companies are willing to contribute, otherwise, it literally has no value. Therefore, in the backdrop of our aforesaid obs....
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....h. For concluding as hereinabove, the Hon'ble Apex Court was of the view that if a receipt does not fall within the ambit of any of the sub-clauses in s. 2(24), it may still be income if it partakes of the nature of the income. In our considered view, the aforesaid judicial pronouncement relied upon by the revenue is clearly distinguishable on facts as against those involved in the case before us. As observed by the Hon'ble Supreme Court in the case of Parimisetti Seetharamamma Vs. CIT (1965) 57 ITR 532 (SC), in all cases in which a receipt is sought to be taxed as income, the burden lies on the department to prove that it is within the taxing provision; and if the receipt is in the nature of income, then, the burden of proving that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee. Now, unlike the facts involved in the aforesaid case of G R Karthikeyan (supra), as in the case of the present assessee before us, the department had 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 contem....
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....the present case before us, the contribution of brand "Essar" as a gift by EIL to the corpus of the assessee trust, being in the nature of a profit-making apparatus and, thus, a capital asset, therefore, the facts involved in the aforesaid case law relied upon the ld. D.R being distinguishable on facts would not assist the case of the revenue. Coming to the case of T V Sundaram Iyengar & Sons (supra), the Ld. D.R had by way of an alternative contention submitted, that the courts have in certain special circumstances and situations treated the capital receipts as revenue receipts. In the aforesaid case, the assessee had received deposits from its customers in the course of its business, i.e as a capital receipt. However, as the customers did not claim the amounts for several years, the unclaimed credit balances, recovery of which had became barred by limitation were taken by the assessee company to its profit and loss account. The Hon'ble Supreme court held, that as the amounts which were originally capital receipts changed their character into revenue receipts, hence, the same were taxable as income of the assessee in the year in which the amounts were taken by the assessee to i....
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....n record, the assessee who had during the year under consideration, and consistently in the succeeding years, recognized its revenue as per the cash system of accounting, had declared its income during this year only to the extent the group companies had deducted tax at source on the amount of license fees that was credited by them to the account of the assessee during the year in question. Since the group companies had already deducted and deposited the TDS, therefore, for the sake of compliance, the assessee has declared only the TDS portion as its income for the year under consideration. In the backdrop of the aforesaid facts, the assessee had not declared the corresponding expenses during the year under consideration. Since the facts in the case of the assessee are completely different for not claiming the expenses, as in comparison to those involved in the case of Sumati Dayal (supra), therefore, the latter case being distinguishable on facts would thus not advance the contentions of the ld. D.R before us. 23. In the backdrop of our aforesaid deliberations, we neither find any substance in the aforesaid contentions advanced by the ld. D.R as regards the issue in hand, nor a....
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....siness undertaken by various companies under the flagship of Essar. (Para 13.3 of CIT(A) order (Page 91)]. i. The CIT(A) held that he had no doubt in his mind that 'artistic' does not refer to the characterization of the brand but is simply a reference as to how does the symbol look like. The view taken by the AO that the brand name "Essar" is a work of art is highly untenable. (Para 13.3 of CIT(A) order (Page 92)] j. Neither the brand received by the assessee by the name "Essar" is falling as property under Explanation (d) of section 56(2)(vii) of the Act, nor an item of income either under section 56(1) or section 56(2) of the Act to fall under the category of income assessable to tax under the head 'Income fromOther Sources' (Para 13.4 of CIT(A) order (Page 92)] 26. At the time of hearing the Ld D.R submitted before us as hereinbelow:- 3. (i) This ground was raised before the CIT(A) by the Assessing Officer in his remand "The assessee during the appellate proceedings submitted letter dated 13.10.2016 where the assessee has introduced new evidence. The assessee along with the said letter page nos 116 to 120 submitted xerox co....
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....shed by the Copyright Office, Government India on ArtisticWorks a copy of which is placed in Departmental Paper Book -III at page 172. The relevant extracts are given below: Page1 "1. INTRODUCTION This document reflects the general practices and procedures of Copyright Office for examination and registration of artistic works. It explains the process for examination of artistic work application(s), documentation of ownership, provides guidelines on how to identify the work of authorship, copyrightable subject matter and discusses the grounds on which a discrepancy letter may be issued." Page 2 "2.ARTISTICWORK Any work which is an original creation of an author or an owner fixed in a tangible form is capable of being entered into the Register of Copyrights, irrespective of the fact whether such work possesses any artistic quality or not." "1. Definition of Artistic works "Artistic work" means - a painting, a sculpture, a drawing (including a diagram, map, chart or plan) an engraving or a photograph, whether or not any such work possesses artistic quality, a work of architecture and any other work of artistic materialship; as prov....
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....e Drawing Drawing Any other work of Any work of art artistic Craftsmanship The above comparison would show that the definition of artistic work in the Practice and Procedure Manual [Artistic Work] published by the Copyright Office is almost the same as the definition of property covering the corresponding items in the Explanation (d) under section 56(2)(vii) of the Income-tax Act. It is also important to note that property under the explanation (d) to section 56(2) is not confined to only work of art, it includes other items like painting, sculpture and drawing also as in the case of definition of artistic work under the Copyright Act. ' (iv)Page 7 and paragraph 3.4 contains a proforma for submitting the statement of particulars. That form is uniform for both forms of art pure and applied. The copies of the extracts from the Register of Copyrights which represent the forms filled by the assessee is placed at pages 108 and 111of the Departmental Paper Book VI. For ready reference they are reproduced below. EXTRACTS FROM THE REGISTER OF COPYRIGHTS Col. No. Particulars of the item Extract at P 108-Year of first publication 1993 Extrac....
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....ed, 13th Floor, Maker Chamber IV, Nariman Point, Bombay -400021, Indian Same as in col.2 above, 14 If the work is an 'artistic work' which is used or is capable of being used in relation to any goods or services, the application shall include a certificate from the Registrar of Trade Marks in terms of the proviso to subsection (1) of section 45 of the Copyright Act, 1957 Not filled Not filled 15 If the work is an 'artistic work' whether it is registered under the Designs Act 2000, if yeas give details Not filled Not filled 16 If the work is an 'artistic work' if capable of being registered as a design under the Designs Act, 2000, whether it has been applied to an article through an industrial process and , if yes, the number of times it is reproduced Not filled Not filled 17 Remarks A copy of the work is annexed A copy of the work is annexed AO observed that an examination of the above table would show the following: (a) There were two registrations made for two brands. One related to the publication in 1993, but re....
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....at "archaeological collection, drawings, paintings or sculptures or any work of art" have been put under one basket (category) named "artistic work" in the Rule 11UA . This definition is pari material with the definition of "artistic work" under the Copyright Act. The definition of artistic work is not confined to work of art only. It includes archaeological collections, drawings, paintings and sculptures also which are included in the definition of artistic work under the Copyright Act. (vii) The above analysis would show that there is no doubt that since the brand has been registered as "artistic work" under the Copyright Act, ipso facto, it falls under the category of property under section 56(2)(vii)(c) read with Explanation (d). (viii)Rule 11U defines 'valuation date' as the date on which the property is received by the assessee. Here, in absence of any assistance from the assessee, the brand "ESSAR" has been valued at Rs. 1668.10 crore by the Discounted Cash Flow (DCF) method which is a recognised method of valuation. (ix)The assessee has cited case laws to narrow down the definition of artistic work. When we have a statutory comprehensive ....
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.... is submitted that the term 'work of art' as used in section 56(2) is meant to cover personal asset of an assessee and since the "ESSAR" brand is not a personal asset, but an asset which is used for business purpose, it is not covered within the scope of section 56(2)(vii) of the Act. 2. Based on above, it is submitted that as the Brand is not covered within the meaning of "any work of art", it would not fall within the meaning of the word "property" in clause (d) of the Explanation and consequently, the Brand received by the assessee would not be taxable under the provisions of section 56(2)(vii) of the Act. 3. It is submitted that the definition of "property" is a restrictive definition and would include only those capital assets which are specifically covered under the definition of "property" within its domain in the Explanation to section 56(2)(vii) as it uses the word "means". The term 'means' used in the definition of "property" in fiscal interpretation has to be understood in the sense indicated in the provision of the Act and it cannot go beyond or extend to what is defined specifically as "meant". 4. In the present case ....
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....s and services or from its competitors. Over time this image becomes associated with the level of quality and satisfaction in the minds of the customers. The brand thus helps by standing out for certain benefit and value. Brand identifies distinct products/services of the company by Trade Name and Logo, a message, an image, an idea or an action. Thus, branding isn't to invent something new, but to communicate something that already exists, for a purpose. As against that 'work of art' comprises of paintings, sculptures, drawings, engravings, photographs, works of architecture and means an artistic work which is an artistic innovation and is exceptional in its artistic quality. In general parlance, "work of art" is construed as coming into existence of new thing whereas brand is construed as promotion or marketing of a thing already in existence. It is submitted that the brand "ESSAR" is only a trademark created for the identifying the product and services which are marketed under the brand and is neither an artistic innovation nor possess any exceptional artistic quality and as such cannot be covered under the specific head of "work of art". Therefore, the brand "ESSAR" ....
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....; (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 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 a work of art and there must be some artistic innovation which would turn them into works of art. The Tribunal on inspection found that the 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 Appellate Tribunal has come to the above conclusion on visual inspection of the samples of articles produced before it, we are not in a position to accept the argument of learned counsel for the assessee that the cups and trophies of the assessee should be regarded as works of art. We are of the view that the finding recorded by the Appellate Tribunal is a finding re....
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....it is in the nature of "a work of art". In this regard reliance is placed on the definition of "artistic work" in section 2(c) of the Copyrights Act, 1957 which reads as under (Pg. 3): "(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; 10. The above definition clearly shows that even if the drawing has no artistic quality, for the purpose of Copyrights Act, 1957, it is 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. Therefore, the purpose for which the definition "artistic work" is used under the Copyright Act is different from the purpose with which "work of art" is used by the Legislature in section 56(2)(vii) of the Act. It is further submitted that all "works of art" are "artistic works" but however, all "artistic works" are not "works of art". As held by Madras High Court in M.A.Chidambaram (supra) and the Gujarat High Court in Shantadevi P. Gaekwad (supra) "a work of art" means....
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.... assessee, whether or not connected with his business or profession; (d) .................... but does not include- (ii) 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 aforesaid definition of 'capital asset' u/s 2(14) of the Act, it can safely be gathered that though "any work of art" is a capital asset, it can be treated as being in the nature of 'personal effects' considering that 'any work of art' is specifically excluded from the category of capital assets treated as 'personal effects'. On the other hand, as a "Brand" is an intangible asset which is associated with the business of an assessee, therefore, it cannot be brought within the meaning of "personal effects" which, inter alia, includes "any work of art". Our aforesaid observations are relevant for distinguishing "any work of art" as against a "brand". As the term "any work of art" as used in Sec. 2(14) of the Act or 'Explanation (d) to Sec. 56(2)(vii) had not been defined in the Act, there....
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.... 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 of M.A. Chidambaram vs. CWT (1999) 239 ITR 371 (Mad.), had observed, that the trophies and cups won by the assessee before them, in races, which were made of silver could not be considered as "works of art" and, consequently, the same would not be exempted from the liability to wealth tax. The High Court while rejecting the claimof the assessee, had observed, that for an article to qualify as a "work of art" there must be an element of human skill which on a mere look up can be regarded as a work of art. It was further observed by the Hon'ble High Court that every ordinary article is not a work of art and theremust be some artistic innovation for regarding the same as a work of art. The observations of the Hon'ble High Court are culled out as under : "5. We have carefully considered the submissions of the learned counsel for the parties. Sec. 5 of the WT Act provides that wealth-tax should not be payable in respect of the assets mentioned in various sub-clauses. Sub-cl. (xii) of cl. (1) of s. 5 of the WT Act reads as under: "any....
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....ion 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 regarded as works of art. We are of the view that the findings recorded by the Tribunal is a finding recorded on examination of the materials and the findings should be regarded as a finding of fact. The assessee has not established that there was human skill employed which made the articles to be regarded as works of art. Therefore, in view of the specific finding of the Tribunal on the cups and trophies won by the assessee in the horse races, we are of the view that the articles cannot be regarded as works of art and the Tribunal was right in holding that the assessee is not entitled to claim exemption under s. 5(1)(xii) of the Act. Hence, we are of the view that both the questions of law are liable to be answered against the assessee." On somewhat similar facts, the Hon'ble High Court of Gujarat in the case of Shantadevi P. Gaekwad Vs. Wealth tax Officer (2017) 82 taxmann.com 460 (Guj) ,was seized of the issue as to whether horse chariots referred to as "Baggi" ,....
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....rk" 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 the Act. Also, we find substance in the claim of the ld. A.R, that though all "works of art" are "artistic works" but however, all "artistic works" are not "works of art". Our aforesaid view is fortified by the judgment of the Hon'ble High Court of Delhi in the case of Societe Des Produits Nestle Vs. Continental Coffee Ltd., as relied upon by the ld. A.R, wherein it was observed as under : "9. in fact, the definition of artistic work given in Section 2(c) of Copyrights Act makes it evident that a drawing would be an artistic work irrespective of whether the work possesses any artistic quality or not." (emphasis supplied by us) On the basis of our aforesaid observations, we are of the considered view that as the brand "Essar" is neither an artistic innovation nor possesses any artistic quality for being brought within the meaning of "any work of art" as contemplated in the definition of "property" in "Explanation (d)" to Sec. 5....
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....essee 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 report as under [vide page 39 of the order of the CIT(A)]. "Without prejudice to the arguments in the assessment order of my predecessor, the value of Brand received should be considered taxable under section 28(iv) of the I.T. Act 1961. The following reasons may be considered on this ground. a) The value of "ESSAR" brand acquired by the assessee without making any payment towards cost of acquisition is taxable u/s 28(iv) as any benefit, whether convertible into money or not, arising from the business as taxable under the head "Income from Business or Profession" b) The assessee had obtained the benefit on acquiring the "ESSAR" brand without making any payment towards its cost of acquisition and the assessee had even not shared its royalty receipts with M/s EIL, thus the assessee has obtained the benefit on obtaining the 'ESSAR' brand free of cost. c) Such benefit has arisen in course of....
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.... 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 towards its acquisition is taxable under section 28(iv) of the Act, as any benefit, whether convertible into money or not, arising from the business is taxable under the head "Profits and gains from business or profession" • The assessee had obtained a benefit on acquiring the "Essar" brand without making any payment towards its cost of acquisition and the assessee had not even shared its royalty receipts with EIL, thus, the assessee had obtained the benefit on the "Essar" brand free of cost. • Such benefit has arisen in the course of assessee's business since the assessee has disclosed the royalty of Rs. 29.59 crores under the head 'Profits and gains from business or profession'. 31. Ld. A.R further submitted that the CIT(A) had rejected the contentions of the A.O with the following observations: • The CIT....
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....ized 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 altogether a new business in respect of an item not covered within the business of the assessee and for which a separate licence was necessary. Therefore, the benefit arising out of the said licence could not be said to be a benefit arising out of a business carried on by the assessee, until pursuant to the licence the new business was set up. The benefit conceived under cL (iv) of s. 28 has to be related to the business carried on by the assessee, which, in our view, is not possible to be broughtwithin the scope of the said provision." The intention of the Legislature that capital receipts were not intended to be covered by section 28(iv) of the Act is gathered from subsequent amendments made in the section. Section 28(iv) of the Act was introduced by Finance Act 1964, the Circular No. 20....
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....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 the said transaction the assessee has derived benefit and such benefit has arisen fromthe business connection of the donor and the donee, cannot be accepted as no direct nexus has been established by any tangible material brought on record by the Ld. CIT(A). Simply because both the donor and the donee happen to belong to the same group cannot ipso facto establish that they have any business dealings. As we have held that it is a case of a valid gift which is to be treated as capital receipt in the hands of the assessee, in the absence of any specific provision taxing a gift as a deemed business income, provisions of section 28(iv) cannot be applied to the facts of the case. The CIT(A) erred in taxing the value of the st....
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....ions 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 section 28(iv) of the Act, the value of any benefit or perquisite arising frombusiness or exercise of a profession shall be chargeable to income-tax under the head Profit & gains of business or profession. However, as in the case before us, the brand "Essar" was contributed as a gift by EIL to the assessee trust on the same day on which the assessee trust had commenced its operations, therefore, it cannot be considered that the brands are the benefit which arose from the business carried on by the assessee. Apart from that, as we have categorized the receipt of brand by the assessee from EIL as a profit-making apparatus i.e a capital asset and a capital transa....
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.... 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 from whom assessee is receiving license fees are following accrual basis of accounting while the assessee is following cash method of accounting and both are separate taxable entities. c. AS-9 issued by the ICAI, requires royalty to be accounted on an accrual system of accounting does not apply to the assessee as, there is an exception provided for some entities including a trust. Therefore, AS-9 is not applicable to the assessee. 35. Before us, the Ld DR had filed the following submissions: (i) The assessee has received total royalty amount of Rs. 29,59,17,233/- from seven companies. The companie....
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....d 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. By this arrangement the whole group would dodge payment of tax. (vi) The assessee has made a false claim that it is following cash system of accounting. A copy of the return of income (Vide DPB-3) would show that the assessee has not shown any expenses. The assessee would have incurred expenses like, telephone, conveyance, stationery, salary and payment to trustees etc. Expenses are also required to meet the obligations and responsibilities under the brand licence....
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....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 first year, the system of accounting has to be decided keeping in mind the interest of the Revenue. (x) Section 145(3) reads as under: "Where the Assessing Officer is not satisfied about the correctness and completeness of the accounts of the assessee, or where the method of accounting provided in subsection (1) has not been regu....
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....s 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 either cash or mercantile system of accounting regularly employed by the assessee." 4. From a perusal of above, it is evident that section 145(1) of the Act provides a choice to the assessee to compute the income under the head "Profit and gains of businessor ....
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....enue 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 consistently and regularly employed by the assessee. Reliance in this regard can be placed on the following judicial precedents. Juggilal Kamlapat vs. CIT (101 ITR 40) (All.) (Para 4] "....If an assessee ....
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........" 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 the first year of the business, it was the sole choice of the assessee to adopt a particular method of accounting contemplated under s. 145 of ....
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....rdinary 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, especially considering the fact that in the su....
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....led by the 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....
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....ed all registered trade marks with the names, addresses and description of 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....
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....wherein the revenue is seeking to assess the value of an asset received which, it is submitted, is a capital receipt not chargeable 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 licen....
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....he signatories to the brand licensing agreements had acted well within their powers to enter into such agreement. Further, it is submitted that as a result of such agreements the 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 th....
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.... Motive" of his paperbook no. 5 has alleged that the motive of all the transactions was removal/extraction of funds from the companies for the benefit of the Ruia family. 20.It is submitted that if 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 departm....
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.....A. Chidambaramam (supra) and Gujrat High Court in Shantadevi P. Gaekwad (supra) represents artistic innovation or something which is rare and/or exceptional aesthetic beauty with artistic input. Since the brand "ESSAR"is only a trademark created 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 marg....
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....e fact that cash method of accounting is regularly followed by the assessee and also the income has been computed in accordance with the standards notified (not being applicable in assessee's case as mentioned above), the AO does not have any power to reject the method of accounting followed by the assessee under Section 145(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 winn....
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....igh Court sought to tax the earnest money received by the assessee as advance towards sale of old rubber trees, after forfeiture of the agreements under section 2(24) relying on the decision of the Supreme Court in case CIT vs. G. R Karthikeyan (supra). The High Court held as under: "In section 2(24) an inclusive definition of income is available as observed by 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.....
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.... followed by it. The table submitted by the Ld D.R above clearly shows that the assessee had declared the income based on the cash method of accounting and the incomes had been offered to tax properly. Ld D.R stated that there is difference of amount declared by the group companies as per the Form 26A, as against the income that was declared by the assessee in the subsequent years. We find that 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 ....