Appeal Details
Counselvise Citation
[2016] 112 COUNSELVISE.COM (IT) 4019 (ITAT-AHMEDABAD)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
7 year(s) 23 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
19-07-2016
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
A
Next Hearing Date
08-07-2016
Assessment Year
2001-2002
Appeal Filed On
26-06-2009
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH (BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER) ITA. NO: 1706/AHD/2009 (ASSESSMENT YEAR: 2001-02) NIRMA CHEMICAL WORKS PVT. LTD. (FORMERLY: NIRMA CHEMICAL WORKS LTD.) NIRMA HOUSE ASHRAM ROAD, AHMEDABAD V/S DCIT, CENTRAL CIRCLE-1(1), AHMEDABAD (APPELLANT) (RESPONDENT) ITA. NO: 1514/AHD/2009 & C.O. NO. 123/AHD/09 (ASSESSMENT YEAR: 2001-02) DCIT, CENTRAL CIRCLE-1(1), AHMEDABAD NIRMA CHEMICAL WORKS PVT. LTD. (FORMERLY: NIRMA CHEMICAL WORKS LTD.) NIRMA HOUSE ASHRAM ROAD, AHMEDABAD V/S V/S NIRMA CHEMICAL WORKS PVT. LTD. (FORMERLY: NIRMA CHEMICAL WORKS LTD.) NIRMA HOUSE ASHRAM ROAD, AHMEDABAD DCIT, CENTRAL CIRCLE-1(1), AHMEDABAD (APPELLANT) (RESPONDENT) PAN: AAACN5353L APPELLANT BY : SHRI S.N. SOPARKAR, AR RESPONDENT BY : SHRI R.I. PATEL, CIT/DR ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 2 ( )/ ORDER DATE OF HEARING : 08 -07-201 6 DATE OF PRONOUNCEMENT : 19 -07-2016 PER N.K. BILLAIYA, ACCOUNTANT MEMBER: 1. ITA NOS. 1706 & 1514/AHD/2009 ARE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE PREFERRED AGAINST THE VERY SAME ORDER OF TH E LD. CIT(A)-II, AHMEDABAD DATED 27.02.2009 PERTAINING TO A.Y. 2001- 02 AND C.O. NO. 123/AHD/2009 IS THE CROSS OBJECTION BY THE ASSESSEE DIRECTED AGAINST THE FINDINGS OF THE LD. CIT(A) QUESTIONING THE ADOPTION OF FAIR MARKET VALUE OF NIRMA BRAND AS ON 01.04.1981 TO BE TAKEN AT RS. 1 0 CRORES. 2. THESE CROSS APPEALS AND THE CROSS OBJECTION WERE HE ARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 3. IN THIS CASE, THE ASSESSMENT WAS MADE ON 31.03.2004 U/S. 143(3) OF THE ACT BY WHICH THE DECLARED TOTAL INCOME OF RS. 10,45,68, 600/- WAS ASSESSED AT RS. 460,78,46,680/-. THE ASSESSEE STRONGLY AGITATED THE ASSESSMENT AND THE MATTER TRAVELLED UP TO THE TRIBUNAL AND THE TRIBUNA L VIDE ORDER DATED 16.06.2006 IN ITA NOS. 388 & 976/AHD/2005 RESTORED THE CONTENTIOUS ISSUES TO THE FILES OF THE A.O. FOR FRESH ASSESSMENT WITH CERTAIN DIRECTIONS. 4. PURSUANT TO THE DIRECTIONS OF THE TRIBUNAL, THE A.O . INITIATED ASSESSMENT PROCEEDINGS BY ISSUING AND SERVING STATUTORY NOTICE S UPON THE ASSESSEE. IN THE ASSESSMENT ORDER MADE U/S. 143(3) R.W.S. 254(1) OF THE ACT VIDE ORDER ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 3 DATED 31.10.2006, THE ASSESSING OFFICER COMPLETELY TOOK A U TURN FROM THE EARLIER FINDINGS AND OBSERVED AS UNDER:- 4.2 THE VALUATION DONE BY LD. COMMISSIONER OF INCOME-TAX (APPEALS) AT RS.10 CRORES AS WELL AS PROPOSED BY THE ASSESSING OFFICER IN THE REMAND REPORT DURING THE PROCEEDINGS BEFORE LD. COMMISSIONER OF WEALTH-T AX (APPEALS) AT RS.6 TO 8 CRORES AS ALSO THE VALUATION REPORT OF PROFESSOR AR VIND SAHAY, MM, AHMEDABAD, CANNOT BE ACCEPTED BECAUSE SUCH VALUATION IS BASED ON ESTIMATES ONLY. SINCE THE VALUATION REPORT OF PROF. SAHAY IS NOT BEING USED F OR ASCERTAINING COST OF ACQUISITION OF BRANDS AS ON 1.4.1981, ASSESSEE'S RE QUEST TO CROSS-EXAMINE HIM NEEDS NO CONSIDERATION. IT MAY BE POINTED OUT THAT VALUATION OF 'RIGHT TO USE' BRANDS AND TRADEMARKS DETERMINED IN WEALTH-TAX PROC EEDINGS OF SMT. SHANTABEN K. PATEL HAS NOT BEEN CONSIDERED IN EITHER OF THE A BOVE VALUATIONS. HAD THE ASSESSEE POINTED OUT VALUE AS DETERMINED IN WEALTH- TAX PROCEEDINGS, THIS CONTROVERSY WOULD HAVE NOT ARISEN. IT APPEARS THAT THE ASSESSEE HAD INTENTIONALLY CONCEALED THIS VITAL FACT IN ORDER TO GET UNDUE ADV ANTAGE IN REDUCING THE CAPITAL GAINS. 5. HAVING MADE THE ABOVE OBSERVATIONS, THE A.O. PROCEE DED TO COMPLETE THE ASSESSMENT BY MAKING FOLLOWING OBSERVATIONS:- 4.4 RELEVANCE OF VALUE OF 'USER RIGHTS' OF BRANDS AND TRADEMARKS DETERMINED IN WEALTH-TAX PROCEEDINGS. FROM THE WEALTH-TAX PROCEEDINGS OF SMT. SHANTABEN K . PATEL IT IS CLEAR THAT THE VALUE OF BRAND NAMES/TRADEMARKS AS ON 1.4.1982 HAS BEEN FINALLY DETERMINED BY THE HON'BLE ITAT AT RS.4,20,000/-, WHICH IS THE HIG HEST FACT FINDING AUTHORITY, AFTER CONSIDERING THE ASSESSEE'S ARGUMENTS AS WELL AS THE FACTS AND FIGURES SUPPLIED BY SMT. SHANTABEN K. PATEL DURING THE COUR SE OF VARIOUS PROCEEDINGS. THE FIGURES OF COMPENSATION RECEIVED FOR 'USER RIGH TS' OF BRANDS AND TRADEMARKS GIVEN BY THE ASSESSEE TO THE LD. COMMISSIONER OF WE ALTH-TAX (APPEALS) DURING WEALTH-TAX PROCEEDINGS ARE AS UNDER:- ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 4 A.Y. AMOUNT OF COMPENSATION @ 2.5% OF THE PROFIT (ROYALTY) (RS. IN LACS) PROFIT (*) (RS. IN LACS) 1981-82 1.14 45.60 82-83 2.85 114.00 83-84 4.41 176.40 84-85 5.04 201.60 85-86 0.10 4.00 86-87 0.95 38.00 87-88 1.04 41.60 88-89 0.10 4.00 89-90 0.10 4.00 [(*) THESE FIGURES HAVE BEEN WORKED OUT ON THE BASI S THAT THE ASSESSEE HAS SHOWN COMPENSATION AT 2.25% OF THE PROFIT] THE FIGURES SUPPLIED BY THE ASSESSEE BEFORE THE LD. COMMISSIONER OF WEALTH-TAX (APPEALS) CLEARLY INDICATE THAT THE PROFITS OF THE LICENSEE (I.E. NCWL &, ITS PREDECESSOR) WERE DECREASING FROM A.Y. 1985-86 ONWA RDS AND BY CITING SUCH FIGURES, THE ASSESSEE GOT BENEFICIAL ADVANTAGE FROM THE LD. COMMISSIONER OF WEALTH-TAX (APPEALS) IN REDUCING THE VALUE OF 'USER RIGHTS' OF BRANDS AND TRADEMARKS. THIS ALSO CLEARLY PROVES THAT THE NIRMA BRAND/TRADEMARK WAS NOT VERY POPULAR IN 80'S AND HENCE THEY WERE HAVING VER Y NOMINAL MARKET VALUE. 4.4.1. ANOTHER IMPORTANT ASPECT WHICH HAS BEEN PLEA DED BY THE LD. COUNSEL BEFORE THE LD. COMMISSIONER OF WEALTH-TAX (APPEALS) WAS THAT THE PROFITS ATTRIBUTABLE TO BRAND NAME/TRADEMARK OF NIRMA WERE VERY NOMINAL. THIS IS EVIDENT FROM THE SUBMISSION OF LD. COUNSEL, RE-PROD UCED IN PARA - 10 AT PAG-7 BY THE LD. COMMISSIONER OF WEALTH-TAX (APPEALS) IN HIS ORDER DATED 14.3.1990. THE ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 5 LD. COUNSEL FOR SMT. SHANTABEN K. PATEL PLEADED THA T AS ON 1.4.84 SELLING PRICE OF 1 KG. OF SURF OF HINDUSTAN LEVER LTD. WAS RS.22/- A ND THAT OF NIRMA WAS RS.6.5. IN JULY, 1986, SURF WAS RS.22.80 PER KG WHEREAS NIRMA POWDER WAS RS.8 PER KG. THE PRICE SPREAD, EVEN CORRECTED FOR VERY HEAVY OVERHEA D EXPENSES OF HINDUSTAN LEVER, WOULD SHOW HIGHER PROFIT MARGIN ATTRIBUTABLE TO THE BRAND NAME OF 'SURF'. FROM THE SUBMISSION OF LD. COUNSEL AS WELL AS THE S ALE PRICE OF NIRMA BRAND, IT IS CLEAR THAT IN 80'S THE NIRMA BRAND WAS ABLE TO FETC H ONLY THE COST PRICE OF THE MATERIAL WITH LITTLE PROFIT MARGIN. THERE WAS NO SU PER PROFIT WHICH COULD BE SAID TO BE ATTRIBUTABLE TO THE POPULARITY OF ITS BRAND N AME/TRADEMARK. THIS ASPECT ALSO GOES TO PROVE THAT VALUE OF 'USER RIGHTS' OF NIRMA BRAND NAME/TRADEMARK AS ON 1.4.81 MUST BE VERY NOMINAL. 6. DISMISSING THE CLAIM OF THE ASSESSEE THAT THE TRADE -MARKS REGISTERED AFTER 07.02.1980 ARE SELF GENERATED ASSETS AND, THEREFORE , OUTSIDE THE PURVIEW OF CAPITAL GAINS TAX, THE A.O. OBSERVED AS UNDER:- 5.2 ON PERUSAL OF LIST OF TRADEMARKS REGISTERED BEFORE 7.2.1980 AND AFTER 7.2.1980, FILED BEFORE HON'BLE ITAT, IT IS NOTICED THAT BRAND NAME 'NIRMA' WAS THE CENTRAL WORD IN ALMOST ALL THE TRADEMARKS. THE GENERIC NAMES LIKE DETERGENT POWDER, DETERGENT CAKE AND SOAPS HAVE NO BRAND VALU E, BUT WHEN THEY ARE ATTACHED TO THE BRAND 'NIRMA', CARRY MARKET VALUE O F NIRMA ONLY. THUS VARIOUS TRADEMARKS REGISTERED WITH BRAND NAME NIRMA EVEN AF TER 7.2.1980 WILL NOT MAKE ANY DIFFERENCE BECAUSE THEY CARRY BRAND EQUITY OF N IRMA ONLY. IT IS VERY IMPORTANT TO MENTION HERE THAT THE QUESTION OF SEPARATING 'TR ADEMARKS' NEVER OCCURRED BETWEEN SMT. SHANTABEN K. PATEL AND NIRMA CHEMICAL WORKS LTD. WHILE MAKING THE PAYMENT OF 2.5% ROYALTY ON THE PROFIT OF ALL PR ODUCTS REPRESENTED BY THE TRADEMARKS. THE PAYMENT OF ROYALTY TO SMT. SHANTABE N K. PATEL WAS NEVER RESTRICTED TO THE TURNOVER OF DETERGENT ONLY. IN FA CT THE ROYALTY WAS CALCULATED ON THE TURNOVER OF ALL TRADEMARKS OF NIRMA BRAND. THIS ALSO PROVES THAT THE BRAND NAME IS NOT AFFECTED BY ADDITION OF ANY NEW PRODUCT USING THE WORD 'NIRMA'. THUS THE BRAND NAME CANNOT BE DIVIDED ON ACCOUNT OF CREATION OF SEPARATE ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 6 ASSOCIATED TRADEMARK. AT THIS JUNCTURE IT IS RELEVA NT TO REFER TO SECTION 2(1)(C), 2(3), 16 AND 44 OF TRADE MARKS ACT, 1999, WHICH DEA L WITH THE DEFINITION, REGISTRATION AS WELL, AS THE TRANSFER OF TRADEMARKS AND ASSOCIATE TRADEMARKS. SECTION 16 OF TRADE MARKS ACT, 1999, MAKES IT VERY CLEAR THAT IN RESPECT OF ANY GOODS OR SERVICES WHICH ARE IDENTICAL WITH ANOTHER TRADEMARK, WHICH IS REGISTERED IN THE NAME OF SAME PROPRIETOR OR SO NEARLY RESEMBLES IT AS TO BE LIKELY TO BE DECEIVE OR CAUSE CONFUSION IF USED BY A PERSON OTHE R THAN THE PROPRIETOR, SUCH TRADEMARK SHALL BE REGISTERED AS ASSOCIATED TRADEMA RK. FURTHER THE TRADEMARKS REGISTERED IN SERIES ARE ALSO REGISTERED AS ASSOCIA TE TRADEMARKS. THEREFORE, IN VIEW OF THIS LEGAL POSITION, EVEN THE NIMA DETERGEN TS AND SOAPS BEING RELATED TO THE SIMILAR GOODS AND RESEMBLES THE BRAND NAME 'NIR MA', IS THE ASSOCIATED TRADEMARKS OF NIRMA BRANDS ONLY AND HENCE HAVE NO I NDEPENDENT IDENTITY AND POPULARITY. THEY ARE ALSO REGISTERED IN SERIES. SEC TION 44 OF TRADE MARKS ACT, 1999 CLEARLY SAYS THAT ASSOCIATE TRADEMARK CANNOT B E TRANSFERRED SEPARATELY FROM THE MAIN TRADEMARK. THEREFORE, FOR THE PURPOSES OF SECTION 45 OF IT ACT, 1961, WHERE TRANSFERABILITY IS THE MOST IMPORTANT EVENT, ONLY ONE ASSET IS TRANSFERABLE IN THIS CASE, I.E. THE BRAND 'NIRMA' AND OTHERS .ARE A PPENDED TO IT. THEREFORE, EVEN THE 'NIMA' BRAND BEING ASSOCIATE TRADEMARK, CANNOT BE SEPARATED FROM MAIN BRAND 'NIRMA'. THE ATTEMPT BY THE ASSESSEE THROUGH VALUATION REPORT OF RSM & CO., WHICH ITSELF IS FULL OF MANIPULATIONS, TO DISA SSOCIATE THE ASSOCIATE TRADEMARK FROM THE MAIN BRAND IS IN VIOLATION OF PROVISIONS O F TRADE MARKS ACT, 1999 AND SUCH ACT ON THE PART OF THE ASSESSEE AS WELL AS THE VALUER IS UNLAWFUL AND HENCE IS NOT PERMISSIBLE AT ALL. 5.3. IN THE CASE OF HINDUSTAN LEVER LTD., THERE ARE 3 POPULAR BRANDS SUCH AS RIN, SURF AND LUX. ALL THREE BRANDS HAVE DIFFERENT IDENT ITY AND THERE IS NO RESEMBLANCE THEREIN AND ARE EQUALLY POPULAR IN THE MARKET. THESE BRANDS ARE CAPABLE OF BEING SOLD SEPARATELY, BUT IN THE CASE O F NIRMA, THERE IS ONLY ONE MAIN BRAND, THAT IS NIRMA AND ALL OTHER ASSOCIATED PRODUCTS HAVE THE SAME WORD NIRMA WITH SOME DIFFERENT COMBINATION OF WORDS. EVE N THE NAME NIMA ALSO RESEMBLES WITH NIRMA AND HENCE THE SAME ALSO HAS NO POTENTIAL TO BE SEPARATED FROM THE MAIN BRAND NIRMA AS PER SECTION 16 AND 44 OF TRADE MARKS ACT, 1999. ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 7 5.4 EVEN IF FOR THE SAKE OF ARGUMENT, IT IS PRESUME D THAT SOME OF THE ASSOCIATED TRADEMARKS ARE DEVELOPED OR ACQUIRED AFTER 1981, NO DEDUCTION CAN BE GIVEN ON ACCOUNT OF THEIR VALUE WHILE COMPUTING THE LONG TER M CAPITAL GAIN BECAUSE SUCH ASSOCIATED BRANDS ARE ACQUIRED ONLY AFTER INCURRING HUGE EXPENDITURE ON ADVERTISEMENT, PUBLICITY AND RESEARCH AND DEVELOPME NT AND SINCE SUCH EXPENDITURE HAD BEEN ALREADY CLAIMED AS REVENUE EXP ENDITURE, NO FURTHER DEDUCTION IS PERMISSIBLE. THE CLAIM OF SUCH EXPENDI TURE BY ASSESSEE ALSO DISPROVES THE ASSESSEES CONTENTION THAT THERE IS N O COST OF ACQUISITION OF SUCH TRADEMARKS. EVEN RSM & CO. IN ITS REPORT DATED 6.3.2001 IN PARA-2.4 HAS MENTIONED THAT THE MARKETING STRATEGY COUPLED WITH EXTENSIVE ADVERTISING AND MEDIA SPEND HAD SEEN THE BRAND GRADUALLY CAPTURE A HEFTY 60% SHARE IN THE LOW- PRICED POPULAR SEGMENT. THUS IT IS CLEAR THAT POPUL ARITY OF A BRAND IS DIRECTLY PROPORTIONATE TO THE ADVERTISEMENT AND PUBLICITY, W HICH HAS SUBSTANTIAL COST EMBEDDED IN IT. 5.5.. ANOTHER IMPORTANT ASPECT WHICH NEEDS CONSIDER ATION IS THAT ONE OF THE TRADEMARK KNOWN AS 'NEELAM' WAS PURCHASED ALONGWITH 'GOODWILL' BY NIRMA INDUSTRIES LTD. FOR RS.25,000/- IN A.Y.2002-03 VIDE AGREEMENT DATED 13.06.2001 FROM NEELAM CHEMICALS & DETERGENTS, A GROUP CONCERN . THUS, BRANDS OTHER THAN NIRMA HAVE ONLY NOMINAL VALUE. THIS ALSO PROVES THA T ASSOCIATED BRANDS HAVE NOMINAL VALUE, IF AT ALL TRANSFERRED SEPARATELY FRO M THE MAIN BRAND. FOR THE SAKE OF ARGUMENT, IF IT IS PRESUMED THAT 'NIMA' BRAND IS ALSO SEPARATELY TRANSFERABLE, THEN ITS VALUE WILL BE EVEN LESS THAN RS.25,000/- B ECAUSE 'NIMA' RESEMBLES BRAND NAME 'NIRMA' AND IS CLEARLY COVERED U/S.16 & 44 OF TRADE MARKS ACT, 1999. MOREOVER, IT IS TRANSFERRED ALONG WITH 'GOODWILL' W HICH NORMALLY CONSTITUTES 95% OF THE VALUE AND HENCE COST OF ACQUISITION IS REQUI RED TO BE TAKEN AT NIL AS PER- PROVISIONS OF SECTION 55(2)(A). 7. THE A.O. CONCLUDED BY HOLDING THAT THE ASSESSEE COM PANY HAS NOT ACQUIRED ANY VALUABLE BRANDS AFTER 01.04.1981 AND HENCE, THE CLAIM OF THE ASSESSEE IN ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 8 THIS REGARD IS REJECTED ON ALL ACCOUNTS. WHILE COMP LETING THE ASSESSMENT, THE A.O. MADE THE FOLLOWING OBSERVATIONS:- 6. THE VALUE ASSESSED IN THE WEALTH-TAX CASE FOR 1982- 83 WAS THE VALUE AS ON 1.4.1982 AND HENCE THE VALUE AS ON 1.4.1981 WOULD B E LESS THAN RS.4.2 LAKHS. IN ORDER TO BE MORE FAIR AND LOGICAL, IT WOULD BE REAS ONABLE TO WORKOUT FAIR MARKET VALUE OF THE 'USER RIGHTS' OF TRADEMARK AND BRAND N AME BY ADOPTING COST INFLATION INDEX. THE COST INFLATION INDEX FOR F.Y. 1982-83 WAS 109 AND FOR F.Y.1981-82 IT WAS 100. ON THE BASIS OF THESE VALUE S, THE FAIR MARKET VALUE OF 'USER RIGHTS' OF TRADEMARKS AND BRAND NAME AS ON 1. 4.81 WORKS OUT TO BE 100 X 420000 / 109 = RS.3,85,321/-. THE SALE CONSIDERATIO N OF THE ASSETS BEING 'USER RIGHTS' OF TRADEMARKS AND BRAND NAME AS ON 26.3.200 1 WAS RS.450 CRORES. BY APPLYING COST INDEX, THE INDEXED COST WORKS OUT TO 385321 X 406 /100 = RS. 15,64,403/-. 7. IN VIEW OF THE ABOVE DISCUSSION, THE REVISED TOT AL INCOME OF THE ASSESSEE AS PER THE DIRECTION OF THE ITAT'S ORDER DATED 16.6.2006 I S COMPUTED AS PER THIS ORDER. THE TOTAL INCOME OF THE ASSESSEE WAS ASSESSED AT RS .460,78,46,684/- AS PER ASSESSMENT ORDER U/S.143(3) OF THE ACT DATED 31.3.2 004. THIS INCOME WAS REVISED AS PER RECTIFICATION ORDER U/S. 154 DATED 17.5.2004 AND THE SAME WAS ASSESSED AT RS.460,90,75,147/-. THEREAFTER, ON GIVING EFFECT TO CIT(A)'S ORDER, THE INCOME WAS REVISED AT RS.419,26,29,200/-, WHICH INCLUDED LTCG ON SALE OF TRADEMARKS 7 BRAND NAME AT RS.409,40,00,000/-. NOW AS PER THE OR DER OF THE HON'BLE ITAT, THE SAME IS REVISED AS UNDER:- 1. BUSINESS INCOME AS PER ORDER U/S. 143(3) 10,45,68,600 ADD: INCOME OF A.Y.2001-02 CREDITED IN SUBSEQUENT YEAR AS RECTIFIED BY ORDER U/S. 154 DATED 17.5.2004 12,28,463 TOTAL BUSINESS INCOME 10,57,97,063 II. LONG TERM CAPITAL GAINS ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 9 LTCL AS PER STATEMENT OF INCOME (-)17,061 LTCG ON THE SALE OF BRAND/TRADE NAME: SALE CONSIDERATION 450,00,00,000 LESS: INDEXED COST 15,64.403 449,84,35,597 449,84,18,536 AS PER PARA-6 ILL. STCL AS PER STATEMENT (-) 71, 50,846 RE VISED TOTAL INCOME: 459,70,64,753 ROUNDED OFF TO 459,70,64,750 8. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). 9. BEFORE THE LD. CIT(A), THE ASSESSEE STRONGLY CONTEN DED THAT THE PART OF THE SALE CONSIDERATION PERTAINS TO THE TRADE-MARKS/BRAN D NAMES WHICH WERE SELF GENERATED ASSETS AND FREE FROM ANY OBLIGATION TO PA Y TAX. IT WAS BROUGHT TO THE NOTICE OF THE LD. CIT(A) THAT OUT OF THE SUM OF RS. 450 CRORES REALIZED FROM TRANSFERRING ITS TRADE-MARKS IN THE BUNCH OF T RADE-MARKS, THE CONSIDERATION SHOULD BE DIVIDED BETWEEN TRADE-MARKS WHICH WERE IN EXISTENCE PRIOR TO 1981 AND WHICH WERE AFTER 1981 I N THE RATIO OF 68.45% AND 31.55% AND, THEREFORE, THE CONSIDERATION PERTAINING TO THE SELF GENERATED ASSETS CANNOT BE SUBJECTED TO INCOME-TAX. STRONG R ELIANCE WAS PLACED ON THE DECISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF B.C. SRINIVASA SHETTY 128 ITR 294 AND THE HONBLE HIGH COURT IN THE CASE OF CADELL WEAVING MILL CO. PVT. LTD. 166 CTR 7. 10. INSOFAR AS THE FAIR MARKET VALUE OF USER RIGHTS OF TRADE-MARK AS ON 01.04.1981 FOR THE TRADE-MARKS USED BEFORE 1981 IS CONCERNED, THE LD. CIT(A) THOUGH ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 10 ACCEPTED THE ASSESSEES CONTENTION THAT THE VALUATI ON DONE BY THE A.O. IS NOT CORRECT AND HELD THAT THE VALUE ADOPTED BY THE A.O. AT RS. 3,85,321/- ON THE BASIS OF VALUE OF RS. 4.20 LACS DETERMINED ON 01.04 .1982 IN THE CASE OF SMT. SHANTABEN K. PATEL IN HER WEALTH TAX PROCEEDINGS IS NOT JUSTIFIED. HOWEVER, AT THE SAME TIME, THE LD. CIT(A) ALSO DISMISSED THE CLAIM OF THE ASSESSEE THAT THE FAIR MARKET VALUE SHOULD BE TAKEN AT RS. 90 CRO RES ON THE BASIS OF THE VALUATION REPORT OF M/S. RSM & CO. 11. DRAWING SUPPORT FROM THE VALUATION REPORT OF PROF. ARVIND SAHAY WHO HAS MADE THE VALUATION OF NIRMA BRAND AT RS. 8 TO 11 CRORES, THE LD. CIT(A) HELD IT WILL BE REASONABLE AND APPROPRIATE TO TAKE THE FAIR MARKET VALUE OF NIRMA BRAND AS ON 01.04.1981 AT RS. 10 CRORES. TH E A.O. IS DIRECTED TO TAKE THIS VALUE TO DETERMINE THE TAXABLE LONG TERM CAPITAL GAIN ACCORDINGLY. 12. AGGRIEVED BY THIS, THE ASSESSEE AND THE REVENUE ARE BEFORE US. 13. WE HAVE HEARD THE REPRESENTATIVES OF BOTH SIDES AT LENGTH. WE HAVE CAREFULLY PERUSED THE ORDERS IN THE FIRST ROUND OF LITIGATION . WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELO W AND WITH THE ASSISTANCE OF THE LD. SENIOR COUNSEL, WE HAVE GONE THROUGH THE RELEVANT DOCUMENTARY EVIDENCES BROUGHT ON RECORD AND REFERRED TO DURING THE COURSE OF THE PROCEEDINGS. 14. THERE ARE NO CHANGES IN THE FACTS OF THE CASE FROM THE FIRST ROUND OF LITIGATION AND, THEREFORE, IT WOULD BE APPROPRIATE TO EXTRACT THE FACTS OF THE CASE FROM THE FIRST ROUND OF LITIGATION ITSELF AND WHICH READ S AS UNDER:- ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 11 (I) ONE SMT.SHANTBEN K.PATEL ALONGWITH SHRI RAMJIB HAI KODIDAS PATEL (IN SHORT REFERRED AS SKP AND RKP RESPECTIVELY) HAD FORMED A PARTNERSH IP BUSINESS STYLED AS M/S.NIRMA CHEMICAL WORKS WITH EFFECT FROM 01/02/1972 AS PER P ARTNERSHIP-DEED EXECUTED ON 18/02/1972 FOR CARRYING ON THE BUSINESS OF MANUFACT URE OF COLOUR CHEMICALS, WASHING POWDER, ETC.ETC. AS WELL AS SALE AND PURCHASE OF SA ME. THE PARTNERSHIP COULD, HOWEVER, CARRYING ON BUSINESS OF MANUFACTURE AND SALE/PURCHA SE OF OTHER GOODS WITH THE CONSENT OF ALL THE PARTNERS. SMT. SKP HAD 75% SHARES, WHERE AS SHRI RAMJIBHAI KODIDAS PATEL AT 25% SHARES - BOTH IN PROFIT AS LOSS OF THE BUSINESS . (II) THEREAFTER, THERE HAD BEEN VARIOUS CHANGES/DIS SOLUTIONS IN THE SAID PARTNERSHIP WHEREBY VARIOUS PERSONS JOINED AS PARTNERS AND OR R ETIRED. HOWEVER, SMT.SKP REMAINED CONTINUOUS PARTNER IN THE SAID PARTNERSHIP TILL THE DISSOLUTION OF THE SAME BROUGHT ABOUT WITH EFFECT FROM 04/01/1980 BY WAY OF A DULY DEED O F DISSOLUTION EXECUTED ON 07/02/1980. THE DETAILS OF DATES OF EXECUTION OF VARIOUS PARTNE RSHIP-DEEDS/DISSOLUTION DEED, EFFECTIVE DATES OF THOSE DEEDS, NAME AND STYLE OF PARTNERSHIP , WHICH OF COURSE, REMAINED AS NIRMA CHEMICAL WORKS, NAMES OF PARTNERS AT THE RELEVANT T IME, SHARE IN PROFIT AND LOSS OF THE PARTNERSHIP OF EACH ONE OF THE PARTNER AT THE RELEV ANT TIME ARE AS UNDER: DATE OF PARTNERSHIP PARTNERSHIP EFFECTIVE DEED NAME OF NAME OF PARTNERS % SHARE % ,HARE APP. REMARKS FIRM IN PROFIT I.. LOSS (1) (2) (3) (4) (5) (6) (7) (8) 18.02.72 01.02.72 NCW RAMJIBHAI K. PATEL 25 PARTNERSHIP CONSTITUTED SHANTABEN K. PATEL 75 11.04.74 01.04.1972 NCW RAMJIBHAI K. PATEL 15 THREE NEW PARTNERS ADMITTED SHANTABEN K. PATEL 35 RAMESHCHANDRA U BARIAYA 20 A PUSHPABEN J. PATEL 15 A DAYALJIBHAI GAGAJIBHAI PATEI 15 A ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 12 12.11.74 22.09.74 NCW SHANTABEN K. PATEL 25 20 SHRI RAMJIBHAI KHODIDAS PATEL EXPIRED ON 21.09.74. RAMESHCHANDRA U. BARIAYA 20 20 PUSHPABEN J. PATEL 15 20 DAYALJIBHAI GAGAJIBHAI PATEL 15 20 KHODIDAS VANDAS PATEL 10 20 A MINOR HARESH RAMJIBHAI PATEL 15 - A 26.04.1975 01.04.75 NCW SHANTABEN K. PATEL 25 30 DAYALJIBHAI RETIRED ON 31.03.75. RAMESHCHANDRA U. BARIAYA 20 20 PUSHPABEN J. PATEL 15 20 KHODIDAS VANDAS PATEL 10 10 KARSANBHAI KACHRABHAI PATEL 15 20 A MINOR HARESH RAMJIBHAI PATEL 15 ' 20.06.76 01.04.76 NCW SHANTABEN K. PATEL 25 30 KHODIDAS V PATEI RETIRED W.E.F. 31.03.76. RAMESHCHANDRA U BARIAYA 20 20 3 USHPABEN J. PATEL 15 20 KARSANBHAI KACHRABHAI PATEL 15 20 RAMODBHAI K PATEL 10 10 A MINOR HARESH RAMJIBHAI PATEL 15 - 02 04 79 01.04.79 NCW SHANTABEN K. PATEL 25 PRAMODBAI K PATEI & HARESH RAMJIBHAI PATEL RETIRED W.E.F 31-03-79. RAMESHCHANDRA U. BARIAYA 20 PUSHPABEN J. PATEL 20 KARSANBHAI KACHRABHAI PATEL 20 S.K. PATEL FAMILY TRUST 15 A 03.01.80 01.01.80 NCW SHANTABEN K. PATEL 25 BY DEED OF RETIREMENT DATED 01, 01. 80. RAMESHCHANDRA U. BARIYA. SMT. PUSHPABEN J. PATEL & SHRI KARSANBHAI KACHRABHAI PATEL REITIRED W.E.F, 31-12-79. ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 13 (III) THE TERMS AND CONDITIONS STIPULATED IN THE F IRST PARTNERSHIP-DEED EXECUTED ON 18/02/1972 READ AS UNDER- 0N STAMP PAPER NO. 11893 DT. 08.02.197 2 OF RS.100/- PARTNERSHIP DEED PARTY OF THE FIRST PART RAMJIBHAI KHODIDAS PAT EL AGED ABOUT 24 YEARS. RELIGION HINDU, OCCUPATION BUSINESS, RESIDENT O F 17. AMAR PARK CO-OP. HSG. SOCIETY LTD.. SARASPUR. AHMEDA BAD PARTY OF THE SECOND PART SHANTABEN KARSANBHAI PATEL . AGED ABOUT 24 YEARS. RELIGION HINDU, OCCUPATION BUSINESS, RESID ENT OF 17. AMAR PARK CO-OP. HSG. SOCIETY LTD.. SARASPUR. A HMEDABAD 1. WE ABOVE SAID PARTIES HAVE STARTED BUSINESS IN T HE PARTNERSHIP AND DOCUMENT EXECUTED TODAY IS 272 WITH THE FOLLOWING TERMS AND CONDITION S. 2. THE NAME OF OUR PARTNERSHIP SHALL BE 'M/S.NIRMA CHEMICAL WORKS' OUR PARTNERSHIP FIRM SHALL CAM- BUSINESS OF MANUFAC TURE OF COLOUR CHEMICALS, WASHING POWDER ETC. AND SALE -PURCHASE OF THE SAME. HOWEVER , WITH THE CONSENT OF ALL THE PARTNERS, MANUFACTURE AND SALE - PURCHASE OF OTHER GOODS CAN BE DONE. 3. THE FUND REQUIRE IN THE AFORESAID FIRM SHALL BE ARRANGED BY ALL THE PARTIES WITH MUTUAL UNDERSTANDING. AN INTEREST AT THE RATE OF 9 % SHALL BE GIVEN ON THE CAPITAL CONTRIBUTED BY THE PARTNERS IN THE AFORESAID FIRM. S.K, PATEI FAMILY TRUST 65 NIRMA CHEMICAL WORKS PVT.LTD (NIL) 10 A 07.02.80 04.01.80 NCW, A BUSINESS UNIT OF S. K. PATEL FAMILY TRUST THE FIRM DISSOLVED AND S. K. PATEL FAMILY TRUST BE CAME THE SOLE PROPRIETOR OF THE BUSINESS IN THE NAME OF NIRMA CHEMICAL WORKS NCW WAS ENTITLED TO ALL THE RIGHTS, TITLE AND INTEREST IN ALL THE ASSETS OF THE FIRM, INCLUDING TRADE MARK. ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 14 4. THE DAY-TO-DAY ADMINISTRATION AND ALL THE MATTER RELATING TO BUSINESS SHALL BE CARRIED OUT TOGETHER IN CO-OPERATION AND CONSENT OF ALL THE PARTNERS. FOR THE SAME, SALARY OF RS.200/- (RUPEES TWO HUNDRED ONLY) PER MONTH SHALL BE PAID TO SHRI RAMJIBHAI KHODIDAS PATEL 5. THE PROFIT-LOSS SHARING RATION OF THE SAID PARTN ERSHIP FIRM IS CONSIDERED ON THE BASIS OF 100 PAISE FOR RE. 1/ AS FOLLOWS. RAISE PARTY OF THE FIRST PART : RAMJIBHAI KHODIDAS PATE L 25 PA; A OF THE SECOND PART : SHANLABEN KARSANBHAI PAT EL 75 6. THE ACCOUNTING YEAR OF THE AFORESAID PARTNERSHIP FIRM SHALL BE FINANCIAL YEAR I.E. FROM 1ST APRIL TO 31ST MARCH. HOWEVER, THE FIRST ACCOUNT ING YEAR SHALL BE FROM 1 ST FEBRUARY, 1972 TO 31ST MARCH. 1973 THE BALANCE SHEET SHALL BE PREPARED ON 3 1 ST MARCH AND PROFIT OR TOSS SHALL BE CREDITED OR DEBITED IN THEIR RESPE CTIVE ACCOUNT AS PER RATIO AND THE BALANCE SHEET SHALL BE PREPARES IN TWO COPIES AND S IGNED BY-ALL THE PARTNERS AND ONE COPY SHALL BE GIVEN TO EACH PARTNER. 7. THE BOOKS, FILES, VOUCHERS, INDENTS ETC. SHA LL BE KEPT IN THE OFFICE OF THE FIRM AND EVERY PARTNER SHALL HAVE RIGHT TO INSPECT THE SAME, AND THERE SHOULD NOT BE ANY OBJECTION OR OBSTRUCTION THERETO. 8. NO PARTNER OF THE FIRM SHALL BECOME THE MORTGAGO R OR GUARANTOR OF AM PERSON AND NO LOAN SHOULD BE GIVEN OR USE MONEY FOR PERSONAL USE. IN SPITE OF THIS, IF ANY ONE DOES THE SAME, THEN THE SAID PARTNER SHALL BE PERSONALLY RES PONSIBLE FOR ANY LOSS TO THE FIRM AND FOR THE SAID ACT THE FIRM WILL NOT BE RESPONSIBLE. 9. BANK ACCOUNT SHOULD BE OPENED IN THE NAME OF THE FIRM AND BE ARRANGED THAT THE TRANSACTION SHALL BE DONE WITH THE SIGNATURE OF EIT HER OF PARTNER. 10. THE TERM OF THIS PARTNERSHIP FIRM IS NOT FIXED ANY PARTNER CAN BY GIVING THREE MONTHS NOTICE IN WRITING TO OTHER PARTNER AND AFTER CONSID ERING THE PROFIT & LOSS AND RECEIPTS AND PAYMENTS, CAN TERMINATE THIS PARTNERSHIP FIRM O R CAN RESIGN FROM THE FIRM. 11. TO DO THE BUSINESS OF THE PARTNERSHIP FIRM AUSP ICIOUSLY, HONESTLY AND DILIGENTLY, AND IN CASE OF ANY DISAGREEMENT, THE SAME SHOULD BE RES OLVED BY APPOINTING A MUTUAL ARBITRATOR. ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 15 UNDER THE ABOVE CONDITIONS, THIS DEED OF PARTNERSHI P IS ENTERED INTO BETWEEN ALL THE PARTNERS WITH FULL KNOWLEDGE AND UNDERSTANDING CONS CIOUSLY, OUT OF SWEET WILL AND THE SAME IS ACCEPTABLE TO ALL AND SHALL BE BINDING. EXECUTED AT AHMEDABAD ON THIS DATED 18.02.97, FRIDA Y. 1. RAMJIBHAI KHODIDAS PATEL 2. SHANTABEN KARSANBHAI PATEL (THE DATE OF EXECUTION IS 18/2/72, HOWEVER, IN THE COPY PLACED IN THE PAPER-BOOK IT HAS BEEN TYPED AS 18/2/97 WHICH WAS STATED TO BE DU E TO TYPING ERROR) 4.1 (A) THE AFORESAID PARTNERSHIP SUFFERED FIRST C HANGE WITH EFFECT FROM 01/04/1974 WHEN THREE MORE PARTNERS JOINED THE EARLIER PARTNERSHIP BUSINESS BEING CARRIED ON UNDER THE NAME AND STYLE OF M/S.NIRMA CHEMICAL WORKS. THE DEE D IS DATED 11/04/1974. (B) AS PER CLAUSE-8 OF THIS PARTNERSHIP-DEED EXECUT ED ON 11/04/1974 AND MADE EFFECTIVE FROM 01/04/1974, RAMJIBHAI KODIDAS PATEL & SMT. SHA NTABEN KARSHANBAHI PATEL (HEREINAFTER REFERRED TO AS 'RKP' AND 'SKP' RESPECT IVELY) WERE SHOWN AS OWNERS OF INTANGIBLE ASSETS, NAMELY; TENANCY RIGHTS, GOOD-WIL L AND TRADE-MARKS. OTHER THREE PARTIES WERE NOT TO HAVE ANY INTEREST, TITLE OR RIGHT IN TH ESE INTANGIBLE ASSETS MENTIONED IN CLAUSE. CLAUSE-8 OF THE DEED WHICH READS AS UNDER- '8. RAMJIBHAI KHODIDAS PATEL, THE PARTY OF THE ,7, ART, SHANTABEN KARSANBHAI PATEL, THE PARTY OF THE SECOND PART, SHALL HAVE ONL Y TENANCY RIGHT, GOOD-WILL AND OWNERSHIP OF TRADEMARKS AND OTHER PARTIES HAVE NO R IGHT, TITLE OR INTEREST IN THE SAME.' (C) AS PER CLAUSE-3 OF THIS DEED, THE FUNDS REQUIR ED FOR CARRYING ON THE BUSINESS OF THE PARTNERSHIP WERE TO BE ARRANGED BY ALL THE PARTIES WITH MUTUAL UNDERSTANDING AND CAPITAL CONTRIBUTED BY PARTNERS WAS ENTITLED TO PAYMENT OF INTEREST @ 12% PER ANNUM. 4.2 (A) THE NEXT CHANGE IN PARTNERSHIP WAS BROUGH T BY PARTNERSHIP-DEED EXECUTED ON 12.11.1974, BUT WITH EFFECT FROM 22/09/74 BECAUSE O F DEATH OF PARTNER SHRI RKP. AS A ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 16 RESULT OF THIS PARTNERSHIP-DEED, A MINOR NAMED HARE SH RAJJIBHAI WAS ADMITTED TO THE BENEFITS OF PARTNERSHIP. (B) AS PER CLAUSE-10 OF THIS PARTNERSHIP-DEED, SMT . SKP WAS SHOWN, FOR THE FIRST TIME, AS TO BE SOLE OWNER OF TENANCY RIGHTS, GOOD-WILL AND T RADE-MARKS AND TRADE-NAMES AND NEITHER THE PARTNERSHIP NOR OTHER PARTNERS WERE MAD E TO HAVE ANY RIGHT OR SHARE OR INTEREST IN THESE INTANGIBLE ASSETS. (C) CAPITAN FOR THE PARTNERSHIP WAS, HOWEVER, AGAI N TO BE CONTRIBUTED BY ALL THE PARTIES, THOUGH OF COURSE, AS PER MUTUAL UNDERSTANDING AND T HE PARTNERS WERE ENTITLED TO GET INTEREST @ 12% P.A. ON THEIR CAPITAL INVESTMENT. 4.3 (A) THE 3 RD CHANGE IN PARTNERSHIP WAS BROUGHT OUT BY PARTNERSH IP-DEED EXECUTED ON 26/04/75, BUT AGAIN MADE EFFECTIVE FROM 01/04/75. T HIS TIME ONE PARTNER RETIRED AND ANOTHER TWO PARTNERS JOINED. (B) AS PER TERM AND CONDITIONS NO.9 WAS THIS PARTNERSHI P WAS ALSO, THE OWNERSHIP OF TENANCY RIGHTS, GOOD-WILL AND TRADE-MARKS AND TRADE -NAMES WAS ACCEPTED TO BE THAT OF SMT. SKP AND OTHER PARTNERS WERE NOT TO HAVE ANY IN TEREST, RIGHT OR SHARE IN ANY OF THESE ASSETS. (C) CAPITAL, AS PER THIS PARTNERSHIP-DEED ALSO, WAS TO BE CONTRIBUTED BY ALL THE PARTNERS AS PER MUTUAL CONSENT AND WAS ENTITLED TO INTEREST @ 1 2% P.A. 4.4 (A) THE FOURTH CHANGE IN PARTNERSHIP WAS BROUGH T OUT AS PER PARTNERSHIP-DEED EXECUTED ON 26/05/1976, BUT MADE EFFECTIVE FROM 01/ 04/1976 WHEN A NEW PARTNER JOINED AND ONE OLD PARTNER RETIRED. (B) AS PER CLAUSE-9 OF THIS PARTNERSHIP-DEED, SMT. SKP WAS AGAIN MADE TO BE OWNER OF TENANCY RIGHTS, GOOD-WILL TRADE-MARKS AND TRADE-NAM ES. OTHER PARTNERS WERE NOT TO HAVE ANY RIGHT, SHARE OR INTEREST IN THE SAID ASSETS. 4.5 (A) (A) THE FIFTH CHANGE IN PARTNERSHIP WAS BROUGHT ABO UT AS PER PARTNERSHIP-DEED ON 02/04/1979 WHEN TWO PARTNERS RETIRED AND A NEW PART NER NAMED J.M.PATEL FAMILY TRUST THROUGH ITS TRUSTEE, SMT. SKP JOINED THE PARTNERSHI P. THIS PARTNERSHIP WAS MADE EFFECTIVE FROM 01/04/1979. (B) AS PER CLAUSE-10 OF THIS PARTNERSHIP-DEED, SMT. SKP WAS AGAIN, MADE TO HAVE OWNERSHIP OF TENANCY RIGHTS OF THE FIRM'S PREMISES, GOOD-WILL, TRADE-MARKS AND TRADE- NAMES. REMAINING PARTNERS WERE MADE TO HAVE NO CLAI M OR SHARE IN THESE ASSETS. ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 17 (C) THE CAPITAL OF THE OWNERSHIP, HOWEVER, WAS AGAI N, TO BE CONTRIBUTED BY AIL THE PARTNERS WITH MUTUAL CONSENT AND WAS ENTITLED TO IN TEREST @ 12% P.A. 4.6 THE AFORESAID PARTNERSHIP WAS DISSOLVED AS PER DEED OF RESOLUTION DATED 05/04/1979 AND WAS MADE EFFECTIVE ON 31/03/1979. AS PER THIS D ISSOLUTION-DEED, PRAMODKUMAR KANJIBHAI PATEL, RETIRED AND OTHER FOUR PARTNERS WE RE MADE TO CONTINUE THE PARTNERSHIP BUSINESS AS IT IS, WHICH GOT CHANGED AS PER PARTNER SHIP-DEED DATED 02/04/1979. 4.7 THE NEXT CHANGE IN PARTNERSHIP WAS MADE AS PER PARTNERSHIP-DEED DATED 03/01/1980 AND WITH EFFECT FROM 01/01/1980 WHEN M/S. NIRMA CHEMICAL WORKS (P) LTD. JOINED THE PARTNERSHIP AND, CONSEQUENTLY, SMT. SKP, SKP FAMILY TRUST AND NIRMA CHEMICAL WORKS (P) LTD. REMAINED THE PARTNERS FOR CONTINUING THE BUSINESS O F PARTNERSHIP STYLED AS M/S. NIRMA CHEMICAL WORKS (COPY OF THIS DEED IS PLACED A T PAGE NO.84 OF ASSESSEE'S PAPER- BOOK NO.I) 4.8 THEREAFTER, THE PARTNERSHIP BUSINESS STYLED AS NIRMA CHEMICAL WORKS WAS FINALLY DISSOLVED WITH EFFECT FROM 04/01/1980 AS PER DISSOL UTION DEED DATED 07/02/1980. AS A RESULT OF THIS DISSOLUTION-DEED, THE RUNNING BUSINE SS OF THE PARTNERSHIP WITH ALL ITS ASSETS AND LIABILITIES EXCLUDING THE ASSETS BELONGING TO T HE PARTY OF THE FIRST PART, I.E. SMT. SKP AS PER CLAUSE-9 OF THE DEED AND INCLUDING RIGHTS AN D BENEFITS OF PENDING CONTRACTS, PROFITS OR LOSSES, RIGHTS AND LIABILITIES THAT THEY HAVE AC CRUED TO THE PARTNERSHIP BUSINESS BETWEEN 01.04.1980 TO THE DATE OF DISSOLUTION (UPTO 4.1.80) WERE TAKEN OVER BY THE PARTY OF THE SECOND PART TO THE DISSOLUTION-DEED, I.E. BY TRUST STYLED AS S.K.PATEL FAMILY TRUST THROUGH ITS TRUSTEE, SMT. SKP. THE TERMS AND CONDIT IONS OF DISSOLUTION-DEED AS HAVE BEEN NOTICED FROM ITS COPY PLACED AT PAGE NOS.183 T O 190 OF ASSESSEE'S PAPER-BOOK NO.II ARE AS UNDER- 'DEE D OE DISSOLUTION THIS DEED OF DISSOLUTION OE PARTNERSHIP IS ENTERED INTO AND EXECUTED AT AHMEDABAD ON THIS 7 TH DAY OF FEBRUARY. 1980 BY AND BETWEEN THE EARSTWHIL E PARTNERS OF M/S. NIRMA CHEMICAL WORKS. (1) SMT. SHANTABEN KARSANBHAI PATEL, AGED ABOUT 3 I YEARS, HINDI. HINDU PATEL, OCCUPATION HOUSEHOLD WORK AND BUSINESS, RESIDING AT 4, SURENDRA MANGALDAS COMPOUND. SURENDRA MANGALDAS ROAD, AMBAWADI, AHMEDABAD, HEREI NAFTER REFERRED TO AS THE PARTY ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 18 OF THE 'FIRST PART' ( WHICH EXPRESSION SHALL UNLESS REPUGNANT TO THE CONTEXT OR MEANING THEREOF INCLUDE HER HEIRS, EXECUTORS, ADMIN ISTRATORS, ASSIGNEES ETC 2) SMT. SHANTABEN KARSANBHAI PATEL TRUSTEE OF S.K. PATEL FAMILY TRUST, AGED ABOUT 31 YEARS, HINDI, HINDU PATE/, OCCUPATION HOUSEHOLD WORK AND BUSINESS, RESIDING AT 4, SURENDRA MANGALDAS COMPOUND, SURENDR A ROAD, AMBAVADI, AHMEDABAD, HEREINAFTER REFERRED TO AS THE PARTY OF THE ' SECON D PART' ( WHICH EXPRESSION SHALL UNLESS REPUGNANT TO THE CONTEXT OF MEANING THEREOF INCLUDE OTHER TRUSTEE OR TRUSTEES OR SUCCESSORS TRUSTEES OR THE BENEFICIARIES OF THE TRU ST ETC., AND (3) M/S. NIRMA CHEMICAL WORKS PVT. LTD . A PRIVATE LIMITED COMPANY INCORPORATED UNDER THE COMPANIES ACT 1956, BEARING REGISTRATION NO. AND HAVING ITS REGISTERED OFFICE AT G.I.D.C. ESTATE , VATVA, DIST. : AHMEDABAD THROUGH ITS DIRECTOR SHRI KARSANDAS KHODIDAS PATEL, AGED ABOUT 35 YEARS, HINDI, HINDU PATEL, OCCUPATION BUSINESS, RESIDING AT 4 SURENDRA MANGALDAS COMPOUND, SURENDRA MANGALDAS ROAD, AMBAVADI, AHMEDABAD HEREINAFTER REF ERRED TO AS PARTY OF THE 'THIRD PART' ( WHICH EXPRESSION SHALL UNLESS REPUGNANT TO THE CONTEXT OR ASSIGNING THEREOF INCLUDE OTHER DIRECTORS OF THE COMPANY AND SUCCESSO RS IN TITLE AND ASSIGNEES ETC. WHEREAS THE PARTIES HERETO HAD CONSTITUTED A PARTNE RSHIP UNDER THE FIRM NAME AND STYLE OF M S N1RMA CHEMICAL WORKS TO CARRY ON T HE BUSINESS OF MANUFACTURING, PURCHASING AND SELLING OF COLOUR CHEMICAL WASNING POWDER DETERMENT SOAP, ETC AS AND FROM JANUARY L 1980 THE TERMS CONDITIONS AND ST IPULATIONS WHEREOF WERE RECORDED AS PER THE DEED OF PARTNERSHIP DATED JANUARY 3, 1980. AND WHEREAS FOR VARIOUS REASONS INCLUDING THE DISSE NSIONS AMONGST THE DIRECTORS OF THE PARTY OF THE THUD PAIL AS WELL AS THE UNWILLING NESS OF THE PARTY OF THE FIRST PART TO CONTINUE AS A OARTNER, THE PARTNERS HAVE BY MUTUAL CON-CM AND AGREEMENT AGREE TO DISSOLVE THE SAID PARTNERSHIP AS AND FROM 4 JANUARY 1980. AND WHEREAS THE PARTNERS DO HEREBY CONFIRM AND AGRE E THAT THE PARTNERSHIP AS AFORESAID HAS BEEN DISSOLVED BY THE AS PER TERMS, C ONDITIONS AND STIPULATION RECORDED IN THIS DEED OF DISSOLUTION. NOW THIS DEED OF D1SS01A TION OF PARTNERSHIP WITNESS AND IT IS HEREBY MUTUALLY AGREED AND DECLAR ED, AS FOLLOW: ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 19 1. THAT THE AFORESAID PARTNERSHIP IS HEREBY DISSOLV ED WITH EFFECT FROM -4, JANUARY 1980. 2. THAT THE RUNNING BUSINESS OF THE PARTNERSHIP WIT H ALL ITS ASSETS AND LIABILITIES EXCLUDING THE ASSETS BELONGING TO THE PARTY OF THE FIRST PART AS PER CLAUSE-9 OF THE PARTNERSHIP DEED AND DEED AND INCLUDING RIGHTS AND BENEFITS OF PENDI NG CONTRACTS AND THE PROFITS OF LOSSES AND RIGHTS AND LIABILITIES THAT MAY HAVE ACCRUED FO R THE BUSINESS CARRIED ON AND FROM JANUARY 1, 1980, TO THE DATE OF DISSOLUTION AS PER THE BOOKS OF ACCOUNTS OF THE FIRM WHICH THE PARTIES HERETO HAVE CONFIRMED AND AGREE THAT TH E ACCOUNTS OF THE PARTNERSHIP ARE TRUE AND CORRECT AND THERE IS NO DISPUTE REGARDING THE A CCOUNTS OF THE PARTNERSHIP THAT IS DISSOLVED HEREBY IS TAKEN OVER BY THE PARTY OF THE ACCOUNT PART. 3. THE PARTY OF THE SECOND PART HAS AGREED TO DISCH ARGE ALL THE LIABILITIES OF THE FIRM FOR THE PERIOD DURING WHICH THE PARTNERSHIP WAS IN SUBS ISTENCE WHETHER ACCRUED OR NOT AND WHETHER RECORDED IN THE BOOKS OF THE FIRM OR NOT IN CLUDING THOSE WHICH MAY ARISE OR ACCURATE HEREAFTER INCLUDING THOSE ON ACCOUNT OF SA LES TAX, EXCISE, OCTROI, INCOME-TAX ACT AND BILLS OUTSTANDING WHICH MAY BE RECEIVED HER EAFTER. 4.THAT THE PARTY OF THE SECOND PART SHALL BE THE OW NER OF ALL THE PROFITS AND GAINS OF THE BUSINESS THAT MAY HAVE ACCRUED, ARISEN OR RECEIVED OR WHICH MAY ACCRUE, ARISE OR BE RECEIVED FOR THE BUSINESS EARNED ON BY THE FIRM FR OM ITS COMMENCEMENT I.E. JANUARY' 1, 1980 TO ITS DISSOLUTION I.E. JANUARY 4, 1980 AND SH ALL BE LIABLE FOR ALL THE LOSSES AND LIABILITIES THAT MAY HAVE BEEN INCURRED OR SUFFERED OR WHICH MAY BE INCLINED OR SUFFERED OR WHICH MAY BE INCURRED OR WHICH MAY ACCRUE OR ARI SE HEREAFTER FOR THE SAID PERIOD AND FOR THE PROFITS AND LOSSES OF THE BUSINESS THAT MAY BE CARRIED ON BY THE PARTY OF THE SECOND PART AFTER DISSOLUTION EITHER AS A SOLE OWNER OR IN PARTNERSHIP WITH ANY OTHER PERSONS. 5. THAT THE PARTY OF THE SECOND PART HAS AGREED TO PAY TO THE PARTY OF THE FIRST PART AS WELL AS THE PARTY OF THE THIRD PART THE AMOUNT STANDING TO THE CREDIT OR THEIR RESPECTIVE CAPITAL ACCOUNTS AND CURRENT ACCOUNT WITHOUT ANY SHARE IN P ROFITS AND LOSSES O F THE FIRM FOR THE BUSINESS CARRIED ON DURING ITS SUBSISTENCE OF THE P ARTNERSHIP I.E. FROM ITS COMMENCEMENT ON JANUARY 1, 1980 TO ITS DISSOLUTION ON JANUARY 4, 1980. THE PARTY OF THE SECOND PART HAS AGREED TO PAY INTEREST AT THE RATE OF 12% PER A NNUM IF THE AMOUNT IS NOT PAID WITHIN ONE MONTH FROM THE SIGNING OF THIS DEED OF DISSOLUT ION, TILL THE FINAL PAYMENT IS MADE. 6. THE PARTIES OF THE FIRST PART AND THE THIRD PART IN VIEW OF THE DISSOLUTION OF THE PARTNERSHIP ON SETTLEMENT OF AMOUNTS HAVE AGREED TO TAKE THEIR CAPITAL INVESTMENT IN THE ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 20 PARTNERSHIP FIRM BACK AND HANDED OVER THE RUNNING B USINESS TO THE PARTY OF THE SECOND PART AND THEY HEREBY AGREE AND DECLARE THAT THEY HA VE UPON DISSOLUTION AGREED TO RECEIVE THE AMOUNT STANDING TO THE CREDIT TO THEIR ACCOUNTS IN LIEU OF THEIR RESPECTIVE SHARE OF INTEREST IN THE ASSETS OF THE BUSINESS OF THE PARTN ERSHIP INCLUDING RIGHTS, TITLE AND INTEREST IN PARTNERSHIP PROPERTIES, OUTSTANDING PRIVILEGES, RIGHTS, AND BENEFITS, PENDING CONTRACTS AND PROFIT OR LOSS RUN UNDER THE FIRM NAME AND STYL E FROM ITS COMMENCEMENT TO ITS DISSOLUTION IT IS ALSO MADE KNOWN THAT ON ACCOUNT O F THE PARTY OF THE SECOND PART WHO HAS UNDERTAKEN TO SAVE HARMLESS THE PARTIES OF THE FIRS T PART AND THE THIRD PART FROM ANY AND ALL LIABILITIES OR OBLIGATIONS OF THE PARTNERSHIP A CCRUED DUE OR WHICH MAY ACCRUED DUE HEREAFTER INCLUDING THOSE ARISING ON AN ACCOUNT OF THEIR SIGNING CHEQUES BILLS RECEIPTS OR CONTRACTS ON OR BEFORE THE DATE OF DISSOLUTION, AND THEREFORE THE PARTY OF THE FIRST AND THIRD PART HAVE BY WAY OF ADJUSTMENT OF THEIR RIGHT S HAVE AGREED TO TAKE THE AMOUNT STANDING TO THE CREDIT TOGETHER WITH AND SUBJECT TO THE OTHER TERMS AND CONDITIONS MENTIONED HEREIN THIS DEED OF DISSOLUTION. 7. THE PARTY OF THE SECOND PART HAS AGREED TO PAY T O THE PARTY OF THE FIRST PART IN LIEU OF COMPENSATION FOR THE OWNERSHIP OF THE TENANCY RIGHT S OF THE FIRM PREMISES, GOODWILL TRADE NAME AND TRADE MARKS AT THE RATE OF 2.5% TO B E CALCULATED ON NET PROFITS OF THE FIRM EVERY YEAR OR RS.10,000/- (RUPEES TEN THOUSAND) WHI CHEVER IS HIGHER. THIS AMOUNT SHALL BE PAYABLE DURING THE LIFE TIME OF THE PARTY OF THE FIRST PART AS WE// AS TO THE HEIRS OF THE FIRST PART AFTER HER DEMISE THE OWNERSHIP RIGHT FOR THE GOODWILL, TRADE NAME AND TRADE MARKS AS WELL AS THOSE OF TENANCY RIGHTS BELONGS TO AND SHALL REMAIN AS THE SOLE PROPRIETOR RIGHTS OF THE PARTY OF THE SECOND PAN. T HE SAID AMOUNT SHALL BE PAID WITHIN THREE MONTHS OF THE CLOSING OF THE ACCOUNT OF THE T RUST OR A PARTNERSHIP FIRM, IF ANY. CONSTITUTED BY THE TRUST IN WHICH THE TRUST IS A PA RTNER. THE PARTY OF THE SECOND PART SHALL SUBMIT THE CALCU LATION OF AMOUNT PAYABLE TO THE PARTY OF THE FIRST PART WITHIN THREE MONTHS FROM THE END OF THE ACCOUNTING YEAR. IT SHALL ALSO SUBMIT THE SAID STATEMENT DULY CERTIFIED BY THE AUD ITOR IF SO DESIRED BY THE PARTY OF THE FIRST PART THE PARTY OF THE FIRST PART SHALL GIVE A NOTICE IN WRITING FOR THIS PURPOSE TO THE PARTY OF THE SECOND PART. 8. THAT THE PARTIES HAVE SIGNED NOTICES ADDRESSED T O THE REGISTRAR OF FIRMS, INCOME-TAX OFFICER, CIRCLE V, WARD A, AHMEDABAD. SATES TAX OFF ICER, AHMEDABAD, PRESCRIBED ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 21 AUTHORITY UNDER THE SHOP & ESTABLISHMENT ACTS PRESC RIBED AUTHORITY UNDER THE PROFESSIONAL TAX NOTIFYING THE DISSOLUTION OF THE F IRM. 9. THAT EACH OF THE SAID PARTIES HAS ASSURED THE OT HER AND WARRANTS THAT EXCEPT AS RECORDED IN THE BOOKS OF ACCOUNT OF THE PARTNERSHIP AND OTHER PAPERS AND CORRESPONDENCE OF THE PARTNERSHIP EACH OF THEM HAS NOT RECEIVED COLLECTED OR DISCHARGED OR COMPROMISED ANY CLAIM DEMAND OR OTHER CREDIT DUE OR TO BECOME DUE TO THE PARTNERSHIP OR CONTRACTED OR OTHERWISE, INCURRED AN Y LIABILITY DEBT OR OBLIGATION THAT MAY NOW OR HEREAFTER DIRECTLY OR INDIRECTLY CHARGED OR AFFECT THE ASSETS OF THE PARTNERSHIP HEREBY TAKEN OVER BY THE PARTY OF THE SECOND PART O R ANY OF ITS PROPERTY. 10. THE PARTY OF THE SECOND PART SHALL HAVE THE SOL E AND EXCLUSIVE RIGHT TO ENDORSE, COLLECT AND REALIZE CHEQUES, NOTES, DRAFTS, OR OTHER NEGOTI ABLE INSTRUMENTS OR SECURITIES STANDING IN THE NAME OF THE FIRM AND TO RECEIVE AND GIVE EF FECTUAL RECEIPTS FOR THE DEBTS OF THE FIRM AND TO TAKE NECESSARY LEGAL STEPS FOR THE COLLECTIO N THEREOF. THAT THE PARTY OF THE FIRST PAN AND THE THIRD PART HAVE AGREED NOT TO COLLECT OR RE CEIVE ANY OF DEBTS OF THE FIRM WHICH IS DISSOLVED. 11. THE PARTY OF THE SECOND PART HEREBY COVENANTS W ITH THE PARTIES OF THE FIRST PART AND THIRD PART TO DISCHARGE AND FT. .FILL ALL DEBTS, LI ABILITIES AND OBLIGATIONS OF THE PARTNERSHIP AND AT ALL TIMES HEREAFTER EFFECTUALLY TO INDEMNIFY AND KEEP INDEMNIFIED THE PARTIES OF THE FIRST PART THUD PAN AND EACH OF THEM INDIVIDUALLY A ND OR HIS/THEIR RESPECTIVE LEGAL REPRESENTATIONS AND ESTATE AND PROPERTY THEREFROM A ND FROM ALL PROCEEDINGS COSTS CLAIMS AND EXPENSES IN RESPECT THEREOF. 12. THAT THE BOOKS OF ACCOUNT, DOCUMENTS, CORRESPON DENCES AND ALL PAPERS OF THE PARTNERSHIP SHALL REMAIN IN THE CUSTODY OF THE PART Y OF THE SECOND PAN WHO SHALL ALLOW TO INSPECT AND/OR TO TAKE COPIES OF SUCH ACCOUNTS DOCU MENTS CORRESPONDENCE ETC. TO THE PARTIES OF THE FIRST PART AND THE THIRD PART/OR EAC H OF THEM AND OR HIS/THEIR RESPECTIVE LEGAL REPRESENTATIVES ETC. AND/OR AGENTS OR ATTORNEYS AT ALL REASONABLE TIMES AND SHALL KEEP THE SAME FOR A PERIOD OF 8 (EIGHT) YEARS AND BEFORE DES TROYING THEM GIVE A NOTICE OF NOT LESS THAN ONE MONTH TO THE PARTIES OF THE FIRST PART AND THE THIRD PART THE PARTY OF THE SECOND PART SHALL AT THE REQUEST OF THE PARTIES OF THE FIR ST PART REQUEST OF THE PARTIES OF THE FIRST PART AND THE THIRD PART OR EACH OF THEM AND/OR HIS/ THEIR LEGAL REPRESENTATIVES ETC. AND/OR ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 22 AGENTS OR ATTORNEYS CAUSE THE SAME TO BE PRODUCED A T THE COST AND EXPENSES OF THE REQUISITIONING PARTY BEFORE ANY COURT OF AUTHORITY. 13. EACH OF THE PARTIES HERETO HEREBY RELEASES THE OTHER FROM ALL PROCEEDINGS ACCOUNTS COSTS CLAIMS AND DEMANDS IN RESPECT OF THE PARTNERS HIP BUT WITHOUT PREJUDICE TO ANY RIGHTS OR REMEDIES UNDER THE PROVISIONS OF THIS DEE D. 14. EACH OF THE PARTIES HERETO ASSURES THE OTHER TH AT HE SHALL EXECUTE ANY OTHER DEED OR DEEDS OR RELEASES OR SIGN ANY OTHER NOTICE OR NOTIC ES OR DOCUMENTS ETC. TO FURTHER ASSURE THE CARRYING INTO EFFECT' THE TERMS AGREED TO HEREB Y AT THE EXPENSE OF THE REQUISITIONING PARTY. 15. IF ANY DOUBT QUESTION OR DISPUTES SHALL AT ANY TIME HEREAFTER ARISE BETWEEN THE PARTIES HERETO TOUCHING THE CONSTRUCTION OF THIS DEED OF DI SSOLUTION OR ANY CLAUSE OR WITH REGARD TO ANY MATER OR THING HEREIN CONTAINED, -OR RELATIN G TO THE DISSOLUTION OF THE SAID PARTNERSHIP AND THE AFFAIRS THEREOF AS AFORESAID, S UCH DOUBT, DISPUTE OR QUESTION SHALL BE REFERRED TO AN ARBITRATOR OR ARBITRATORS ACCORDING TO THE INDIAN ARBITRATION ACT, 1940 OR ANY STATUTORY MODIFICATION OR RE-ENACTMENT THEREOF. THIS DEED OF DISSOLUTION IS EXECUTED ON STAMP PAPER OF RS. WO/- (RUPEES ONE HUNDRED) BEARING NO. 14742 DATED FEBRUARY 7, 1980 P URCHASED FROM THAKORLAL CHIMANLAL PATE!, AHMEDABAD STAMP VENDOR BEARING LIC ENCE NO SB 15/1973 FOR THE PARTNERSHIP FIRM HEREBY DISSOLVED THROUGH RAJENDRA D. SHAH & CO AND SHALL BE KEPT WITH THE PARTY OF THE SECOND PART AND SIGNED COPIES THER EOF ARE GIVEN TO THE PARTIES HERETO IN WITNESS WHEREOF THE PARTIES HERETO HAVE PUT THEI R RESPECTIVE SIGNATURES ON THE DAY AND THE YEAR HEREINABOVE MENTIONED IN THE PRESE NCE OF WITNESSES. AHMEDABAD, DATED 7 TH DAY OF FEBRUARY 1980. SIGNED AND DELIVERED BY THE WITHINNAMED SMT SHANTABEN KARSANBHAI PATEL IN THE PRESENCE OF W ITNESS: 1._______________ ______________ ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 23 5. IT IS TERM NO.7 OF THIS DISSOLUTION-DEED WHOSE I NTERPRETATION AND OUTCOME IS TO BE CONSIDERED FOR DISPOSAL OF VARIOUS ISSUES IN THIS A PPEAL AND, THEREFORE, WE, FOR THE SAKE OF CONVENIENCE, WOULD LIKE TO REPRODUCE THE SAME ONCE AGAIN AS UNDER:- '7. THE PARTY OF THE SECOND PART HAS. AGREED TO PAY TO THE PARTY OF THE FIRST PART IN LIEU OF COMPENSATION FOR THE OWNERSHIP OF THE TENANCY RIGHT S OF THE FIRM PREMISES, GOODWILL TRADE NAME AND TRADE MARKS AT THE RATE OF 2.5% TO BE CALC ULATED ON NET PROFITS OF THE FIRM EVERY YEAR OR RS.10,000/- (RUPEES TEN THOUSAND) WHICHEVER IS HIGHER. THIS AMOUNT SHALL BE PAYABLE DURING THE LIFE TIME OF THE PARTY OF THE FI RST PART AS WELL AS TO THE HEIRS OF THE FIRST PART AFTER HER DEMISE. THE OWNERSHIP RIGHT FOR THE GOODWILL, TRADE NAME AND TRADE MARKS AS WELL OF TENANCY RIGHTS BELONGS TO AND SHALL REMA IN AS THE SOLE PROPRIETARY RIGHTS OF THE PARTY OF THE SECOND PART. THE SAID AMOUNT SHALL BE PAID WITHIN THREE MONTHS OF THE CLOSING OF THE ACCOUNT OF THE TRUST OR A PARTNERSHIP FIRM, IF ANY, CONSTITUTED BY THE TRUST IN WHICH THE TURST IS A PARTNER. THE PARTY OF THE SECOND PART SHALL SUBMIT THE CALCULATION OF AMOUNT PAYABLE TO THE PARTY OF THE FIRST PART WITHIN THREE MONTHS FROM THE END OF THE ACCOUNTING YEAR. IT SHALL ALSO SUBMIT THE SAID STATEMENT DULY CERTIFIED BY THE AUD ITOR IF SO DESIRED BY THE PARTY OF THE FIRST PART. THE PARTY OF THE FIRST PART SHALL GIVE A NOTICE IN WRITING FOR THIS PURPOSE TO THE PARTY OF THE SECOND PART.' 6. IN CONSEQUENCE UPON THE DISSOLUTION OF PARTNERSH IP STYLED AS M/S. NIRMA CHEMICAL WORKS AS A RESULT OF AFORESAID DISSOLUTION-DEED (EX ECUTED ON 07/02/1980) W.E.F. 04/01/1980, THE RUNNING BUSINESS OF ERSTWHILE PARTN ERSHIP ALONGWITH ALL ASSETS AND LIABILITIES, EXCEPT THE ASSETS AS PROVIDED IN CLAUSE NO.7 OF THE DISSOLUTION-DEED, WERE CLAIMED TO HAVE BEEN TAKEN OVER BY TRUST S.K.PATEL FAMILY TRUST THROUGH ITS TR USTEE, SMT. SKP WHO CONTINUED THE SAME BUSINESS. THE TRUST, HOWEVER, AL SO CONTINUED TO USE THE INTANGIBLE ASSETS - GOODWILL, TENANCY RIGHT, TR ADE- & TRADE-NAME; IN CONSEQUENCE OF THE TERMS OF CLAUSE-7. 7. ON THE OTHER HAND, SMT. SKP STARTED TO RECEIVE A YE ARLY PAYMENT WHICH SHE OFFERED FOR TAXATION IN HER RETURN OF INCOME AS INCOME AND THE REVENUE WENT ON TO TAX THE SAME AS INCOME FROM ROYALTY UNDER THE HEAD 'INCOME FROM OTH ER SOURCES' ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 24 8. IN BETWEEN, THE PROPRIETARY BUSINESS OF SK FAMILY T RUST WAS CONVERTED, AGAIN, INTO A PARTNERSHIP-FIRM WITH 6 OTHER PARTNERS AND IT WAS, THEREAFTER THAT THE PARTNERSHIP BUSINESS IN THE NAME AND STYLE OF M/S.NIRMA CHEMICA L WORKS WAS CONVERTED UNDER CHAPTER IX OF COMPANIES ACT INTO A BODY CORPORATE, I.E. OF COMPANY ON 30/01/1994 WHICH WAS STYLED AS NIRMA CHEMICAL WORKS PVT.LTD. (HEREINAFTER REFERRED TO AS 'NCWL') THIS PVT.LTD. COMPANY BECAME A DEEMED LTD. COMPANY W.E.F. 01/07/1997. 8.1 DURING THE INTERVENING PERIOD, I.E. THE PERIOD WHEN NCWL CAME INTO EXISTENCE AND THE DISPUTE BETWEEN SMT.SKP AND NCWL AROSE, TWO OTH ER COMPANIES, NAMED AS NIRMA LTD. AND NIRMA CONSUMER CARE LTD. (IN SHORT TERMED AS 'NL' AND 'NCCL') ALSO CAME INTO BEING. THESE TWO COMPANIES GOT RIGHTS FOR USING THE TRADE-MARKS AND BRANDS, WHICH WERE THE SUBJECT MATTER OF CAUSE-7 OF DISSOLUTION-D EED DATED 07/02/1980 AND ALSO THE TRADE-MARKS AND TRADE-NAMES, IF ANY, GOT DEVELOPED/ GENERATED THEREAFTER, FROM NCWL. NL WAS TO USE THE TRADE-MARKS FOR OVERSEAS MARKETS AS WELL AS FOR SALE AND SUPPLY TO CANTEEN STORES DEPARTMENT IN INDIA, WHEREAS NCCL, W HICH WAS WHOLLY OWNED SUBSIDIARY OF NL; GOT THE LICENCE TO USE THE TRADE-MARKS IN RELATION TO THE PRODUCTION TO BE MANUFACTURED BY NCCL OR ITS SUB-CONTRACTOR. 9.1 IN THIS WAY, THE INTANGIBLE ASSETS, SUCH AS, TENANCY RIGHT, GOOD-WILL, TRADE-MARKS AND BRANDS, ETC. WHICH WERE OWNED BY SMT. SKP AND WHERE THE SUBJECT MATTER OF CLAUSE-7 OF DISSOLUTION-DEED EXECUTED PM 07.02.1980 GOT TO BE U SED BY NCWL AND FINALLY BY NL AND NCCL. 15. WHEN, IT CAME TO THE NOTICE OF SMT. S.K.P SOMEWHERE AT THE BEGINNING OF THE YEAR 2001THAT NCWL WAS INTENDING TO ASSIGN/SALE THE TRADE-MARKS ALONG WITH TRADE NAME (BRANDS) WHICH WERE THE SUBJECT MAT TER OF CLAUSE-7 OF DISSOLUTION-DEED DATED 07.02.1980, SHE DISPUTED THE RIGHT OF NCWL TO ASSIGN OR SELL THOSE INTANGIBLE ASSETS WITHOUT HER CONSENT BECAUSE SHE CLAIMED HERSELF TO BE THE OWNER OF THOSE ASSETS. ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 25 16. THE ERRING PARTIES ENTERED INTO AN AGREEMENT BY WHI CH THEY PUT THEMSELVES TO THE ARBITRATION OF SOLE ARBITRARY, RETIRED CHIEF JUSTICE OF HIGH COURT OF GUJARAT, MR. B.J. DIVAN. 17. THE SOLE ARBITRARY ANNOUNCED FINAL AWARD ON 24.03.2 001 WHICH READS AS UNDER:- B.J. DIVAN 20, NEW BRAHMAKSHTRIYA SOCIETY (RETD. CHIEF JUSTICE PRTIAMRAJ MARG, ELLISBRIDGE, HIGH COURT OF GUJARAT) AHMEDABAD-380006 PHONE: 6579521 THE CHAIRMAN AND MANAGING DIRECTOR NIRMA CHEMICAL WORKS LTD. NIRMA HOUSE, ASHRAM ROAD, AHMEDABAD-380009 MRS. S.K. PATEL NIMA NEAR SUNDERVAN SATELLITE ROAD AHMEDABAD-380015 DEAR SIR/MADAM, THIS IS WITH REFERENCE TO AGREEMENT DATED JANUARY 5 , 2001 BETWEEN SMT.SHANTABEN K.PATEL ('SKP') AND NIRMA CHEMICAL WORKS LIMITED (' NCWL') AGREEING TO APPOINT ME AS A SOLE ARBITRATOR. I HAVE READ THE SUBMISSIONS MADE BY SKP AND NCWL IN CONNECTION WITH DISPUTES REFERRED IN THE SAID AGREEMENT DATED JANUARY 5, 200 1. I HAVE ALSO PERUSED THE SUPPORTING DOCUMENTS AND EVIDENCES SUBMITTED BY BOTH THE PARTI ES. ON THE BASIS OF CLAIMS SUBMITTED BY EACH PARTY, I U NDERSTAND THAT THE FOLLOWING ISSUES NEED TO BE DECIDED. ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 26 1. WHO IS THE OWNER OF THE SAID TRADEMARKS? 2. WHETHER NCWL IS ENTITLED TO ASSIGN THE SAID TRA DEMARKS? 3. BASED ON THE CONCLUSION ON BOTH THE ISSUES LISTE D ABOVE, IN WHICH RATIO THE COMPENSATION TO BE RECEIVED FROM M/S. NIRMA INDUSTRIES LIMITED ON ASSIGNMENT OF THE SAID TRADEMARKS SHOULD BE SHARED BY NCWL AND SK P. EXAMINING ALL THE CIRCUMSTANCES, I MAKE THE AWARD A S UNDER: *THE SUBJECT BRANDS/TRADEMARKS ARE OWNERSHIP OF SKP . *SKP BEING THE OWNER OF THE SAID BRANDS/TRADEMARKS IS ENTITLED TO ASSIGN THE SAME. *NCWL HAS THE USER RIGHTS IN THE SAID TRADEMARKS AN D SUCH RIGHTS ARE PERPETUAL IN NATURE. *SKP'S INTEREST IN THE SAID TRADEMARKS IS RESTRICTE D TO 2.5% OF THE PROFITS THAT NCWL WILL MAKE NCWL HAS MADE CONSIDERABLE EFFORTS IN PROMOT ION OF THE SAID TRADEMARKS AND THE INCREMENTAL PROFIT ARISING FROM USE OF THE SAID TRADEMARKS IS DUE SUCH PROMOTION EFFORTS. *CONSIDERING ALL THESE FACTS, I DIRECT THAT SKP SHO ULD BE ENTITLED TO 10% OF THE CONSIDERATION RECEIVABLE ON ASSIGNMENT OF THE BRANDS. SD/- (B.J. DIVAN) 18. AFTER THE ANNOUNCEMENT OF THE AWARD BY THE ARBITRAT OR, AN AGREEMENT TO SELL THE ASSESSEES USER RIGHTS IN TRADE-MARKS AND BRAND S WHICH WERE ACQUIRED IN CONSEQUENCE UPON THE TRANSACTIONS INVOLVED IN CLAUS E-7 OF DISSOLUTION DEED DATED 07.02.1980 AS WELL AS ALL OTHER TRADE-MARKS A ND BRANDS DEVELOPED/GENERATED SUBSEQUENTLY, WAS ENTERED INTO AMONGST THE ASSESSEE, I.E. NCWL; SMT. SKP AND NIRMA LTD. ON 26.03.2001 AS PER WHICH INTANGIBLE ASSETS, NAMELY, TRADE-MARKS, DESIGNS, CO PY RIGHTS AND BRANDS REGISTERED AS WELL AS PENDING REGISTRATION WERE SO LD TO NIRMA LTD. FOR A TOTAL CONSIDERATION OF RS. 500 CRORES OUT OF WHICH AN AMOUNT OF RS. 50 CRORES WAS PAID TO THE OWNER, SMT. SKP AND AN AMOUNT OF RS . 450 CRORES WAS PAID TO THE LICENSEE WHICH AS PER THE AGREEMENT WAS THE ASSESSEE. ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 27 19. THE ASSESSEE FURNISHED ITS RETURN OF INCOME FOR A.Y . 2001-02 DECLARING TOTAL INCOME OF RS. 10,45,68,600/- AND APPENDED A NOTE FO RMING PART OF THE RETURN, THE RELEVANT NOTE READS AS UNDER:- THE ASSESSEE HAD RIGHTS IN CERTAIN TRADE MARK UNDE R THE NAME AND STYLE OF NIRMA AND NIMA WHICH WERE SELF GENERATED ASSETS. DURING THE A SSESSMENT YEAR, THE ASSESSEE SOLD ITS RIGHTS IN THE SAID TRADE-MARKS TO NIRMA INDUSTRIES LTD. FOR A CONSIDERATION OF RS. 450 CRORES. THE RIGHTS DID NOT HAVE A COST OF ACQUISITI ON. ACCORDINGLY RELYING UPON THE FOLLOWING DECISIONS, NO CAPITAL GAINSJI WOULD ARISE ON SALE OF THE TRADE-MARKS. B.C. SRINIVAS SHETTY 128 ITR 294 (SC). CADELL WEAVING MILL CO. P. LTD. VS. CIT 166 CTR 7 (BOM) 20. WITH THE AFOREMENTIONED FACTUAL MATRIX, THE CONTENT IOUS ISSUES TO BE DECIDED BY US ARE AS UNDER:- (I) WHAT SHOULD BE THE FAIR MARKET VALUE AS ON 01.0 4.1981 IN RESPECT OF TRADE-MARKS/BRANDS PRIOR TO 1980? WHETHER IT SHOULD BE TAKEN AT RS. 90 CRORES AS ADOPTED BY THE ASSESSEE SUPPORTED BY VALU ERS REPORT OR IT SHOULD BE RS. 10 CRORES AS DETERMINED BY THE LD. CIT(A) D RAWING SUPPORT FROM THE VALUATION REPORT OF PROF. SAHAY OR IT SHOULD BE RS. 3,85,321/- AS COMPUTED BY THE A.O. (II) WHETHER THE APPORTIONMENT MADE BY THE ASSESSEE IN RESPECT OF SALE CONSIDERATION RELATING TO BRANDS DEVELOPED POST 01. 04.1981 SHOULD BE ACCEPTED IN THE RATIO OF 68.45% AND 31.55% OR WHETH ER THE FINDINGS OF THE REVENUE AUTHORITIES TO BE ACCEPTED THAT THE TRADE-M ARKS/BRANDS ARE COMPOSITE AND CANNOT BE BIFURCATED BETWEEN THE PERI ODS PRE 1991 AND POST 1991. ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 28 21. THE FIRST CONTENTIOUS ISSUE RELATES TO THE FAIR MAR KET VALUE OF THE USER RIGHTS OF TRADE-MARKS AND BRAND NAMES AS ON 01.04.1981. BE FORE PROCEEDING FURTHER, LET US CONSIDER THE OBSERVATIONS OF THE TR IBUNAL IN THE FIRST ROUND OF LITIGATION WHEREIN THE TRIBUNAL HAS SET ASIDE THE I SSUE TO THE LD. A.O. BY MAKING FOLLOWING OBSERVATIONS:- 'AFTER CAREFUL CONSIDERATION OF TOTALITY OF THE FAC TS AND CIRCUMSTANCES OF THE CASE RELATING TO THE ISSUE AS TO WHAT SHOULD HAVE BEEN T HE COST OF ASSESSEE'S 'USER RIGHTS' IN TRADE-MARKS AND BRANDS ACQUIRED BY IT IN CONSEQUENCE UPON THE TERMS OF CLAUSE - 7 OF DISSOLUTION DEED DATED 07.02.1980 AND SOLD ON 23.01.2001, WE ARE OF THE OPINION THAT (I). THE ASSESSING OFFICER PROCEEDED TO DETERMINE T HE VALUE OF THESE ASSETS AS ON 01.04.1981 HIMSELF AT RS.6 TO 8 CRORES WITHOUT GIVI NG THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND ALSO WITHOUT HAVING SUCH JURISDI CTION. II). THE ASSESSING OFFICER, FURTHER ACQUIRED THE R EPORT FROM PROFESSOR ARVIND SAHAY, IIM AHMEDABAD, AGAIN, WITHOUT GIVING THE ASS ESSEE AN OPPORTUNITY OF BEING HEARD. (III) THE ID. CIT(A) PROCEEDED TO DETERMINE THE CO ST OF ACQUISITION OF THESE ASSETS AS ON 01.04.1981, AGAIN, WITHOUT ALLOWING THE ASSES SEE AN OPPORTUNITY OF BEING HEARD, I.E. IN SPITE OF ASSESSEE'S SPECIFIC REQUEST WITH RESPECT TO SPECIFIC INFORMATION AND FACTS AS PER ITS LETTER DATED 06.10 .2005. IN ADDITION OF AFORESAID FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT SO FAR AS ISSUE RELATING FAIR MARKET VALUE OF THESE ASSETS AS ON 01.04.1981 IS CONCERNED, BOTH THE AUTHORITIES HAD PROCEEDED IN CO MPLETE DISREGARD AND VIOLATION TO THE PRINCIPLES OF NATURAL JUSTICE AND, THEREFORE, THE LD. CIT(A)S DECISION FOR ADOPTING THE FAIR MARKET VALUE OF THES E ASSETS AS ON 01.04.1981 IS NOT IN ACCORDANCE WITH PROVISIONS OF LAW. 22. WHILE FRAMING THE FRESH ASSESSMENT, THE A.O. SURPRI SED THE ASSESSEE BY DISMISSING THE REPORT OF PROF. SAHAY STATING THAT SINCE THE VALUATION REPORT ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 29 OF PROF. SAHAY IS NOT BEING USED FOR ASCERTAINING C OST OF ACQUISITION OF BRANDS AS ON 01.04.1981, ASSESSEES REQUEST TO CROSS-EXAMI NE HIM NEEDS NO CONSIDERATION. 23. THIS OBSERVATION OF THE A.O. IS COMPLETELY IN DISRE GARD TO THE DIRECTIONS OF THE TRIBUNAL. IT IS PERTINENT TO MENTION HERE THAT THE REPORT OF PROF. SAHAY WAS CALLED BY THE A.O. HIMSELF. AFTER RUBBISHING TH E REPORT OF PROF. SAHAY, THE A.O. PROCEEDED BY DETERMINING THE FAIR MARKET V ALUE OF THE BRANDS AS ON 01.04.1981 ON THE BASIS OF THE WEALTH TAX ASSESSMEN T OF SMT. SHANTABEN K. PATEL. 24. IN OUR CONSIDERED OPINION, THIS APPROACH OF THE A.O . IS BAD AND ILLEGAL. FIRSTLY, SMT. SKP HAD NO RIGHT OVER THE BRAND NAME AS ON 01.04.1981 AND SECONDLY, SHE WAS NOT THE IMMEDIATE PREVIOUS OWNER, THEREFORE, SKP DID NOT HAVE FULL RIGHTS OF THE OWNER. SHE ONLY HAD THE RIG HT TO RECEIVE ROYALTY FOR THE USE OF THE ASSETS. MOREOVER, THE ASSESSEE IS NOT CO NCERNED WITH THE VALUATION OF THE SAID ASSETS IN WHICHEVER FORM IN THE HANDS O F SMT. SKP, THE WEALTH TAX ASSESSMENT OF SMT. SKP DOES NOT HAVE ANY BEARIN G ON THE FACTS OF THE CASE IN HAND, FOR THE SIMPLE REASON THAT THE CASE P LEADED BY ONE ASSESSEE CANNOT BE HELD AGAINST ANOTHER ASSESSEE. 25. SMT. SKP DOES NOT HAVE THE SAME STATUS WHAT THE ASS ESSEE HAD AS ON 01.04.1981, THE PARTNERSHIP FIRM HAD TRUNCATED OWNE RSHIP RIGHT WHEREAS THE ASSESSEES RIGHT WAS TO USE THE LICENSE. THIS VIEW FINDS SUPPORT FROM THE FACTS THAT OUT OF FULL CONSIDERATION OF RS. 500 CRO RES SMT. SKP IS ENTITLED TO ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 30 ONLY 10% I.E. 50 CRORES, THEREFORE, INCOMPARABLE IT EMS SHOULD NOT BE COMPARED. 26. THE A.O. VALUED THE ASSETS FOR RS. 385321/- ONLY. A S AGAINST PROF. SAHAY VALUATION OF 8.25 CRORES TO 11 CRORES. 27. WHEN THE ASSESSEE AGITATED THIS ASSESSMENT BEFORE T HE LD. CIT(A), THE LD. CIT(A) AGAIN SURPRISED THE ASSESSEE BY ACCEPTING TH E VALUATION REPORT OF PROF. SAHAY WITHOUT GIVING ANY OPPORTUNITY TO CROSS -EXAMINE THE VALUER IN SPITE OF THE SPECIFIC DIRECTIONS OF THE TRIBUNAL IN THE FIRST ROUND OF LITIGATION AS MENTIONED HEREINABOVE. 28. THIS HAS LED TO A PRECARIOUS SITUATION. THE VALUATI ON REPORT OF PROF. SAHAY HAS BEEN RUBBISHED BY THE A.O. WHEREAS THE LD. CIT( A) ACCEPTED THE VALUATION OF PROF. SAHAY IN GROSS VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE AND FLAUNTING THE SPECIFIC DIRECTIONS OF THE TRIBUN AL. THE ONLY PIECE OF EVIDENCE THAT SURVIVES IS THE VALUATION REPORT OF M /S. RSM & CO. WHICH HAS BEEN RELIED UPON BY THE ASSESSEE AND WHICH HAD VALU ED THE TRADE-MARKS AND BRAND NAMES AS ON 01.04.1981 AT RS. 90 CRORES. 29. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER RAISED CERTAIN ISSUES WHICH WERE REPLIED BY THE ASS ESSEE POINT TO POINT-WISE AND THE SAME CAN BE UNDERSTOOD IN THE FOLLOWING TAB ULAR FORM:- AS PER PARA 4.1 OF ASSESSMENT ORDER APPELLANT'S OBSERVATIONS ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 31 (A) SALES FOR A.Y.81- 82 HAVE BEEN TAKEN AT RS.25.87 CRORES ON ACTUAL BASIS WHEREAS FOR OTHER SUBSEQUENT FOUR YEARS, ESTIMATED SALES BY INCREASING 60% EVERY YEAR HAVE BEEN ADOPTED. WHEN ACTUAL SALES WERE AVAILABLE, THE ESTIMATED SALES TAKE N BY INCREASING 60% EVERY YEAR CLEARLY INDICATES THAT THE REPORT WAS PREPARED IGNORING THE ACTUAL SALES WHICH WERE MUCH BELOW THAN THE ESTIMATED ONES. IN ANNEXURE TO THE VALUATION REPORT OF RSM & CO., MUMBAI DTD.L8 M AUGUST, 2004 THE SALES FOR YEAR 1 TO 5 YEAR HAVE TAKEN FOR RS.25.87 CRORES TO 169.54 CRORES IS INCREASED BY 60% EVERY YEAR. IN FACT, THE SALES ALSO INCREASED SUBSTANTIALLY. THE ACTUAL SALES OF VARIOUS ENTITIES ARE AS UNDER YEAR NAME OF ENTITY SALES RS ( IN LACS) CY81 BHARAT SOAP 441.66 CY81 NORM A DETERGENTS. 518.97 CY81 NAVBHARAT DET. WORKS 544.04 CY81 NOBLE INDUSTRIES 71.36 YEAR ENDING ON 30-09-81 NEO DETERGENTS. 470.58 CY81 NIRMA CHEMICAL WORKS 539.95 TOTAL: 2586.56 CY82 NORMA DETERGENTS. 714.93 ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 32 CY82 NAVBHARAT DET. WORKS 885.36 CY82 BHARAT SOAP 539.11 C Y82 NEO DETERGENTS. 839.59 YEAR ENDING ON 30-09-82 K.K. PATEL INDUSTRIES, 0.10 C Y82 NIRMA CHEMICAL WORKS 1148.00 TOTAL: 4127.09 YEAR ENDING ON 30-09-83 K.K. PATEL INDUSTRIES, MEHSANA. 587.98 YEAR ENDING ON 30-09-83 K.K. PATEL INDUSTRIES, AHMEDABAD. 64.60 C Y83 NOBLE INDUSTRIES 2019.82 CY83 S.K. PATEL (F.T.) 1443.41 01-01- 83 TO 15-03-83 NORMA DETERGENTS. 3.49 CY83 NORMA DETERGENTS. 406.74 CY83 NIRMA CHEMICAL WORKS 1038.12 TOTAL: 5564.16 ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 33 CY84 PATEL DETERGENTS. 1849.98 YEAR ENDING PATEL 1167.90--- ON 3 1-03-84 DETERGENTS. CY84 NIRMA CHEMICAL WORKS PVT. LTD. 985.76 CY84 NOBLE INDUSTRIES 2972.57 C Y 84 S.K.PATEL (F.T) 2111.26 YEAR ENDING ON 30-09-84 K.K.PATEL INDUSTRIES MEHSANA. 974.73 YEAR ENDING ON 30-09-84 K.K.PATEL INDUSTRIES AHMEDABAD 23.09 C Y84 NIRMA CHEMICAL WORKS 133.22 TOTAL 10218.51 THE COPY OF ANNUAL ACCOUNTS ARE ENCLOSED. THESE FIGURES SHOW THAT AVERAGE GROWTH WAS 59% ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 34 (B) ASSESSEE DID NOT PROVE THAT SALES OF RS.25.87 CRORES FOR A.Y. 1981- 82 WERE OF NIRMA BRAND ONLY. I THE SALES OF RS .25.87 CRORES FOR ASST. YEAR 1981- 82WHEREIN NIRMA BRAND ONLY. THE ENTITIES SOLD THE GOODS IN NIRMA BRAND. THE ROYALTIES WERE ALSO PAID IN USE OF NIRMA BRAND TO NIRMA CHEMICAL WORKS LTD. : PROFITS WERE ADOPTED AT 15% OF ESTIMATED SALES A S ABOVE INSTEAD OF ACTUAL PROFITS. THIS HAS FURTHER INFLATED THE PROFITS AND EVENTUALLY THE VALUATION OF TRADEMARKS ETC. THE ENTITIES MANUFACTURING THE GOODS AT 1 5% OF PROFIT ON THE ESTIMATED IS ALMOST CORRECT. THE ACTUAL PROFIT OF 5 YEARS OF THESE EN TITIES IS GIVEN AS UNDER. YEAR NAME OF ENTITY PROFIT RS CY81 BHARATSOAP 43.30 CY81 NORMA 86.78 CY81 NAVBHARAT DET. 88.26 C Y81 NOBLE INDUSTRIES 2.58 YEAR ENDING NEO DETERGENTS. 64.99 CY81 NIRMA CHEMICAL 114.37 WORKS TOTAL: 400.28 CY82 NORM A DETERGENTS. 104.54 ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 35 C Y82 NAVBHARAT DET. WORKS 139.02 CY82 BHARAT SOAP 45.26 YEAR ENDED ON 30-09-82 NEO DETERGENTS. 148.82 CY82 K.K. PATEL INDUSTRIES, MEHSANA. (0.19) CY82 NIRMA CHEMICAL WORKS 178.12 TOTAL: 615.57 YEAR ENDED ON 30-09-83 K.K. PATEL INDUSTRIES, MEHSANA. 127.06 YEAR ENDED ON 30-09-83 K.K. PATEL INDUSTRIES, AHMEDABAD. (7.91) CY83 NOBLE INDUSTRIES 460.18 C Y83 S.K. PATEL (F.T.) 277.48 CY83 NORMA DETERGENTS. 105.11 CY83 NIRMA CHEMICAL WORKS 201.65 TOTAL: 1163.57 CY84 PATEL DETERGENTS. 250.33 YEAR ENDED ON 3 1-03-84 PATEL DETERGENTS. 228.04 ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 36 CY84 NIRMA CHEMICAL WORKS PVT. LTD. 166.45 CY84 NOBLE INDUSTRIES 562.74 CY84 S.K. PATEL (F.T.) 353.80 YEAR ENDED ON 30-09-84 K.K. PATEL INDUSTRIES, MEHSANA 236.07 YEAR ENDED K.K. PATEL (0.74) ON 30.09.1984 INDUSTRIES AHMEDABAD CY 84 NIRMA CHEMICAL WORKS 1.40 TOTAL 1798.99 THIS SHOWS THAT ENTITIES EARNED PROFIT ABOVE 17% ON SALES. (D) VALUER FAILED TO CONSIDER THAT DURING 80'S THE NIRMA BRAND WAS IN INCEPTION STAGE AND IT WAS NOT SO POPULAR AS IS EVIDENT FROM THE VOLUME OF SALES. ACTUAL SALES IN A.Y. 1981- 82 WERE RS.25.87 CRORES WHEREAS IN A.Y.2001- 02 THE SALES WERE RS. 1723.60 CRORES. THE VALUATION MADE BASED ON THE ACTUAL SALES IN ASST. YEAR 1981- 82 FOR 25.87 CRORES. THE GROWTH OF SALES BY 60% SHOWN THAT NIRMA BRAND WAS POPULAR. THE SALES IN ASST. YEAR 2001- 02 WERE RS. 1723.60 CRORES WOULD NOT HAVE MIXED AS IT IS BASED ON ADDING FURTHER SEGMENT LIKE TOILET SOAPS AND SUBSEQUENT MARKET CONDITION. (E) MARKET SHARE OF NIRMA WAS TAKEN A T 35% BY VOLUME WHILE VALUING THE BRANDS IN 2001 BY RSM & CO., WHEREAS NO SUCH DATA WAS CONSIDERED FOR VALUATION OF BRAND AS ON 1.4.1981. THIS IS IRRELEVANT FOR VALUATION OF BRAND AS ON 01.04.1981 AS IT IS ONLY ASCERTAINING THE VALUE AS ON 01.04.1981. (F) FOR VALUATION OF BRANDS AS ON 1.4.1981, 'SUPER PROFIT METHOD' HAS BEEN ADOPTED WHEREAS IN CASE OF VALUATION FOR F.Y.2000- 2001, 'DISCOUNTED CASH FLOW METHOD' HAD BEEN ADOPTED. HE HAS NOT GIVEN ANY REASONS FOR THIS ASPECT IS DISCUSSED IN VALUATION REPORT AT PAGES 8 & 9. THIS IS ALSO CLARIFIED IN THE SUBMISSION TO HON'BLE CIT(A) BY THE APPELLANT COMPANY VIDE LETTER DTD. 22 ND JANUARY, 2005.COPY ENCLOSED MARKED ANNEX I. ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 37 FOLLOWING TWO DIFFERENT METHODS. THEREFORE, IS NO PARITY BETWEEN TWO VALUATION REPORTS. (G) VALUE OF TRADEMARKS WAS ESTIMATED FOR F.Y.2000- 2001 AT RS. 804.75 CRORES BY RSM & CO. WHEREAS THE TRANSACTION WAS CARRIED OUT BY ASSESSEE AT RS.500 CRORES. THIS ALSO PROVES THAT &, CO. HAS TENDENCY TO EXAGGERATE ATE THE VALUATION. THE TRANSACTION CARRIED OUT FOR RS.500 CRORES IS BETWEEN THE PARTIES WHEREAS THE VALUATION REPORT SHOWS THAT THE ESTIMATED VALUE OF THE ASSET. THE ASSET NEED NOT FETCH THE ACTUAL MARKET PRICE. THE PROPERTY COULD BE VALUED AT HIGHER BUT PARTIES MAY CARRY OUT THE TRANSACTION AT THE AGREED PRICE DEPENDING ON THE OTHER FINANCIAL AND ECONOMICAL CRITERIA. (H) IT IS ALSO VERY IMPORTANT TO NOTE THAT VALUE OF BRANDS ASSESSED AT RS.90 CRORES AS ON 1.4.1981 IS THE VALUE OF BRANDS INCLUDING THE RIGHT TO USE THEM RSM & CO. WAS REQUIRED TO BIF URCATE THE VALUE OF BRAND AND VALUE OF RIGHT TO USE VIDE LETTER DTD. 14.10.2004, BUT NO SUCH BIFURCATION WAS GIVEN BY THEM ON THE GROUND THAT OWNERSHIP OF BRAND & RIGHT TO USE ARE INSEPARABLE. THIS IS VERY IMPORTANT TO ASCERTAIN AS ONLY RIGHT TO USE HAS BEEN CLAIMED TO HAVE BEEN TRANSFERRED TO NIRMA LTD. AS MENTIONED IN THE PARA THAT OWNERSHIP OF BRAND AND RIGHT TO USE ARE INSEPARABLE AND HENCE, THE VALUE OF BRAND AS ON 01.04.1981 SHOULD BE TAKEN AS PER THE VALUATION REPORT. (I) REPORT OF RSM & CO . IS BASED ON ESTIMATED FIGURES OF SALES & PROFITS AND HENCE IT IS TOTALLY BASELESS AND INCORRECT. AS MENTIONED AT EARLIER PARAS (B) & (C), THIS IS NEAR TO THE ACTUAL ONE AND SHOULD NOT BE TAKEN AS TOTALLY BASELESS AND INCORRECT. (J) AS ALREADY POINTED O UT, RSM & CO. HAS USED ESTIMATED SALES AND ESTIMATED PROFITS OF ENTIRE GROUP. , IN FACT ACTUAL SALES AND ACTUAL PROFITS ARE THE BEST BASIS FOR THE WORKING OF SUPER - PROFIT ATTRIBUTABLE TO BRAND AND THAT TOO OF NIRMA BRAND OF ONE ENTITY ONLY WHICH WAS SUBJEC T MATTER OF TRANSFER IN 1980. PLEASE REFER TO THE COMMENTS AT (B), (C) & (I). (K) RSM & CO. HAS FAILED TO CONSIDER VARIOUS FACTORS WHICH ARE RESPONSIBLE FOR SUPER- PROFIT. M/S. RSM & CO. HAS CONSIDERED VARIOUS METHODS AT PAGES 6 TO 9 OF THE VALUATION REPORT. AFTER CONSIDERING EACH METHOD, THEY ADOPTED ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 38 IT IS ESTABLISHED BY VARIOUS AUTHORITIES IN THIS FIELD, THAT SUPER-PROFITS IS ATTRIB UTABLE TO BRAND NAME, DISTRIBUTION NETWORK, INTANGIBLE VALUE OF FIRM (I.E. NON- BRAND FACTORS SUCH AS R&D AND PRODUCTION PROCESSES), VALUE OF INTANGIBLE ASSETS SUCH AS QUALITY MANAGEMENT AND WORK FORCE. THUS, THE SUPER- PROFIT ATTRIBUTABLE TO BRAND AS ADOPTE D BY RSM & CO. IS INCORRECT AND SUFFERS FROM VARIOUS IRREGULARITIES. SUPER-PROFIT METHOD. (L) RSM & CO. IN ITS REPORT DATED 18.8.2004, ON PAGE- 4, HAS ITSELF ADMITTED THAT 'HLL' AND 'SARABHAI'S' VIRTUALLY CONTROLLED THE ENTIRE MARKET THAT TIME AND HENCE NIRMA'S STRATEGY WAS TO INTRODUCE THE DETERGENT POWDER AT L/4 TH THE PRICE OF DETERGENTS OFFERED BY THE COMPETITORS. THIS CLEAR LY ESTABLISHES THAT NIRMA BRAND WAS NOT POPULAR IN 1980'S AND HENCE NOTHING WAS ATTRIBUTABLE TO BRAND NAME. THIS WILL HAVE NO EFFECT ON THE VALUATION AS ON 01.04.81. ON THE CONTRARY, THIS GIVES TO THE BRAND THAT EVEN WITH THIS LOW PRICED PRODUCT, NIRMA ACQ UIRED SUBSTANTIAL SHARE IN THE MARKET. THE SALES AND GROWTH RATE SHOWS THAT NIRMA BRAND WAS POPULAR IN 1980. (M) IT IS AN ACCEPTED PRINCIPLE THAT 'HISTORICAL RESULTS ARE CRUCIAL FOR ACCURATE VALIDATION AS THEY PROVIDE CORRECT AND REAL PICTURE'. HOWEVER, R SM & CO. HAS USED PROJECTED EARNINGS WITHOUT GIVING ANY REASONS FOR SUCH PREFERENCE. THIS SINGLE FACTOR HAS GIVEN THEM A LOT OF DISCRETION TO INFLUENCE BRAND VALUATION FIGURES THROUGH CHANGES IN FIGURES OF PROJECTED SALES & PROJECTED EARNINGS. THEREFORE, V ALUATION REPORT OF RSM & CO. IS FOIL OF MANIPULATIONS. THE SALES OF THE YEAR IS RS.25.87 CRORES, WHICH IS ACTUAL GROWTH RATE @ 60% AND HENCE THERE IS NO MANIPULATION OF VALUATION REPORT OF RSM & CO. (N) THE ASSESSEE HAS NEVER INTIMATED RSM & CO. TO VALUE THE BRANDS WITH 'GOODWILL' OR THIS HAS NOT EFFECT ON THE VALUE AS ON 01.04.81. ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 39 WITHOUT 'GOODWILL'. THUS, THE METHOD ADOPTED BY RSM & CO. SHOWS THAT IT HAS VALUED THE 'GOODWILL' OF 'NIRMA BRAND' FROM THE BUSINESS OF 5 - 6 CONCERNS OF NIRMA GROUP INCLUDING NCWL (THE ASSESSEE). THIS IS CONTRARY TO THE STAND TAKEN BY THE ASSESSEE THAT SMT. SHANTABEN K. PATEL HAD TRANSFERRED THE BRAND NAME WITHOUT 'GOODWILL'. RSM & CO. HAS MADE NO EFFORTS TO SEPARATE THE VALUE OF 'BRAND' FROM THE TOTAL 'GOODWILL' OF THE BUSINESS OF 5- 6 CONCERNS OF NIRMA GROUP. A BRAND (INCLUDI NG TRADEMARKS) MAY HAVE ITS OWN VALUE WHICH MAY BE 5 - 10% OF THE TOTAL 'GOODWILL' OF THE BUSINESS. THEREFORE, FOR THESE REASONS ALSO VALUATION REPORT OF RSM & CO. CAN NOT BE CONSIDERED. (O) REPORT OF RSM & CO. IS NOT SIGNED BY ANY INDIVIDUAL CHARTERED ACCOUNTANT OR AUTHORISED SIGNATORY. IN PLACE OF SIGNATURES, ONLY 'RSM & CO.' IS WRITTEN. SINCE RSM & CO. IS AN ARTIFICIAL PERSON, IT CANNOT SIGN THE REPORT. THEREFORE, VALUATION REPORT SUBMITTED BY THE ASSESSE E HAS NO EVIDENTIARY VALUE EVEN OTHERWISE. THE REPORT IS GIVEN BY RSM & CO. AND HENCE THE SIGN BY RSM & CO. HAS EVIDENTIARY VALUE. THE CORRESPONDENCE BY THE I.TAX DEPARTMENT WITH RSM & CO. ALSO CONFIRMED ABOUT FURNISHING OF THE REPORT. IF, IT HAS NO EVIDEN TIARY VALUE, THEN I.TAX DEPARTMENT CANNOT ASK FURTHER DETAILS/ EXPLANATIONS FROM RSM & CO. VALUATION REPORT OF RSM & CO. IS ALSO REQUIRED TO BE REJECTED FOR BEING PART OF TAX EVASION DEVISE. SINCE THE VALUER IS SUGGESTING ASTRONOMICAL HIGH VALUE OF BRAND AT RS. 90 CRORES AS ON 01.04.1981 AS AGAINST ALREADY DETERMINED AND ACCEPTED IN WT PROCEEDINGS OF SMT. SHANTABEN K. PATEL AT RS. 4.2 LACS, IT INDIRECTLY ADMITTING A THE VALUE AS ON 01.04.81 AT RS.90 CRORES BY VALUER RSM & CO. WAS CORRECT. THE OBSER VATIONS MADE IN THE PARA ARE TOTALLY IRRELEVANT AND LIABLE TO BE REJECTED. ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 40 GIFT- TAX AND WEALTH TAX EVASION OF ALMOST RS. 50 60 C RORES IN 1980S. THE VALUER IS AWAR E THAT THESE ASSESSMENTS CANNOT BE REOPENED NOW DUE TO TIME LIMITATION AND HENCE HIS REPORT IS LIABLE TO BE REJECTED ON THE GROUND OF BEING COLOURABLE DEVICE TO AVOID TAX. 30. THE OBSERVATION OF THE A.O. AT PARA 4.3 OF HIS ORDE R READS AS UNDER- THE QUESTION OF ESTIMATION OF FAIR MARKET VALUE AR ISES ONLY WHEN THERE IS NO OTHER ALTERNATIVE OR APPROPRIATE BASIS FOR ASCERTAI NING THE FAIR MARKET VALUE. 31. THIS OBSERVATION OF THE A.O. IS ILL FOUNDED. 32. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE VAL UATION REPORT GIVEN BY M/S. RSM & CO. AND WHICH IS EXHIBITED AT PAGES 47 T O 108 OF THE PAPER BOOK. WE FIND THAT THE VALUER HAS CONSIDERED DIFFER ENT METHODS AND AFTER ANALYZING EACH OF THEM HAS USED THE MOST APPROPRIAT E METHODS. THE RELEVANT FINDINGS OF THE VALUER READ AS UNDER:- DIFFERENT METHODS OF BRAND VALUATION THERE ARE PRIMARILY FOUR CATEGORIES OF APPROACHES T O BRAND VALUATION THE FIRST CATEGORY OF METHODS IS BASED ON THE ACTUA L PRESENT CASH FLOWS OF A FIRM WITH DECISIONS ON WHAT PART OF THE CASH FLOW IS ATTRIBUT ABLE TO A BRAND COMBINED WITH A MULTIPLIER THAT IS RELATED TO DISCOUNTING FUTURE CA SH FLOWS. THESE METHODS ARE ALSO CALLED INDICATOR METHODS (OR EARNINGS SPLIT METHODS ) AND INCLUDE APPROACHES BY INTERBRAND, AC NIELSEN, BRAND FINANCE, BRAND RATING AND SEMION. SIMON AND ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 41 SULLIVAN (1993) BUILD ON THESE TO PROVIDE A MORE RO BUST METHOD IN THIS CATEGORY BY CLEARING DELINEATING THE NON-BRAND FACTORS THAT ARE A PART OF THE FIRM'S INTANGIBLE ASSETS - SEPARATE FROM THE BRAND VALUE. THE SECOND CATEGORY OF METHODS DEPENDS ON CUSTOMER ATTITUDINAL DATA COLLECTED THROUGH PRIMARY DATA COLLECTION METHODS THAT ATTEMP TS TO PUT A NUMERICAL VALUE 10 CUSTOMER PREFERENCES OF BRAND RELATED ATTRIBUTES. Y OUNG AND RUBICAM'S BRAND ASSET VALUATION MODEL IS ONE SUCH METHOD IN THIS CATEGORY . ALSO INCLUDED ARE FACTORS SUCH BRAND AWARENESS, ADVERTISING (SHARE-OF-VOICE), MARK ET PENETRATION, LEVEL OF DISTRIBUTION, MARKET SHARE, ETC. THAT PROVIDE INDIC ATORS OF BRAND STRENGTH (SEE DYSON,'FARR AND HOLLIS 1996 FOR AN EXAMPLE). THE THIRD CATEGORY OF METHODS IS COST BASED AND USE S PROBABLE REPLACEMENT COSTS AS AN INDICATOR OF BRAND VALUE. THE IIPEN METHOD IS RE PRESENTATIVE IN THIS CATEGORY. 33. THE VALUERS FURTHER EXPLAINED THE INFORMATION USED WHICH READS AS UNDER:- 3. INFORMATION USED IN PERFORMING THE VALUATION EXERCISE, WE HAVE RELIE D UPON THE FOLLOWING INFORMATION/ DOCUMENTS MADE AVAILABLE TO US: FIVE YEARS FINANCIAL STATEMENTS OF THE ENTITIES REF ERRED IN PARA 1.3 ABOVE FOR THE PERIOD ENDING ON MARCH 31, 1981; FIVE YEARS FINANCIAL STATEMENTS OF THE ENTITIES REF ERRED IN PARA 1.3 ABOVE FROM APRIL 1, 1981 TO MARCH 31, 1985 OTHER INFORMATION AS ON APRIL 1, 1981 AVAILABLE IN PUBLIC DOMAIN AND REQUIRED FOR THE PURPOSE OF THIS REPORT E.G., INFORMATION ABOUT BUSINESS ENVIRONMENT; N'SK FREE RETURNS ETC. 34. WE ALSO FIND THAT THE DISCUSSION ON VALUATION METHO DS IN THE VALUATION REPORT, THE RELEVANT PART READS AS UNDER:- C. VALUATION METHODS THE COMMON METHODS AVAILABLE FOR VALUATION OF BRAND S ARE AS UNDER: ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 42 1. COST BASED METHODS 1.1 VALUATION BY HISTORICAL COSTS UNDER THIS METHOD, THE BRAND IS VALUED ON THE BASIS OF INVESTMENTS MADE BY THE OWNER ENTITY OVER A PERIOD OF TIME FOR THE BRAND. I N OTHER WORDS, ALL THE COSTS (DIRECT AND INDIRECT) ASSOCIATED WITH A PARTICULAR PERIOD - DEVELOPMENT COSTS, MARKETING COSTS, ADVERTISING AND COMMUNICATION COST S, ETC. ARE ADDED UP TO ARRIVE AT THE BRAND VALUE. HOWEVER, THIS METHOD IGNORES THE VALUE THE BRAND WI LL BRING IN THE FUTURE. FURTHER AT THAT TIME, THE BRAND WAS NOT FULLY DEVELOPED AND THEREFORE THE COSTS ALREADY INCURRED PRIOR TO APRIL 1,1981 DO NOT GIVE AN IDEA OF THE VALUE OF THE BRAND. 1.2 VALUATION BY REPLACEMENT COSTS THIS METHOD TAKES INTO CONSIDERATION VARIOUS CHARAC TERISTICS OF THE BRAND (AWARENESS, PERCENTAGES OF TRIAL PURCHASES AND REPU RCHASES, IMAGE, LEADERSHIP ETC.). ON THE BASIS OF THE ASSESSMENT OF THESE CHARACTERIS TICS, THE VALUER ATTEMPTS TO ARRIVE AT A VALUE - THE AMOUNT THAT NEEDS TO BE SPE NT OVER A PARTICULAR PERIOD IN ORDER TO CREATE A PARTICULAR BRAND. THIS METHOD TAKES INTO CONSIDERATION THE FUTURE COS TS AS AGAINST THE HISTORICAL COSTS IN THE EARLIER METHOD. HOWEVER, THIS METHOD I S VERY SUBJECTIVE, INASMUCH AS IT REQUIRES ASSESSMENT OF FACTORS SUCH AS BRAND AWA RENESS, MARKET STANDING, ETC. 2. VALUATION BY MARKET PRICE UNDER THIS METHOD, SIMILAR TRANSACTIONS IN THE MARK ET ARE COMPARED - THE VALUE WHICH A COMPARABLE BRAND COULD FETCH IN THE PAST - TO ARRIVE AT THE VALUE FOR THE BRANDS UNDER CONSIDERATION. HOWEVER, THIS METHOD RAISES TWO MAJOR PROBLEMS: *THE MARKET FOR BRANDS DOES NOT EXIST OR IS RELATIV ELY VERY SMALL AND THE BUYER IS THE PRICE-SETTER WHEREAS IN CASE OF OTHER COMMODITI ES OR ASSETS, MARKET FORCES GENERALLY DETERMINE THE PRICE. *THE TRANSACTIONS FOR BRAND ACQUISITIONS AND SALES ARE RELATIVELY FEW AND THEREFORE, THE COMPARABLE DATA/TRANSACTION IS NOT A LWAYS AVAILABLE. FURTHER, THE BRANDS ARE NOT BOUGHT TO BE SOLD AGAIN. HENCE, THE PAST TRANSACTIONS ARE NOT OF ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 43 MUCH HELP EXCEPT THAT THE VALUE CAN GIVE AN IDEA OF THE MULTIPLES APPLICABLE TO THE PARTICULAR SECTOR OF ACTIVITY. 3. VALUATION BY POTENTIAL EARNINGS UNDER THESE METHODS, THE EXPECTED RETURNS ACCRUING AS A RESULT OF BRAND OWNERSHIP IS TAKEN INTO CONSIDERATION. THE PROCESS OF VALUING THE EXPECTED PROFITS OF THE BRAND CAN BE DIVIDED INTO THREE INDEPENDENT STAGES: *ISOLATION OF THE NET INCOME ASSOCIATED WITH THE BR AND; *STRATEGIC EVALUATION OF BRAND STRENGTHS AND WEAKNE SSES FOR THE FUTURE; AND *CHOOSING, BY USING A CLASSIC FINANCIAL METHOD, A D ISCOUNT RATE AND PERIOD. 3.1 THE PRICE-PREMIUM METHOD THIS METHOD ATTEMPTS TO MEASURE THE EXTRA PROFIT, W HICH A BRANDED PRODUCT WOULD EARN OVER THE GENERIC PRODUCT. THIS CONSISTS OF TAK ING THE DIFFERENCE BETWEEN THE BRAND PRICE AND THAT OF A GENERIC PRODUCT AND MULTI PLYING IT BY THE SALES VOLUME OF THE BRAND TO OBTAIN THE TURNOVER, WHICH IS GENER ATED BY THE BRAND. THIS APPROACH ASSUMES THAT COSTS AND SALES VOLUME FOR A BRANDED PRODUCT AND AN UNBRANDED ONE ARE EQUAL. THE PROBLEM WITH THIS METHOD LIES IN ITS HYPOTHETIC AL NATURE, AS A COMPARATIVE GENERIC PRODUCT DOES NOT ALWAYS EXIST. 3.2 CAPITALIZATION OF SUPER PROFITS METHOD THIS METHOD ATTEMPTS TO CALCULATE THE SUPER PROFITS , WHICH THE BRANDS ARE ABLE TO GENERATE. UNDER THIS METHOD, THE SUPER PROFITS ARE CALCULATED FROM THE VIEW OF AMOUNT INVESTED IN THE BUSINESS. FOR THIS PURPOSE T HE AMOUNT OF CAPITAL EMPLOYED (I.E. OWNERS CAPITAL) COULD BE USED. THE EXCESS RAT E OF RETURN ON CAPITAL EMPLOYED EARNED BY THE BUSINESS OVER THE NORMAL RATE OF RETU RN EARNED IN NORMAL BUSINESS CONDITIONS IS CALCULATED TO FIND THE SUPER-PROFITS AND THE SAME IS THEN CAPITALIZED BY USING AN APPROPRIATE MULTIPLE. THIS GIVES THE AM OUNT WHICH IS REQUIRED TO GENERATE THE SAME LEVEL OF SUPER-PROFITS (ATTRIBUTA BLE TO THE BRAND) AT THE NORMAL RATE OF RETURN. 3.3 THE ROYALTIES METHOD IN THIS METHOD, THE BRAND VALUE IS BASED ON THE ANN UAL ROYALTIES THAT A COMPANY HOPES TO RECEIVE IF IT LICENSED THE RIGHTS TO USE T HE BRANDS. ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 44 FOR ARRIVING AT THE BRAND VALUE USING THE EXPECTED ANNUAL ROYALTIES FIGURE EITHER THE MULTIPLE METHOD OR THE DISCOUNTED CASH FLOWS ME THOD IS BEING USED. THE MULTIPLE (SIMILAR TO P/E MULTIPLE USED FOR FINA NCIAL VALUATIONS) REPRESENTS BRAND STRENGTH IN THE MARKET AND IS ESTIMATED AFTER ANALYSING THE FACTORS SUCH AS BRAND AWARENESS, IMAGE, ETC. THE EXPECTED ANNUAL ROYALTY MULTIPLIED BY THE MULTIPLE GIVES THE BRAND VALUE. UNDER THE DISCOUNTED CASH FLOW METHOD, ON THE BASIS OF ROYALTY FIGURES THE ANNUAL CASH FLOWS ARE WORKED OUT OVER A PERIOD OF 3 /5 YEARS, WHICH IS THEN EXTENDED FOR THE PERPETUITY. THE PRESENT VALUE OF T HE FUTURE CASH FLOWS ARE THEN CALCULATED USING THE DISCOUNTING RATE. THE DISCOUNT ING RATE REPRESENTS COST OF CAPITAL ADJUSTED FOR RISK ASSOCIATED WITH THE BRAND (OR THE CASH FLOWS). HOWEVER IN THE CURRENT CONTEXT, THIS METHOD IS NOT APPROPRIATE AS THE ARRANGEMENT FOR USE OF THE BRANDS WITH THE ENTITIES WAS NOT AT ARMS LENGTH. FURTHER, THE RATE OF ROYALTY AS PREVALENT IN THE IN DUSTRY CAN NOT BE KNOWN AND THEREFORE CAN NOT BE USED BECAUSE FIRST, SUCH ARRAN GEMENTS WERE RELATIVELY FEW DURING THE RELEVANT PERIOD AND SECOND, THE BRANDS H AVING THE SAME STRENGTH AS THAT OF NIRMA AS ON THAT DATE ARE DIFFICULT TO IDEN TIFY. 35. AFTER ANALYZING THE VARIOUS METHODS, THE VALUER USE D THE SUPER PROFITS METHOD AS THE MOST APPROPRIATE METHOD FOR THE VALUATION OF THE FAIR MA RKET VALUE OF THE BRAND AS ON 01.04.1981, THE RELEVANT FINDINGS OF THE VALUER REA D AS UNDER:- DETERMINATION OF VALUE OF THE BRANDS 2.1 THE VALUATION OF BRANDS UNDER THE CAPITALIZATIO N OF SUPER-PROFITS METHOD WOULD INVOLVE CARRYING OUT OF THE FOLLOWING STEPS: ASCERTAINING THE SALES FOR THE YEARS 1981 TO 1985. FOR THIS PURPOSE THE ACTUAL FIGURES FOR THE YEAR 1981 ARE CONSIDERED AND FOR THE PERIOD FROM 1982 TO 1985 THE SALES ARE PROJECTED BASED ON THE GROWTH RATE ACHIEVED IN THE PAST YEARS. DURING THE 5 YEARS PRECEDING THE YEAR 1981, THE ACTUAL SALES GROWTH IN THE BRANDED PRODUCTS WAS CLOSE ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 45 TO 100% COMPOUNDED ANNUALLY. HOWEVER, A GROWTH RATE OF 60% Y-O-Y HAS BEEN CONSIDERED FOR SALES. CALCULATING THE FUTURE MAINTAINABLE PROFIT BY APPLY ING THE RATE OF RETURN TO THE SALES DETERMINED AS ABOVE. RATE OF RETURN OF 15% FOR THE YEAR 1980-81, WHICH WAS LIKELY TO GROW, IS APPLIED. ASCERTAINING THE CAPITAL EMPLOYED FOR THE YEARS 198 1 TO 1985. FOR THIS PURPOSE THE ACTUAL FIGURES FOR THE YEAR 1981 ARE CONSIDERED. CA PITAL EMPLOYED FOR EACH SUBSEQUENT YEAR HAS BEEN CALCULATED BY ADDING THE I NTERNAL ACCRUALS OF THE RESPECTIVE PREVIOUS YEAR, I.E., PROFITS REMAINING AFTER DEDUCT ING INCOME TAX @ 60% FROM THE ESTIMATED PROFITS AND PROVIDING FOR PAYOUT TO THE C APITAL EMPLOYED OF THE RESPECTIVE PREVIOUS YEAR. CALCULATING THE NORMAL PROFIT WITH RESPECT TO THE C APITAL EMPLOYED BY APPLYING THE NORMAL RATE OF RETURN. THE NORMAL RATE OF RETURN OF 12% IS BASED ON THE NORMAL PROFIT EARNED IN NORMAL BUSINESS CONDITIONS. SINCE THE BUSINESS USING THE BRANDS WAS CARRIED O N BY VARIOUS ENTITIES, THE SALES AND CAPITAL EMPLOYED FIGURES OF ALL THE ENTITIES ARE CO NSOLIDATED FOR THIS WORKING. CALCULATING THE SUPER-PROFITS FOR EACH OF THE YEARS CONSIDERED. THIS INVOLVES SUBTRACTING THE NORMAL PROFITS FROM THE FUTURE MAIN TAINABLE PROFIT CALCULATED AS ABOVE. AVERAGE OF SUPER-PROFITS, HAS BEEN WORKED OU T. APPLYING AN APPROPRIATE MULTIPLE TO CAPITALIZE THE PROFIT FIGURE CALCULATED ABOVE WOULD DERIVE THE BRAND VALUATION FIGURE. BASED ON T HE BRANDS INHERENT STRENGTH, ITS CUSTOMER BASE, BRAND RECALL VALUE, COMPETITORS, MAR KET SHARE, ETC WE HAVE APPLIED A BRAND MULTIPLE OF 8. A COMPARABLE WORKING BASED ON THE ACTUAL SALES AND CAPITAL EMPLOYED FOR THE PERIOD FROM 1981 TO 1985 GIVES A SIMILAR RESULT VIS-A-VIS THE VALUATION NUMBER. 2.3 ONE COULD ALSO LOOK AT DISCOUNTING THE PROFITS DIRECTLY RELATABLE TO THE BRAND. THE BRAND VALUE AS PER THIS METHOD, WITH ASSUMPTIONS SI MILAR AS ABOVE, WOULD BE RS 117 CRORES. THE WORKINGS THEREOF ARE ANNEXED HEREWITH A S ANNEXURE 1. E. CONCLUSION ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 46 ON THE BASIS OF ABOVE, WE CONCLUDE THAT THE VALUE O F THE BRAND INCLUDING THE RIGHT TO USE THEM AS ON APRIL, 1981 CAN BE ESTIMATED TO BE ABOUT RS. 90.00 CRORES (WORKINGS ENCLOSED HEREWITH AS ANNEXURE 2). 36. FINALLY, THE VALUATION OF BRAND AS ON 01.04.1981 W AS DONE AS UNDER:- PARTICULARS /YEAR YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 CAPITAL EMPLOYED (A) 4.81 6.05 7.04 10.22 15.30 SALES (B) 25.87 41.39 66.23 105.96 169.54 ESTIMATED PROFITS @ 15% OF SALES (C) = (B) * 15% 3.88 6.21 9.93 15.89 25.43 RETURN ON CAPITAL EMPLOYED (IN %) (D) = / (A) * 100 81 103 141 156 166 NORMAL RATE OF RETURN (IN % ) (E) 12 12 12 12 12 SUPER PROFITS (%) TO THE GROUP (F) = (D) (E) 69 91 129 144 154 SUPER PROFITS (G) = (F) /100 * (A) 3.30 5.48 9.09 14.67 23.59 AVERAGE SUPER PROFITS BEFORE TAX (H) MULTIPLE (I) 11.23 8 BRAND VALUE (H) * (I) 90 37. A PERUSAL OF THE AFOREMENTIONED REPORT OF THE VALUE R M/S. RSM & CO. WOULD SHOW THAT THE VALUATION IS BASED ON SCIENTIFIC METH OD AND HAS USED THE MOST APPROPRIATE METHOD FOR THE VALUATION OF THE BRAND A S ON 01.04.1981. FACTUALLY, THIS IS THE ONLY SURVIVING PIECE OF EVID ENCE WHICH IS NOT ONLY SCIENTIFIC BUT ALSO PRAGMATIC TO THE CONTEXT. THERE FORE, WE HAVE NO HESITATION TO ACCEPT THIS FACTUALLY BASED SCIENTIFIC REPORT FO R ACCEPTING THE FAIR MARKET VALUE OF THE BRAND AS ON 01.04.1981 AT RS. 90 CRORE S. ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 47 38. BEFORE PARTING WITH THIS ISSUE, WE FIND THAT THE A. O. DISPUTED THE VALUATION OF M/S. RSM & CO. ON THE GROUND THAT THEY HAVE TAKE N INCORRECT FIGURES OF PROFITS. ON PERUSAL OF THE RECORDS, WE FIND THAT TH E ACTUAL PROFIT AND THE PROJECTED PROFIT DO NOT DIFFER SIGNIFICANTLY AS CAN BE SEEN FROM THE FOLLOWING CHART:- YEAR PROFIT SHOWN AT PARA 4.4.2 OF ORDER (IN CRORES ) ACTUAL PROFIT (IN CRORES ) 1981 3.88 4.00 1982 6.21 6.16 1983 9.93 11.63 1984 15.89 17.99 1985 25.43 24.71 39. UNFORTUNATELY, WITHOUT APPRECIATING THE FACTS, THE A.O. HAS ASSUMED THAT M/S. RSM & CO. HAS MANIPULATED FACTS AND FIGURES, W E FIND THAT THE VALUATION REPORT OF RSM & CO. HAVE ADEQUATE REASONS FOR VALUING THE BRAND AS ON 01.04.1981 AT RS. 90 CRORES. WE, ACCORDINGLY , DIRECT THE A.O. TO TAKE THE FAIR MARKET VALUE OF THE IMPUGNED BRANDS AS ON 01.04.1981 AT RS. 90 CRORES. 40. THE SECOND CONTENTIOUS ISSUE RELATES TO THE APPROPR IATION OF THE SALE CONSIDERATION OF RS. 450 CRORES BETWEEN THE TRADE-M ARKS AND VALUATION OF TRADE-MARKS USED IN 1981OUT OF THE TOTAL BUNCH OF T HE TRADE-MARKS. THE VALUER M/S. RSM & CO. VALUED THE BUNCH OF TRADE-MAR KS AT RS. 804.75 CRORES THOUGH THE SALE CONSIDERATION RECEIVED BY TH E ASSESSEE WAS ONLY RS. ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 48 500 CRORES OUT OF WHICH 50 CRORES WAS PAID TO SMT. SKP FOR THE TRADE- MARKS/BRAND NAMES PRIOR TO 1981. 41. WE FIND THAT THE ASSESSEE HAS CALCULATED PRO- RATA SALE VALUE RELATING TO BRAND DEVELOPED POST 01.04.1981 AS UNDER:- NIRMA CHEMICAL WORKS PVT. LTD. ITA NO.L706/AHD/2009( ASSESSEE) ITA NO.L514/AHD/2009 (DEPT.) C.O. NO. 123/AHD/2009 (ASSEESSEE) CALCULATION OF PRO-RATA SALE VALUE RELATING TO BRAN DS DEVELOPED POST 01-04-1991 (RS. IN CRORE) PARTICULARS RS RS TOTAL SALE PROCEEDS ON TRANSFER OF TRADEMARKS 500.00 SALE PROCEEDS RECEIVED BY APPELLANT COMPANY NIRMA CHEMICAL WORKS PVT, LTD 450.00 SALES VALUE OF TRADEMARKS DEVELOPED POST 1981 IN THE FOLLOWING PROPORTION. AS PER VALUATION REPORT OF RSM & CO (PAPER BOOK PAGES -106 TO 108) VALUE OF TRADEMARKS USED IN 1981 253.93 31.55% OTHER TRADEMARKS 550.82 68.45% TOTAL 804.75 100% ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 49 SALES VALUE-68.45% OF 450 CR. 308.02 42. A PERUSAL OF THE ORDERS OF THE AUTHORITIES BELOW SH OWS THAT THE LOWER AUTHORITIES WERE OF THE FIRM BELIEF THAT THE BRAND NAME NIRMA WAS THE CENTRAL WORD IN ALMOST ALL THE TRADE-MARKS. TAKING A LEAF OUT OF SECTION 44 OF TRADE-MARKS ACT 1999, THE AUTHORITIES BELOW WERE OF THE OPINION THAT ASSOCIATE TRADE-MARK CANNOT BE TRANSFERRED SEPARATE LY FROM THE MAIN TRADE- MARK. THE LOWER AUTHORITIES WERE OF THE OPINION THA T THE ONLY ASSET THAT WAS TRANSFERRED IS THE BRAND NIRMA AND OTHERS ARE APP ENDED TO IT. THEREFORE, THE BRAND NIMA BEING ASSOCIATE TRADE-MARK CANNOT BE FROM MAIN BRAND NIRMA. 43. THE MAIN CONTENTION OF THE ASSESSEE IS THAT THE CAP ITAL GAINS, IF ANY, ARISING ON TRANSFER OF TRADE-MARKS AND BRAND NAMES WAS NOT SUBJECT TO ANY TAX. BEFORE US ALSO, IT WAS STRONGLY CONTENDED THAT PART OF THE SALE CONSIDERATION PERTAINS TO THE TRADE-MARKS/BRAND NAMES WHICH WERE SELF GENERATED ASSETS AND FREE FROM ANY OBLIGATION TO PAY TAX. STRONG REL IANCE WAS PLACED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F B. C. SHRINIVASA SHETTY 128 ITR 294 AND ALSO ON THE DECISION OF THE CO-ORDINATE BENCH GIVEN IN THE CASE OF SMT. SHANTABEN K. PATEL IN ITA NO. 4 21/AHD/2005 DATED 16.06.2006. ACCORDINGLY, IT WAS SUBMITTED THAT OUT OF A SUM OF RS. 450 CRORES, 68.45% I.E. 308 CRORES SHOULD BE RELATED TO TRADE-MARKS/BRAND NAMES GENERATED BY THE ASSESSEE POST 1981. 44. AFTER GIVING A THOUGHTFUL CONSIDERATION TO THE ORDE RS OF THE AUTHORITIES BELOW, WE FIND THAT THE MAIN OBJECTION OF THE REVEN UE AUTHORITIES IS THAT THE ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 50 TRADE-MARKS OF NIMA WAS AN ASSOCIATED TRADE-MARK OF TRADE-MARKS OF NIRMA AND THAT SAME WOULD NOT BE TRANSFERRED ON S TANDALONE BASIS. 45. THERE IS NOTHING ON RECORD WHICH COULD SUGGEST THA T THE ISSUE OF TRADE-MARKS NIMA BRANDS RECORDED AS ASSOCIATE TRADE-MARKS IN NIRMA BRANDS. FURTHER, U/S. 38 OF THE TRADE-MARKS ACT 1999, IT IS ALWAYS OPEN TO THE OWNER OF A REGISTERED TRADE-MARK TO ASSIGN A TRADE-MARK W HOLLY OR IN PART. THE RESTRICTION U/S. 44 OF THE ACT IS THAT ASSOCIATE TR ADE-MARKS SHALL BE ASSIGNABLE AND TRANSFERABLE ONLY AS A WHOLE AND NOT SEPARATELY , BUT, SUBJECT TO THE PROVISION OF THIS ACT, THEY SHALL, FOR ALL OTHER PU RPOSES WE DEEMED TO HAVE BEEN REGISTERED AS SEPARATE TRADE-MARKS. 46. ASSUMING, YET NOT ACCEPTING, THE NIRMA DETERGENT PO WDER FOR ALL MATTERS NIRMA DETERGENT CAKE, NIRMA SOAPS AND NIMA DETERGEN T AND SOAPS COULD NOT HAVE BEEN TRANSFERRED DOES NOT MEAN THAT THE TO TAL CONSIDERATION CANNOT BE BROKEN INTO TWO SEPARATE PIECES. OUT OF TOTAL PR ICE OF TRADE-MARKS APPORTION PERTAINS TO NIRMA BRANDS AND REST TO N IRMA BRANDS SUBSEQUENTLY DEVELOPED BY THE ASSESSEE. THE TOTAL C ONSIDERATION OF 68.5% PERTAINS TO THE SECOND CATEGORY. 47. THE ANOTHER REASON GIVEN BY THE REVENUE AUTHORITIES FOR NOT ACCEPTING THE CLAIM OF THE ASSESSEE IS THAT FOR THE DEVELOPMENT O F SUCH BRANDS, THE ASSESSEE MUST HAVE INCURRED EXPENDITURE ON ACCOUNT OF ADVERT ISEMENT, PUBLICITY, RESEARCH AND DEVELOPMENT. IN OUR UNDERSTANDING OF THE FACTS, SUCH EXPENDITURE IS NEITHER COST OF ACQUISITION NOR COST OF IMPROVEMENT. FURTHER, THE COST OF REGISTRATION ETC. IS OF REVENUE IN NATU RE AND, THEREFORE, CANNOT BE ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 51 TREATED AS THE COST OF ACQUISITION FOR THE PURPOSES OF COMPUTATION OF CAPITAL GAINS TAX. IT WOULD BE PERTINENT HERE TO REFER TO T HE RELEVANT PART OF THE VALUATION OF TRADE-MARKS DONE BY M/S. RSM & CO.:- ANNEXURE VALUATION OF TRADEMARKS AS ON MARCH 2001 OF PRODUCT S USED IN 1981 AMT IN CRORES YEAR 2000-01 2001-02 2002-03 2003-04 SALES 557.09 579.40 602.58 626.68 NET CASH FLOWS 13.38 13.97 14.57 15.19 PV FACTOR 0.93 0.86 0.79 0.74 PV OF CASH FLOW 12.39 11.98 11.57 11.17 PRIMARY PERIOD VALUE PERPETUITY VALUE 47.10 206.83 TOTAL VALUE 253.93 VALUATION OF TRADEMARKS AS ON MARCH 2001 OF PRODUCTS USED POS T 1981 I.E OTHER TRADEMARKS AMT IN CRORES YEAR 2000-01 2001-02 2002-03 2003-04 SALES 1,166.51 1 ,247.70 1 ,303.22 1,362.82 NEW CASH FLOWS 28.02 30.09 31.51 33.04 PV FACTOR 0.93 0.86 0.79 0.74 ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 52 PV OF CASH FLOW 25.94 25.80 25.02 24.29 PRIMARY PERIOD VALUE PERPETUITY VALUE 101.04 449.78 TOTAL VALUE 550.82 48. THE WORKING FOR THE AFOREMENTIONED BREAK UP IS BASE D UPON THE FACT THAT IN 1981 ONLY THE DETERGENTS WERE MARKED UNDER THE BRAN D NAME NIRMA. NIRMA BRANDED DETERGENT CAKES AND SOAPS WERE INTROD UCED IN THE YEAR 1986 AND 1989 RESPECTIVELY AND NIMA BRANDED PRODUCTS ( SOAPS AND DETERGENTS) WERE INTRODUCED IN THE YEAR 1997 AND 1998. 49. AS MENTIONED ELSEWHERE, THE VALUATION REPORT OF M/S . RSM & CO. IS NOT ONLY SCIENTIFIC BUT ALSO PRAGMATIC TO THE CONTEXT AND, T HEREFORE, ACCEPTABLE FOR THE FACTS OF THE CASE IN HAND. WE, ACCORDINGLY DIRECT THE A.O TO APPROPRIATE TO THE TOTAL SALE CONSIDERATION IN THE RATIO OF 31.55% AND 68.45% BETWEEN THE VALUE OF TRADE-MARKS PRE 1981 AND POST 1981 RESPECT IVELY. 50. INSOFAR AS THE COMPUTATION OF CAPITAL GAINS TAXABIL ITY IS CONCERNED, WE FIND THAT THE CO-ORDINATE BENCH IN THE CASE OF SHANTABEN K. PATEL IN ITA NO. 421/AHD/2005 DATED 16.06.2006 HAS HELD AS UNDER:- 36. AFTER HAVING COME TO THE CONCLUSION THAT RECEIP T OF RS.50 CRORES WAS NOT TAXABLE AS 'INCOME FROM OTHER SOURCES', THE NEXT QUESTION FOR CONSIDERATION IS THAT IF THE RECEIPT IS NOT TAXABLE AS 'INCOME FROM OTHER SOURCES', THEN UN DER WHICH HEAD OF THE INCOME THE RECEIPT IS TAXABLE AND ANSWER TO THIS IS SELF-EVIDE NT, BECAUSE THE ASSESSEE'S STAND FROM THE VERY BEGINNING AND THE ALTERNATIVE STAND OF THE REV ENUE HAS BEEN THAT THE RECEIPT WAS TAXABLE AS 'LONG-TERM CAPITAL GAIN' AND, THEREFORE, WE NEED NOT TO DEVOLVE ON THIS ISSUE ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 53 MORE AND HOLD THAT THE RECEIPT IN QUESTION, IF AT A LL WAS TAXABLE, UNDER THE D 'LONG-TERM CAPITAL GAIN'. 37. ONCE WE HAVE COME TO THE ABOVE CONCLUSION, THE NEXT ISSUE FOR OUR DECISION ARISES AS TO WHAT WAS THE COST OF ACQUISITION OF OWNERSHIP RI GHTS OF THESE INTANGIBLE ASSETS IN THE HANDS OF THE ASSESSEE. 37.1. HOWEVER, BEFORE PROCEEDING FURTHER, WE WOULD LIKE TO MENTION THAT THOUGH THE ASSESSING OFFICER HAS CONSIDERED THE TAXABILITY OF THIS RECEIPT, IN ALTERNATIVE, AS 'LONG- TERM CAPITAL GAIN', WITH THE OBSERVATIONS IN PARAGR APH NOS.15 TO 19 AND THE CIT(APPEALS) HAVING UPHELD THE ASSESSING OFFICER'S DECISION TO T AX THE RECEIPT AS 'INCOME FROM OTHER SOURCES' HAS NOT DECIDED THE TAXABILITY OF THE RECE IPT FROM THE ANGLE OF 'LONG-TERM CAPITAL GAIN' AND IF THAT IS THE CASE, THEN IN NORMAL COURS E, WE, HAVING ARRIVED AT THE CONCLUSION THAT THE RECEIPT WAS NOT TAXABLE AS 'INCOME FROM OTHER SOURC ES' WOULD HAVE REMANDED THE MATTER BACK TO THE FILE OF CIT(APPEALS) FOR DECIDIN G THE ISSUE RELATING TO TAXABILITY OF THE RECEIPT FORM THE ANGLE OF 'LONG-TERM CAPITAL GAIN', BUT WE, FOR THE REASONS STATED HEREUNDER, ARE DECIDING THIS ISSUE ALSO (I) NONE OF THE PARTY HAS PLEADED FOR THE REM ANDING THE ISSUE BACK TO THE FILE OF CIT(APPEALS) OR ASSESSING OFFICER. (II) BOTH THE PARTIES HAVE ARGUED IN LENGTH WITH RE FERENCE TO THE ISSUE RELATING TO THE TAXABILITY OF THE RECEIPT OF RS.50 CRORES AS 'LONG- TERM CAPITAL GAIN' ALSO. (III) BOTH THE PARTIES HAD PLEADED THAT ALL THE FAC TS, NECESSARY FOR DECIDING THE ISSUE AT THE END OF THE TRIBUNAL BEING AVAILABLE ON RECORD REMAN DING THE MATTER BACK TO THE FILE OF CIT(APPEALS) WILL NOT SERVE ANY PURPOSE, EXCEPT TO DRAG THE PARTIES IN LONG DRAWN LITIGATION AND, THEREFORE, HAD PROCEEDED WITH THE A RGUMENTS SO THAT IN CASE, THE TRIBUNAL COMES TO THE CONCLUSION THAI THE RECEIPT WAS NOT TA XABLE AS 'INCOME FROM OTHER SOURCES', THEN THIS ISSUE CAN BE DECIDED BY THE TRIBUNAL. (IV) THAT, THIS ISSUE HAVING BEEN DEALT WITH AND DE CIDED BY THE CIT(APPEALS) IN CASE OF M/S.NIRMA CHEMICAL WORKS LIMITED, WHO IS ONE OF THE PARTIES TO THE AGREEMENT FOR SALE OF INTANGIBLE ASSETS AND BEING INTER-LINKED HAS TO BE DECIDED HERE ALSO. 38.1 (I) THE ASSESSEE HAS, THOUGH, ACCEPTS THAT THE RECEIPT COULD BE, IF AT ALL WAS TAXABLE, NOT ONLY AS 'LONG-TERM CAPITAL GAIN' BUT AT THE SAM E TIME HAS PLEADED THAT SINCE COST OF ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 54 ACQUISITION OF THESE ASSETS IN HER HANDS WAS NOT AS CERTAINABLE, SHE WAS NOT LIABLE TO PAY CAPITAL GAIN TAX ALSO . 38,1(II) IN VIEW OF ABOVE FACTS, THE NEXT ISSUE FOR OUR DETERMINATION IS TO FIND OUT AS TO WHETHER THE COST OF ACQUISITION OF THE ASSETS IN TH E HANDS OF THE ASSESSEES WAS ASCERTAINABLE OR NOT AND AFTER HAVING DETERMINED TH E MODE OF ACQUISITION, WHICH WAS 'ACQUISITION ON DISTRIBUTION OF ASSETS ON DISSOLUTI ON OF A FIRM', WE ARE OF THE OPINION THAT THE COST OF ACQUISITION OF THESE INTANGIBLE AS SETS IN THE HANDS OF THE ASSESSEE, IF ANY, IS TO BE DETERMINED IN ACCORDANCE WITH THE PROVISIO NS OF SECTION 49 READ WITH SECTION 55(2)(A) OF THE ACT AND FOR THAT PURPOSE, IT IS NEC ESSARY TO CONSIDER THE PROVISIONS OF SECTION 49 AS WELL AS SECTION 55 OF THE ACT WHICH, AT THE RELEVANT TIME, WERE IN THE FOLLOWING TERMS:- 'SECTION 49. COST WITH REFERENCE TO CERTAIN MODES O F ACQUISITION. (I)WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF T HE ASSESSEE- (I) ON ANY DISTRIBUTION OF ASSETS ON THE TOTAL OR P ARTIAL PARTITION OF A HINDU UNDIVIDED FAMILY; (II) UNDER A GIFT OR WILL; . (III) (A) BY SUCCESSION, INHERITANCE OR DEVOLUTION, OR (B) ON ANY DISTRIBUTION OF ASSETS ON THE DISSOLUTIO N OF A FIRM, BODY OF INDIVIDUALS, OR OTHER ASSOCIATION OF PERSONS, WHERE SUCH DISSOLUTION HAD TAKEN PLACE AT ANY TIME BEFORE THE 1ST DAY OF APRIL, 1987, OR (C) ON ANY DISTRIBUTION OF ASSETS ON THE LIQUIDATIO N OF A COMPANY, OR (D) UNDER A TRANSFER TO A REVOCABLE OR AN IRREVOCAB LE TRUST, OR (E) UNDER ANY SUCH TRANSFER AS IS REFERRED TO IN CL AUSE (IV) OR CLAUSE (V) OR CLAUSE (VI) OR CLAUSE (VIA)OF SECTION 47; (IV) SUCH ASSESSEE BEING A HINDU UNDIVIDED FAMILY, BY .THE MODE REFERRED TO IN SUB-SECTION (2) OF SECTION 64 AT ANY TIME AFTER THE 31ST DAY OF DECEMBER, 1969, THE COST OF ACQUISITION OF THE ASSET SHALL BE DEEME D TO BE THE COST FOR WHICH THE PREVIOUS OWNER OF THE PROPERTY ACQUIRED IT, AS INCREASED BY THE COST OF ANY IMPROVEMENT OF THE ASSETS INCURRED OR BORNE BY THE PREVIOUS OWNER OR T HE ASSESSEE, AS THE CASE MAY BE. EXPLANATION.-IN THIS SUB-SECTION THE EXPRESSION 'PR EVIOUS OWNER OF THE PROPERTY' IN RELATION TO ANY CAPITAL ASSET OWNED BY AN ASSESSEE MEANS THE LAST PREVIOUS OWNER OF THE ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 55 CAPITAL ASSET WHO ACQUIRED IT BY A MODE OF ACQUISIT ION OTHER THAN THAT REFERRED TO IN CLAUSE (I) OR CLAUSE (II) OR CLAUSE (III) OR CLAUSE (IV) OF THIS SUB-SECTION. (2) WHERE THE CAPITAL ASSET BEING A SHARE OR SHARES IN AN AMALGAMATED COMPANY WHICH IS AN INDIAN COMPANY BECAME THE PROPERTY OF THE ASSESS EE IN CONSIDERATION OF A TRANSFER REFERRED TO IN CLAUSE (VII) OF SECTION 47, THE COST OF ACQUISITION OF THE ASSET SHALL BE DEEMED TO BE THE COST OF ACQUISITION TO HIM OF THE SHARE OR SHARES IN THE AMALGAMATING COMPANY, (2A) WHERE THE CAPITAL ASSET, BEING A SHARE OR DEBE NTURE IN A COMPANY, BECAME THE PROPERTY OF THE ASSESSEE IN CONSIDERATION OF A TRAN SFER REFERRED TO IN CLAUSE (X) OF SECTION 47, THE COST OF ACQUISITION OF THE ASSET TO THE ASS ESSEE SHALL BE DEEMED TO BE THAT PART OF THE COST OF DEBENTURE, -DEBENTURE-STOCK OR DEPOSIT CERTIFICATES IN RELATION TO WHICH SUCH ASSET IS ACQUIRED BY THE ASSESSEE. (2AA) WHERE THE CAPITAL GAIN ARISES FROM THE TRANSF ER OF THE SHARES, DEBENTURES OR WARRANTS, THE VALUE OF WHICH HAS BEEN TAKEN INTO AC COUNT WHILE COMPUTING THE VALUE OF PERQUISITE UNDER CLAUSE (2) OF SECTION 17, THE COST OF ACQUISITION OF SUCH SHARES, DEBENTURES OR WARRANTS SHALL BE THE VALUE UNDER THA T CLAUSE. (2C) THE COST OF ACQUISITION OF THE SHARES IN THE R ESULTING COMPANY SHALL BE THE AMOUNT WHICH BEARS TO THE COST OF ACQUISITION OF SHARES HE LD BY THE ASSESSEE IN THE DEMERGED COMPANY THE SAME PROPORTION AS THE NET BOOK VALUE O F THE ASSETS TRANSFERRED IN A DEMERGER BEARS TO THE NET WORTH OF THE DEMERG ED COMPANY IMMEDIATELY BEFORE SUCH DEMERGER. (2D) THE COST OF ACQUISITION OF THE ORIGINAL SHARES HELD BY THE SHAREHOLDER IN THE DEMERGED COMPANY SHALL BE DEEMED TO HAVE BEEN REDU CED BY THE AMOUNT AS SO ARRIVED AT UNDER SUB-SECTION (2C). EXPLANATION. FOR THE PURPOSES OF THIS SECT ION, 'NET WORTH' SHALL MEAN THE AGGREGATE OF THE PAID UP SHARE CAPITAL AND GENERAL RESERVES AS APPEARING IN THE BOOKS OF ACCOUNT OF THE DEMERGED COMPANY IMMEDIATELY BEFORE THE DEMERGER. (3) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-SECTI ON (1), WHERE THE CAPITAL GAIN ARISING FROM THE TRANSFER OF A CAPITAL ASSET REFERRED TO IN CLAUSE (IV) OR, AS THE CASE MAY BE, CLAUSE (V) OF SECTION 47 IS DEEMED TO BE INCOME CHA RGEABLE UNDER THE HEAD 'CAPITAL GAINS' BY VIRTUE OF THE PROVISIONS CONTAINED IN SEC TION 47A, THE COST OF ACQUISITION OF SUCH ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 56 ASSET TO THE TRANSFEREE-COMPANY SHALL BE THE COST F OR WHICH SUCH ASSET WAS ACQUIRED BY IT. ' 'SECTION 55. MEANING OF 'ADJUSTED', 'COST OF IMPROVEME NT' AND 'COST OF ACQUISITION. (1) FOR THE PURPOSES OF SECTIONS 48 AND 49,- (A) [,...] (B)'COST OF ANY IMPROVEMENT', - (1)IN RELATION TO A CAPITAL ASSET BEING GOODWILL OF A BUSINESS OR A RIGHT TO MANUFACTURE, PRODUCE OR PROCESS ANY ARTICLE OR THING OR RIGHT TO CARRY ON ANY BUSINESS SHALL BE TAKEN TO BE NIL; AND (2) IN RELATION TO ANY OTHER CAPITAL ASSET,- (I) WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF THE PREVIOUS OWNER OR THE ASSESSEE BEFORE THE 1ST DAY OF APRIL, 1981 , MEANS ALL EXPEN DITURE OF A CAPITAL NATURE INCURRED IN MAKING ANY ADDITIONS OR ALTERATIONS TO THE CAPITAL ASSET ON OR AFTER THE SAID DATE BY THE PREVIOUS OWNER OR THE ASSESSEE, AND (II) IN ANY OTHER CASE, MEANS ALL EXPENDITURE OF A CAPITAL NATURE INCURRED INCURRED IN MAKING ANY ADDITIONS OR ALTERATIONS TO THE CAPITAL ASSET BY THE ASSESSEE AFTER IT BECAME HIS PROPERTY, AND, WHERE THE CAPITAL ASSET BECAME T HE PROPERTY OF THE ASSESSEE BY ANY OF THE MODES SPECIFIED IN SUB-SECTION (1) OF SECTION 4 9 , BY THE PREVIOUS OWNER, BUT DOES INCLUDE ANY EXPENDITURE WHICH IS DEDUCTIBL E IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'INTEREST ON SECURITIES', 'INCOME FROM HOUSE PROPERTY', 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', OR ' INCOME FROM OTHER SOURCES', AND THE EXPRESSION 'IMPROVEMENT' SHALL BE CONSTRUED ACCORDI NGLY. (2) FOR THE PURPOSES OF SECTIONS 48 AND 49, 'COST O F ACQUISITION',- (A) IN RELATION TO A CAPITAL ASSET, BEING GOODWILL OF A BUSINESS OR A TRADE MARK OR BRAND NAME ASSOCIATED WITH A BUSINESS OR A RTGHT TO MANUF ACTURE, PRODUCE OR PROCESS ANY ARTICLE OR THING OR RIGHT TO CARRY ON ANY BUSINESS , TENANCY RIGHTS, STAGE CARRIAGE PERMITS OR LOOM HOURS,- (I) IN THE CASE OF ACQUISITION OF SUCH ASSET BY THE ASSESSEE BY PURCHASE FROM A PREVIOUS OWNER, MEANS THE AMOUNT OF THE PURCHASE PRICE; AND ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 57 (II) IN ANY OTHER CASE [NOT BEING A CASE FALLING UN DER SUB-CLAUSES (I) TO (IV) OF SUB-SECTION (1) OF SECTION 49], SHALL BE TAKEN TO BE NIL; (AA) IN A CASE WHERE, BY VIRTUE OF HOLDING A CAPITA L ASSET, BEING A SHARE OR ANY OTHER SECURITY, WITHIN THE MEANING OF CLAUSE (H) OF SECTI ON 2 OF THE SECURITIES CONTRACTS (REGULATION) ACT, 1956 (42 OF 1956) (HEREAFTER IN T HIS CLAUSE REFERRED TO AS THE FINANCIAL ASSET), THE ASSESSEE- (A) BECOMES ENTITLED TO SUBSCRIBE TO ANY ADDITIONAL FIN ANCIAL ASSET OR (B) IS ALLOTTED ANY ADDITIONAL FINANCIAL ASSET WITHOUT ANY PAYMENT, THEN, SUBJECT TO THE PROVISIONS OF SUB-CLAUSES (I) AND (II) OF CLAUSE (B) ,- (I)IN RELATION TO THE ORIGINAL FINANCIAL ASSET, ON THE BASIS OF WHICH THE ASSESSEE BECOMES ENTITLED TO ANY ADDITIONAL FINANCIAL ASSET, MEANS T HE AMOUNT ACTUALLY PAID FOR ACQUIRING THE ORIGINAL FINANCIAL ASSET; (II) IN RELATION TO ANY RIGHT TO RENOUNCE THE SAID ENTITLEMENT TO SUBSCRIBE TO THE FINANCIAL ASSET, WHEN .SUCH RIGHT IS RENOUNCED BY THE ASSESSE E IN FAVOUR OF ANY PERSON, SHALL BE TAKEN TO BE NIL IN THE CASE OF SUCH ASSESSEE; (III) IN RELATION TO THE FINANCIAL ASSET, TO WHICH THE ASSESSEE HAS SUBSCRIBED ON THE BASIS OF THE SAID ENTITLEMENT, MEANS THE AMOUNT ACTUALLY PAI D BY HIM FOR ACQUIRING SUCH ASSET; (IIIA) IN RELATION TO THE FINANCIAL ASSET ALLOTTED TO THE ASSESSEE WITHOUT ANY PAYMENT AND ON THE BASIS OF HOLDING OF ANY OTHER FINANCIAL ASSE T, SHALL BE TAKEN TO BE NIL IN THE CASE OF SUCH ASSESSEE; (IV) IN RELATION TO ANY FINANCIAL ASSET PURCHASED B Y ANY PERSON IN WHOSE FAVOUR THE RIGHT TO SUBSCRIBE TO SUCH ASSET HAS BEEN RENOUNCED, MEAN S THE AGGREGATE OF THE AMOUNT OF THE PURCHASE PRICE PAID BY HIM TO THE PERSON RENOUNCING SUCH RIGHT AND THE AMOUNT PAID BY HIM TO THE COMPANY OR INSTITUTION, AS THE CASE MAY BE, FOR ACQUIRING SUCH FINANCIAL ASSET; (AB) IN RELATION TO A CAPITAL ASSET, BEING EQUITY S HARE OR SHARES ALLOTTED TO A SHAREHOLDER OF A RECOGNIZED STOCK EXCHANGE IN INDIA UNDER A SCH EME FOR DEMUTUALIZATION OR CORPORATIZATION APPROVED BY THE SECURITIES AND EXCH ANGE BOARD OF INDIA ESTABLISHED UNDER SECTION 3 OF THE SECURITIES AND EXCHANGE BOAR D OF INDIA ACT, 1992 (15 OF 1992) SHALL BE THE COST OF ACQUISITION OF HIS ORIGINAL MEMBERSHIP OF THE EXCHANGE; ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 58 PROVIDED THAT THE COST OF A CAPITAL ASSET, BEING TR ADING OR CLEARING RIGHTS OF THE RECOGNIZED STOCK EXCHANGE ACQUIRED BY A SHAREHOLDER WHO HAS BEEN ALLOTTED EQUITY SHARE OR SHARES UNDER SUCH SCHEME OF DEMUTUALIZATION OR C ORPORATIZATION, SHALL BE DEEMED TO BE NIL; (B) IN RELATION TO ANY OTHER CAPITAL ASSET,- (I)WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF T HE ASSESSEE BEFORE 1ST DAY OF APRIL, 1981 , MEANS THE COST OF ACQUISITION OF THE ASSET T O THE ASSESSEE OR THE FAIR MARKET VALUE OF THE ASSET ON THE 1ST DAY OF APRIL, 1981 , AT THE OPTION OF THE ASSESSEE; (II) WHERE THE CAPITAL ASSET BECAME THE PROPERTY OF THE ASSESSEE BY ANY OF THE MODES SPECIFIED IN SUB-SECTION (1) OF SECTION 49, AND THE CAPITAL ASSET BECAME THE PROPERTY OF THE PREVIOUS OWNER BEFORE THE 1ST DAY OF APRIL, 1981, M EANS THE COST OF THE CAPITAL ASSET TO THE PREVIOUS OWNER OR THE FAIR MARKET VALUE OF THE ASSET ON THE 1ST DAY OF APRIL, 1981, AT THE OPTION OF THE ASSESSEE; (III) WHERE THE CAPITAL ASSET BECAME THE PROPERTY O F THE ASSESSEE ON THE DISTRIBUTION OF THE CAPITAL ASSETS OF A COMPANY ON ITS LIQUIDATION AND THE ASSESSEE HAS BEEN ASSESSED TO INCOME-TAX UNDER THE HEAD 'CAPITAL GAINS' IN RESPEC T OF THAT ASSET UNDER SECTION 46, MEANS THE FAIR MARKET VALUE OF THE ASSET ON THE DAT E OF DISTRIBUTION: (V) WHERE THE CAPITAL ASSET, BEING A SHARE OR A STO CK OF A COMPANY, BECAME THE PROPERTY OF THE ASSESSEE ON- (A) THE CONSOLIDATION AND DIVISION OF ALL OR ANY OF THE SHARE CAPITAL OF THE COMPANY INTO SHARES OF LARGER AMOUNT THAN ITS EXISTING SHARES, (B) THE CONVERSION OF ANY SHARES OF THE COMPANY INT O STOCK, (C) THE RE-CONVERSION OF ANY STOCK OF THE COMPANY INTO SHARES, (D) THE SUB-DIVISION OF ANY OF THE SHARES OF THE CO MPANY INTO SHARES OF SMALLER AMOUNT, OR (E) THE CONVERSION OF ONE KIND OF SHARES OF THE COM PANY INTO ANOTHER KIND, MEANS THE COST OF ACQUISITION OF THE ASSET CALCULAT ED WITH REFERENCE TO THE COST OF ACQUISITION OF THE SHARES OR STOCK FROM WHICH SUCH ASSET IS DERIVED. (3) WHERE THE COST FOR WHICH THE- PREVIOUS OWNER AC QUIRED THE PROPERTY CANNOT BE ASCERTAINED, THE COST OF ACQUISITION TO THE PREVIOU S OWNER MEANS THE FAIR MARKET VALUE ON THE DATE ON WHICH THE CAPITAL ASSET BECAME THE PROP ERTY OF THE PREVIOUS OWNER.' ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 59 FROM THE AFORESAID PROVISIONS OF SECTION 49(1) READ WITH EXPLANATION THERETO AND SECTION 55(2)(A), IT IS EVIDENT THAT THE COST OF ACQUISITIO N OF AN ASSET IN THE HANDS OF A PARTNER, RECEIVED ON THE DISTRIBUTION OF ASSETS ON DISSOLUTI ON OF THE FIRM, IS THE SAME AS WAS THE COST OF ACQUISITION OF THAT ASSET IN THE HANDS OF P REVIOUS OWNER, I.E. FIRM (IN THE PRESENT CASE) AND, THEREFORE, OUR NEXT JOB IS TO FIND AS TO WHAT WAS THE COST OF ACQUISITION OF THESE ASSETS IN THE HANDS OF FIRM AND FOR THAT PURPOSE, W E HAVE TO CONSIDER THE FIRM'S HISTORY, ETC. AND AFTER HAVING CONSIDERED THE SAME, WE ARE O F THE OPINION THAT AS ALREADY HELD IN PARAGRAPH NO.25(SUPRA), THE ASSESSEE HAVING BECOME THE OWNER OF ASSETS ON DISTRIBUTION OF ASSETS ON DISSOLUTION A FIRM, THE COST OF ACQUIS ITION IN ASSESSEE'S HANDS IS TO BE TAKEN AS THE COST OF ACQUISITION IN THE HANDS OF THE FIRM OR IN THE HANDS OF RKP (SO FAR AS HIS SHARE IS CONCERNED) BY VIRTUE OF PROVISIONS OF SECT ION 49(1 )(B) OF THE ACT). 38.1 (III) SO FAR AS COST OF ACQUISITION OF THESE A SSETS IN THE HANDS OF PARTNERSHIP; I.E. THE FIRM; IS CONCERNED, ADMITTEDLY, THE ASSETS IN QUEST ION BEING OF INTANGIBLE NATURE AND NEITHER THE DATE WITH EFFECT FROM WHICH THEY SURFAC ED IS KNOWN NOR THE FIRM HAD INCURRED ANY EXPENDITURE FOR THE ACQUISITION OF THE SAME, THESE ASSETS HAVE TO BE CO NSIDERED AS SELF-GENERATED ONE WHOSE COST IS NOT ASCERTAINABLE; MEANING THEREBY THAT THE COST OF THESE INTANGIBLE ASSETS, NAMELY TENANCY RIGHTS, GOODWILL, THE TRADE-MARKS AND TRADE-NAMES IN THE HANDS OF THE FIRM WAS NOT ASCERTAINABLE AND IF THAT WAS THE LEGAL AND FACTUAL POSITION, THEN THE COST OF ACQUISITION IN THE HANDS OF SHRI RKP (TO THE EXTENT OF HIS SHARE) AS WELL A'S IN THE HANDS OF THE ASSESSEE, BY VIRTUE OF PROVISIONS OF SECTION 49(1 )(B) OF THE ACT, WAS ALSO NOT ASCERTAINABLE. 38.1. (IV) THE AFORESAID FINDINGS OF OURS ARE AP PLICABLE FOR ACQUISITION OF OWNERSHIP OF THESE ASSETS BY THE ASSESSEE IN THE CAPACITY OF JOI NT OWNER AS WELL AS ACQUISITION OF OWNERSHIP OF THOSE VERY ASSETS LATER ON AS SOLE OWN ER. 38.2. OUR FINDINGS WITH RESPECT TO THIS ISSUE, THER EFORE, ARE THAT THE ASSESSEE HAVING ACQUIRED INTANGIBLE ASSETS ON DISTRIBUTION OF ASSET S ON DISSOLUTION OF FIRM AND COST OF ACQUISITION OF THE SAME IN THE HANDS OF FIRM AS WEL L AS IN THE HANDS OF SHRI RKP (TO THE EXTENT OF HIS SHARE) BEING UNASCERTAINABLE, THE COS T OF ACQUISITION OF THESE ASSETS IN THE HANDS OF THE ASSESSEE WAS ALSO UNASCERTAINABLE. ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 60 38.3. AFTER HAVING COME TO ABOVE CONCLUSION, THE NA TURAL OUTCOME IS THAT COST OF ACQUISITION BEING UNASCERTAINABLE, THE ASSESSEE WAS NOT LIABLE TO LONG-TERM CAPITAL GAIN TAX ON RECEIPT OF RS.50 CRORES. 51. DURING THE COURSE OF THE HEARING, WE ARE TOLD THAT THE HONBLE JURISDICTIONAL HIGH COURT IS SEIZEDS WITH THIS MATTER AS APPEAL AG AINST THIS FINDING OF THE CO-ORDINATE BENCH HAS BEEN ADMITTED IN THE CASE OF SMT. SHANTABEN K. PATEL. HOWEVER, AS ON DATE, WE HAVE THIS DECISION OF THE C O-ORDINATE BENCH AND RESPECTIVELY FOLLOWING THE FINDINGS OF THE CO-ORDIN ATE BENCH (SUPRA), WE HOLD ACCORDINGLY. 52. TO SUM UP- (A) OUT OF THE TOTAL CONSIDERATION OF RS. 500 CRORE S, RS. 450 CRORES HAVE TO BE SPLIT IN THE RATIO OF 31.55% AND 68.45% BETWEEN THE VALUE OF TRADE-MARKS PRE 1981 AND POST 1981 RESPECTIVELY, BECAUSE SINCE, WE HAVE ACCEPTED THE VALUATION REPORT OF M/S. RSM & CO. AS NOT ONLY SCIE NTIFIC BUT PRAGMATIC ON THE PRESENT CONTEXT AND BASED ON FACTUAL MATRIX. (B) THE FAIR MARKET VALUE OF TRADE-MARKS/BRAND NAME S AS ON 01.04.1981 SHOULD BE TAKEN AT RS. 90 CRORES FOR THE REASONS GI VEN IN (A) ABOVE. (C) SINCE, WE HAVE FOLLOWED THE FINDINGS OF THE CO- ORDINATE BENCH (SUPRA), WE HOLD THAT THE COST OF ACQUISITION OF TRADE-MARKS /BRAND VALUES POST 1981 IS INDETERMINABLE AND, THEREFORE, NOT SUBJECT TO ANY C APITAL GAINS TAX. 53. FOR OUR DETAILED DISCUSSION HEREINABOVE, APPEAL FIL ED BY THE REVENUE IS ITA NOS. 170 6 & 1514/AHD/2009 & C.O. NO. 123/AHD/2009 . A.Y.2001-02 61 DISMISSED, APPEAL FILED BY THE ASSESSEE IS ALLOWED AND SO ALSO THE CROSS OBJECTION OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 19- 07 - 20 16. SD/- SD/- (RAJPAL YADAV) (N. K. BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: TRUE COPY RAJESH COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHME DABAD
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