TaxTMI 
TaxTMI 
2024 (10) TMI 980
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.... support services, license fee and had also shown other income. However, the appellant was not paying service tax except on the income from 'service fee' received under 'Business Support Services', that too was being paid w.e.f. 1st May, 2006. On being enquired, the appellant conveyed that they are the owner of the 'Goodwill of their business' and of all rights associated with the name "Remfry and Sagar". 2. A brief background about acquiring the said ownership was also provided to the Department in the manner as below:- That one Dr. Vidya Sagar was in practice and the profession of attorneys-at-law under the-frame and style of "Remfry & Sagar" and thus was the owner of the goodwill of the said business. The said goodwill was gifted to the assessee company vide deed of gift dated 01.07.2001 and by virtue of this gift deed, the assessee-appellant company (whose shareholders are members of the family of the doner, Dr Vidya Sagar) is now the owner of the goodwill of the name and the professional practice. Subsequently the agreement dated 05.06.2001 was entered into by the appellant-assessee company with the law for "License to the use of Goodwill". The clause of this agreement a....
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....14,50,38,273/- alongwith an amount of Rs.29,00,766/-, an amount of Rs.8,45,368/- towards secondary and higher education cess and an amount of Rs.1,11,972/- towards interest on late payment of Service Tax in respect of associated enterprises transactions. Imposition of penalty upon the appellants under section 76, 77&78 of the Finance Act was also proposed. The said proposal has been partly confirmed by confirming a demand of Rs.13,32,61,214/-alongwith the proposed amount of interest and the penalties. The remaining amount of demand of Rs.1,55,23,194/- was dropped/ vacated. Still being aggrieved, the appellant is before this Tribunal. 6. We have heard Mr. Akhil Gupta, Advocate & Ms. Anshul Gupta, C.A. for the appellant pursuant to their request in Miscellaneous Application No.51348/2024-DB dated 15.07.2024 for early hearing of the matter, which was allowed on 16.07.2024 and Ms. Jayakumari, Authorized Representative for the Respondent. 7. Ld. Counsel for the appellant has mentioned that assessee is a private limited company and is registered with the service tax department vide STC No.AABCR7466PST001 for providing services under the category of "Business Support Services". It i....
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....a Sagar the sole proprietor of the law firm with the name Sagar & Company, Barristers and Solicitors, agreed to purchase the said Partnership Firm, namely, "Remfry & Son", with all the assets including capital assets. properties, chattels, effects and things belonging or appertaining thereto and the name and goodwill in the business thereof. In 1973, Dr. Vidya Sagar practice of the firm in entirety and continued practice under same name viz 'Remfry & Sons" but as the sole Proprietor. Effective January 1, 1990, the practice of the Firm, Sagar & Company, Barristers and Solicitors was merged into the practice of a partnership firm "Remfry & Sons" and Dr. Vidya Sagar continued the practice but in the name of 'Remfry & Sagar' as sole Proprietor thereof. This Firm continued as proprietorship of Dr. Sagar, till May 31, 2001, when he decided to institutionalize 'the practice' by way of gifting the goodwill of its business to Remfry & Sagar Consultants Pvt. Ltd. ("R&S-C"), the appellants where his non- lawyer children were the shareholders. 11. The goodwill of the Firm was valued by A.F. Ferguson & Co., a firm of Charted Accountants, at Rs. 45 crores, as on March 21, 2001.The val....
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....e character, the professional and ethical standard, the reputation, the traditions and the practices that have been developed by the said practice of over more than 173 years. Ld. Counsel further brought to the notice that vide the said agreement dated 05.06.2001,it has been expressly mentioned that "if the said license agreement is terminated, "Remfry and Sagar" will be free to enter into a revised arrangement with anyone, including a re-structured partnership, to ensure that the continued practices carried on further efficiently without any brake in its continuity. Hence all these clause have to be read together to ascertain the exact intent of the said agreement. But the department has picked up chosen clause to fasten a wrong liability of paying service tax alleging the activity of the appellants company as the Intellectual Property Right Service. Decision of Hon'ble Supreme Court in the case of Bihar State Electricity Board, Patna vs. M/s. Green Rubber Industries reported as (1990) 1 SCC 731 (S.C.)wherein it has been held that for interpretation of an agreement all clauses of the agreement should be read collectively to reach at the true intentions between the parties has been....
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....ndai Motors India Ltd. v. Commissioner of GST & Central Excise, Chennai -2018 - TIOL-3703-CESTAT-MAD ; 2019 (28) GSTL 288 (Tri. Chennai) 2. Reliance Industries Ltd. v. Commissioner of Central Excise & Service Tax, LTU Mumbai - 2016 (44) STR 82 (Tri.- Mumbai) 18. While rebutting these submissions, ld. Authorised Representative of the Department (AR) has mentioned that the law firm is under contractual obligation to make all correspondence in the name of 'Remfry & Sagar' and in the font & style as belonged to the appellant. The law firm is permitted by the appellant to use the name 'Remfry & Sagar' for carrying on the practice for which the consideration is being paid on a fixed percentage of the total billing of the law firm. It is evident from the clauses of the agreement dated 05.06.2001 that the appellant has allowed the use of trade name "Remfry & Sagar" for the purpose of continued legal practice, to the law firm along with transfer of goodwill and right to use the same. The impugned activity is squarely covered by the definition of "Intellectual Property Service". Ld. AR further submitted that from a dictionary meaning, "goodwill" is an intangible property in comme....
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.... submitted that when the appellant has provided their staff to others for consideration and the said staff is working as per the directions of the service recipient, as per two agreements dated 05.06.2001 for Manpower Recruitment and Supply Agency Service for running the office of the law firm, it is clear that the demand under Manpower Agency has rightly been confirmed. With these submissions, the appeal is prayed to be dismissed. 23. Having heard the parties at length, perusing the entire record of the present appeal, we observe following to be the admitted facts:- (i) In 1827Mr. Henry Oliver Remfry established 'Grant and Remfy', as practice in Intellectual Property Rights. It was continued to be carried on by his five generations as sole proprietorship. (ii) In 1957 practice changed into partnership and name got changed to 'Remfy & Sons'. (iii) In 1973 practice in its entirety was bought by Dr.Vidya Sagar a leading Indian Lawyer practicing Intellectual Property related disputes at his age of 48 years. Practice continued under same name 'Remfy & Sons' however with Dr. Vidya Sagar as the sole proprietor of the merged practice. (iv) In 1990Dr.....
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....ed 01.06.2001. The relevant clauses as relied upon by Department to confirm the demand are as follows:- (i) "the doner (Dr. Sagar) is the owner of the goodwill in the practice and profession of attorneys-at-law along with the name "Remfry & Sagar" and all rights associated therewith (including intellectual property right)" (ii) "whereas to ensure continuity of the said practice the donor is desirous of institutionalizing the said goodwill" (iii)"Whereas the shareholders of the Donee include the family members of donor" (iv) "Whereas in pursuance of his objectives aforegoing, the donor wishes to donate to donee the said goodwill" (v) "Now therefore the donor doth hereby grant, convey, transfer, give and assure by way of gift unto and to the use of the donee, freely, voluntarily and without consideration the goodwill in the profession and practice along with the name "Remfry & Sagar" and all rights associated therewith (including intellectual property rights) 26. The perusal makes it clear that the donor, a legal practitioner has institutionalized the Goodwill of his profession/business associated with the name of his business with all ....
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....he bequeathee continued carrying on the practice and the profession under the name and style of "Remfry & Sagar" and the law firm has been paying royalty for use of the goodwill of the name "Remfry & Sagar". 28. We have also perused the license agreement dated 05.06.2000. The clauses in the said Agreement about the use of Goodwill which clearly indicate that the subject matter of the Agreement is goodwill of Legal Profession/ Business and not just the name are as follows:- (i) The partners desirous of forming themselves into partnership ("the Partnership") to carry on the practice and profession of attorneys-at-law with specialization in the areas of intellectual property law and corporate law with the object of carrying on with effect from June 1, 2001 in the National Capital Region and Mumbai the said Practice (hitherto carried on by Dr V Sagar) without a break in its continuity; the practice and profession to be carried on by the Partners being hereinafter referred to as "the Continued Practice". (ii) The Partnership shall always have a "Senior Partner". He shall be nominated unanimously by the Partners and approved by R&S Consultants. If the Partners fail t....
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....us, it is clear that agreement of license has dealt with different words differently as follows: (1) Trademark (point no.3.11) (ii) Name 'Remfry & Sagar' (point no.3.4) (iii) Goodwill of Trademark 'Remfry & Sagar' (point no.3.8) (iv) Trademark/goodwill of trademark in the name 'Remfry & Sagar' (point no.3.11) (v) Goodwill and also name 'Remfry & Sagar' (point no.14) (vi) Goodwill and also trade-name 'Remfry & Sagar' (point no.3.5) (vii) Goodwill and also trademark 'Remfry & Sagar' (point no.3.6) It is, therefore, imperative to note the circumstances necessitating the formation of arrangement leading to execution of Deed of Gift and subsequent execution of the Deed of Partnership and the License Agreement, wherein Dr. Vidya Sagar kept the Goodwill of practice and profession of attorneys-at-law at the centre of the arrangement to ensure continuity of the said practice. The simple reason being the Goodwill is directly and indistinctively related to practice and not to the name 'Remfry & Sagar'. 30. In Corpus Juris Secondum, it has been observed that 'goodwill' has no existence except in connecti....
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....4.1973 and from 'Remfry & Son' to 'Remfry & Sagar' in 1990 by Dr. Vidya Sagar. This fact clearly indicates that there is hardly any importance attached to the name under which the practice is carried on and for this reason Dr. Vidya Sagar never got 'Remfry & Sagar' registered as a trademark. Thus, whatever has been done is to ensure that the practice of law of Dr. Vidya Sagar continues without break and royalty is for the Goodwill of Dr. Vidya Sagar's practice to remain entrusted with the legal heirs of Dr. Vidya Sagar. 33. From the facts above, it stands established that Dr. Vidya Sagar being 76 years age without any Lawyer as his legal heir, in the first place separated the Goodwill of 173 years old practice and profession from his proprietorship Firm and institutionalized the same by way of gift. The said Goodwill of the practice and profession including all rights, which was valued at 45,00,00,000.00 as on 31.3.2001, was gifted to the Appellant, while the other assets of the proprietorship Firm were sold to the Appellant by way of a separate arrangements. A few of the legal practitioner working in the proprietorship Firm of Dr. Vidya Sagar were br....
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....o trademark, designs, patents; AND (b) The right in that intangible property should be recognized under a law for the time being in force. Cambridge dictionary defines goodwill as part of a Company's value that includes things that cannot be directly measured, for e.g. its good reputation or its customer's loyalty. As per Collin's dictionary the goodwill of a business is something such as its good reputation which increases the value of the business. In Earl Jowitt's Dictionary of English Law, 1959 edition, "goodwill" is defined thus: "The goodwill of a business is the benefit which arises from its having been carried on for some time in a particular place, or by a particular person or firm, or from the use of a particular trade mark or trade name."] Lord Machnaghten in the case reported in IRC vs Co.'S Margarine Ltd. 1901 AC 217 had observed: " What is Goodwill? It is a thing very easy to describe, very difficult to define. It is the benefit and advantage of the good name, reputation and connection of a business. It is the attractive force which brings in customs. It is the one thing which distinguishes an old established business from a ....
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....of S. CCambatta & Co. (P) Ltd. Vs Commissioner of Income Tax, reported in (1961)41 ITR 500 SC, wherein their lordships having considered the judgements of various courts, have held as under: 6.'' It will thus be seen that the Goodwill of a business depends upon a variety of circumstances or a condition of them. The location, the service, the standing of the business, the honesty of those who run it, and the lack of competition and many other factors go individually or together to make up the goodwill, though locality always play a considerable part. Shift the locality, and the goodwill may be lost. At the same time, locality is not everything. The power to attract customers depends on one or of the other factors as well. In the case of a theatre or restaurant, what is catered, how the service is run and what the competition is, also contribute to goodwill." 39. In an another decision in the case of R C Cooper vs Union of India reported in AIR 1970 SC 564, The Apex court has held that the goodwill of a business is an intangible asset representing the whole advantage of reputation and connection formed with the customers together with the circumstances making the connecti....
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....and name associated with the business, which was not eligible to tax during the relevant assessment year. On application of principle of 'ejusdemgeneris', we hold that the only interpretation which can be arrived from the words' any other similar intangible property' is that other intangible properties which come under the 'Cinematographic Act,1952',The Biological Diversity Act,2002', The Seeds Act,1966', Protection of Plants Varieties and Farmers Rights Act,2001', The Geographical Indications of Goods(R & P) Act,1999', The Information Technology Act,2000, etc. which are recognised under Intellectual Property Law in India. As already held above that Goodwill is not recognised under any law, same cannot be held as similar intangible property as trademarks, designs & patents. Though department has relied upon the decision of Hon'ble High Court Delhi in the case of Commissioner of Income Tax vs. Hindustan Coca Cola Beverages Pvt. Ltd. Reported in 2011-TIOL-33-HC-Del-IT. But we observe that in that case the court was analysing the issue with regard to depreciation of Goodwill and in that context it was held that Goodwill is similar to Technical knowhow, Patents, Copyright, Tradem....
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....Act of 1953." (vii) 'Trademark' is an intangible property acquired from 'intellect' whereas 'Goodwill' is generated over a period of time and is directly related to the business. 'Goodwill' is a broader term while trademark is only related to the name. The differentiation between these terms and exclusion of 'goodwill' from the definition of 'intellectual property right' service under the Finance Act has been well explained in by the Hon'ble CESTAT in the case of Hyundai Motors India Ltd. v. Commissioner of GST 2018-TIOL-3703-CESTAT-MAD. Further reliance is placed on the decision of Income Tax Tribunal in the case of Additional Commissioner of Income Tax v. Kwality Frozen Foods Ltd. in IT Appeal No. 5023 (Mum.) of 2001. 43. Reverting back to the facts, we observe that the License Agreement read with the partnership deed of the Law Firm, fundamentally requires the continuity of 173 years old practice of Dr. Vidya Sagar wherein the control and benefits lie with the Appellant Company (legal heirs of Dr. Vidya Sagar). Only a 'Goodwill' licensor would be in position to control and reap benefits to this extent as 'Good....
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....r returns. Even 'Nil' returns were being filed vis-à-vis the 'license fee' and other income received. This acknowledgement is sufficient for us to hold that there is no act of suppression, as alleged, has been committed by the appellant. We do not find any other evidence from department which may support the allegation of suppression. It has already been held that impugned Show Cause Note is an outcome of presumption based on wrong and unharmonious reading of the Gift Deed, license agreement and other documents executed simultaneously on or in proximate to 05.06.2000. We hold that extended period has wrongly been invoked while issuing the SCN. Hence it is held to be barred by findings. Order is liabel to be set aside on this count as well. We draw our support from the decision in the case of Anand Nishikawa Co Ltd. vs. CCE, Meerut reported in 2005 (188) ELT 149 (S.C.) which is held as follows:- Suppression of facts can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty, when facts were known to both the parties, the omission by one to do what he might have done not that he must have clue would not render it suppressi....