TaxTMI 
TaxTMI 
1993 (6) TMI 112
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....nto Rs. 4 lakhs for goodwill and Rs. 1 lakh for the copyright. The amount of Rs. 5 lakhs was received as below : In the financial Assessment Amount Towards year ending year Rs. 1981-82 1982-83 1,00,000 Goodwill 1982-83 1983-84 1,50,000 Goodwill &n....
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....ital and the book, a product of the brain, was floating or circulating capital, or, in other words, the assessee's stock-in-trade and, therefore, the receipts from OLH were taxable as the assessee's income. The receipt of Rs. 2 lakhs in the accounting year relevant to the assessment year 1983-84 was brought to tax under the head "Other sources" and the receipt of an identical sum in the accounting year relevant to the assessment year 1984-85 was brought to tax under the head 'Profession'. 5. On appeal, the CIT (Appeals), in an elaborate and, if we may say so, a lucid order, held that the amounts received were capital receipts not liable to tax even under the head 'Capital gains'. 6. The fate of these appeals must largely depend upon the answers to two main questions : Is the assessee a professional author, so that the receipts in question can be treated as professional income? Do the amounts received under the agreement represent amounts for the assignment of the copyright and the sale of the goodwill or is it a case of a mere licence to use both? 7. The first question must, in our opinion, be answered in the negative. It is not disputed that the assessee is a Barrister pr....
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....o authoring of books as a profession merely because he had approached ELH first and not vice versa and because the assessee was free, under the agreement, to write books on subjects other than Company Law and to enter into arrangements for publishing them. Though theoretically the assessee was free to write books on subjects other than Company Law, it is an admitted fact that he did not do so. The existence of such a clause in the agreement is by way of a safeguard both to the publisher as well as the assessee and beyond that is of no significance. The reliance on the decision of the Allahabad High Court in CIT v. Swadeshi Cotton Mills Co. Ltd. [1980] 121 ITR 747 is not apposite. That was a case of receipt of subsidy which was held to have arisen in the course of the business and assessable under section 28(iv). We also find that the stand of the Department that the receipt should be assessed as income under the head 'Profession' is inconsistent with the past assessments. In the assessment years 1976-77 to 1979-80, the royalty from ELH was assessed under the head 'Other sources'. Even during the assessment proceedings for the assessment year 1983-84 which is in appeal, the ITO had ....
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....he book maintaining its standard which is necessary in the interest of both the publishers and the author. Now therefore it is hereby agreed by and between the parties as follows : 1. The publishers will pay to the author a sum of Rs. 4,00,000 (Rupees four lakhs) as the purchase price of the goodwill. 2. The publishers will pay to the author a sum of Rs. 1,00,000 (Rupees one lakh) as the purchase price of the copyright of the said book "Company Law". 3. It is recorded that the publishers have paid by two several drafts of different dates on different dates Rs. 1,00,000 and Rs. 1,50,000 (subject to encashment) and a cheque for Rs. 50,000 dated 24-6-1982 (subject to encashment) by way of earnest moneys towards the purchase of goodwill and intend to furnish a bank guarantee for Rs. 2,00,000 (Rupees two lakhs) within a month from date. The entire purchase moneys will however be paid within 25th June, 1983. On such payment of the entire purchase moneys the goodwill and copyright shall stand transferred to and vested in the publishers. In the meantime, the publishers will have the right to publish the third edition of the book. 4. In default of payment of the entire consid....
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....of incorporeal property. The Copyright Act, 1911, which is a consolidating Act repealing earlier Acts, makes it perfectly clear that the ownership of copyright can be transferred by assignment either wholly or partially and 'either for the whole term of the copyright or for any part thereof'. So far as the property is assigned, the assignee becomes the owner instead of the assignor. The Act also provides that, in contrast with an assignment of copyright, the owner may grant a licence which, though it permits the licensee to use the copyrighted matter within the limits of the licence without breach of copyright, does not involve any change of ownership in the copyright at all. It appears to me that the argument for the Crown does not sufficiently allow for this distinction. It is not disputed that the present case is a case of assignment; the respondent, under the relevant agreement, made a partial assignment of her copyright and ceased to be the owner of the portion assigned, receiving a sum of money in exchange. This amounts to a sale of property by a person who is not engaged in the trade or profession of dealing in such property, and the proceeds of such a sale is, for income-ta....
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....ere was bad faith or fraud vitiating the agreement. In the absence of bad faith or fraud and where unambiguous and unequivocal language is used in the agreement, full effect has to be given to the intention of the parties. In CIT v. B.M. Kharwar [1969] 72 ITR 603 the Supreme Court held that the legal effect of the transaction embodied in a document cannot be displaced by probing into the "substance of the matter" and that the taxing authorities are not entitled, in determining whether a receipt is liable to be taxed, to ignore the legal character of the transaction which is the source of the receipt and to proceed on what they regard as the "substance of the matter". This principle was held applicable both to cases where the legal relation is recorded in a formal document and to cases where it has to be gathered from evidence or conduct of the parties. If these principles are borne in mind, as indeed they ought to be, we find that the various clauses in the agreement with OLH are very clear and convey unambiguously what the parties had in mind. The parties had intended that there should be a sale, outright, of both the copyright in the book and its goodwill. The price, which was in....
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.... the assessee are thus in support of his case. 15. One other contention raised on behalf of the revenue was that the bifurcation of the receipt into two parts, one for the assignment of the copyright and the other for goodwill is not justified. But we have earlier held that the terms of the agreement with OLH have to be given full effect. The transaction is at arm's length. No mala fide or motive to avoid tax frowned upon by McDowell & Co. Ltd. v. CTO [1988] 154 ITR 148 (SC) is shown to exist. The assignment of the copyright is in writing, as required by section 17 of the Copyright Act. The book, which is one of the two or three standard works on the subject, cannot be stated to have no goodwill. It has been put through two editions by ELH. Further, there is nothing on record to suggest that the terms embodied in the agreement are not the result of a hard bargain between the assessee and OLH. We hold that the CIT (Appeals) has rightly upheld the assessee's contention that the receipt referable to goodwill is exempt even as capital gains, since there is no cost in respect of the same [please see CIT v. B.C. Srinivasa Setty [1981] 128 ITR 294 (SC)]. We also uphold his decision tha....