Kwality Biscuits pvt. Ltd., Bangalore V. ACIT, Bangalore

ITA 1223/BANG/2009

• Counselvise Citation: 122321114 RSA 2009
• Duration Of Justice: 2 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2012
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 31-01-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 23-12-2009
• Court: TRIBUNAL
• Department Lawyers: G V GOPALA RAO
• Assessee Lawyers: DILIP S DAMLE
• Keywords: Capital asset; Revision of order; Retrospective amendment; Cost of acquisition; Difference of opinion; Capital receipt
• Section: 147; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH A BEFORE SHRI N. BARAT H VAJA SANKAR, VICE - PRESIDENT (THIRD MEMBER) ITA NO.1223(BANG)/2009 (ASSESSMENT YEAR: 2001-02) M/S.KWALITY BISCUITS PVT. LTD. PB NO.3902, 6 TH MILE, MYSORE ROAD, BAN GALORE - 560 039 . PAN: AACCK 312H VS. APPELLANT ASST. COMMISSIONER OF INCOME - TAX CIRCLE - 1 1 (5) , BA NGALORE. RESPONDENT APPELLANT BY: SHRI DILIP S DAMLE. RESPONDENT BY: SHRI G.V.GOPALA RAO. DATE OF HEARING : 0 1 - 12 - 2011 O R D E R AS THERE WAS A DIFFERENCE OF OPINION BETWEEN THE MEMBERS WHO HEARD THE APPEAL, THE HONBLE PRESIDENT , ITAT HAS NOMINATED ME AS THIRD MEMBER U/S 255(4) OF THE INCO ME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT'], T O RESOLVE THE DIFFERENCE. ITA NO.1223(BANG)/2009 PAGE 2 OF 29 2. THE QUESTION REFERRED TO ME IS AS FOLLOWS: WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSEE IS ENTITLED TO CLAIM THE AMOUNT OF ` .30 CRORES RECEIVED FROM M/S.BRITANIA INDUSTRIES LTD., AS NON-TAXABLE CAPITAL RECEIPTS FOR THE ASSESSMENT YEAR IN APPEAL OR IS IT LIABLE FOR TAXATION AS LONG-TERM CAPITAL GAINS? 3. THE MAIN ISSUE FOR CONSIDERATION IS WHETHER THE RECEIPT OF ` .30 CRORES FOR TRANSFER OF TRADE MARKS, COPYRIGHTS AND DESIGNS RECEIVED FROM M/S.BRITANIA INDUSTRIES LTD. (BIL FOR SHORT) IS CHARGEABLE TO CAPITAL GAINS TAX UNDER THE PROVISIONS OF THE ACT. 4. ON 29-3-2001, THE ASSESSEE-M/S.KWALITY BISCUITS PVT. LTD., EXECUTED THREE DEEDS OF ASSIGNMENT ASSIGNING INTELLECTUAL PROPERTY RIGHTS (IPRS) BEING TRADE MARKS, DESIGNS A ND COPYRIGHTS. IN TERMS OF THE DEEDS OF ASSIGNMENT, T HE SAID THREE IPRS WERE ASSIGNED TO BIL FOR AN AGGREGATE CONSIDER ATION OF ` .30 CRORES. IN THE RETURN FILED FOR ASSESSMENT YEA R 2001-02, NO CAPITAL GAINS ON TRANSFER OF IPRS WAS DISCLOSED BY THE ASSESSEE ON THE GROUND THAT THESE IPRS WERE ASSESSEES SELF- GENERATED ASSETS AND, THEREFORE, COST OF ACQUISITION WAS NOT DETERMINABLE AND THEREFORE COMPUTATION PROVISIONS OF THE ACT REL ATING TO CAPITAL GAINS TAX WERE NOT APPLICABLE. THUS, THE A SSESSEE CLAIMED THE RECEIPT OF ` .30 CRORES AS CAPITAL RECEIPT NOT LIABLE TO TAX UNDER THE HEAD CAPITAL GAINS. HOWEVER, THE AO ASSESSED ITA NO.1223(BANG)/2009 PAGE 3 OF 29 ` .30 CRORES UNDER THE HEAD LONG-TERM CAPITAL GAINS (LGCG) IN THE ASSESSMENT MADE UNDER SEC.143(3) READ WITH SECT ION 147 OF THE ACT. IN HIS OPINION, IN THE COURSE OF TRANSFER OF IPRS, THE ASSESSEE HAD TRANSFERRED ITS RIGHT TO MANUFACTURE, PRODUCE OR PROCESS ANY ARTICLE OR THING. IN TERMS OF SEC.55(2 )(A) OF THE ACT, THE COST OF ACQUISITION OF SUCH RIGHT WAS NIL AND THEREFORE THE WHOLE OF THE CONSIDERATION RECEIVED BY THE ASSESSEE WAS LIABLE TO TAX UNDER THE HEAD LTCG. IN HIS OPINION, IN THE GARB OF TRANSFER OF IPRS, THE ASSESSEE HAD, IN EFFECT, TRAN SFERRED ITS RIGHT TO MANUFACTURE OR PRODUCE OR PROCESS ANY ARTICLE OR THING. IN TERMS OF SEC.55(2)(A) OF THE ACT, COST OF ACQUISIT ION OF SUCH RIGHT WAS NIL AND THEREFORE, THE WHOLE OF THE CONSI DERATION RECEIVED BY THE ASSESSEE WAS LIABLE TO TAX UNDER TH E HEAD LTCG. IN THE REMAND PROCEEDINGS IN THE COURSE OF APPEAL, THE AO ALTERNATIVELY SUBMITTED THAT THE TRADEMARKS WERE NOTHING BUT A CORPOREAL REPRESENTATION OF GOODWILL WHICH WAS TR ANSFERRED BY THE ASSESSEE UNDER THE ASSIGNMENT DEED AND THEREFOR E THE CONSIDERATION WAS FULLY CHARGEABLE TO TAX BECAUSE U/S 55(2)(A) COST OF ACQUISITION OF GOODWILL WAS TO BE TAKEN A T NIL. THE CIT(A) UPHELD THE ORDER OF THE AO. THE ASSESSEE MOV ED SECOND APPEAL BEFORE THE TRIBUNAL AND THERE WAS A DIFFEREN CE OF OPINION BETWEEN THE MEMBERS CONSTITUTING THE BENCH AND THUS IT HAS COME BEFORE ME AS A THIRD MEMBER WITH THE QUESTION MENTIONED ELSEWHERE OF THIS ORDER. 5. THE HONBLE JUDICIAL MEMBER HAS RECORDED THAT H IS CONCLUSION DIFFERS WITH THAT OF THE HONBLE VICE-PR ESIDENT ONLY ITA NO.1223(BANG)/2009 PAGE 4 OF 29 REGARDING THE SECOND LIMB OF REVENUES CONTENTION V IZ., WHETHER TRANSFER OF TRADEMARK, PATENT AND DESIGN RESULTED I N TRANSFER OF RIGHT TO MANUFACTURE, PRODUCE OR PROCESS ANY ARTICL E OR THING OF M/S.KWALITY BISCUITS PVT. LTD.,(ASSESSEE). 6. SHRI DILIP S.DAMLE, LEARNED CHARTERED ACCOUNTAN T APPEARING FOR THE ASSESSEE, SUBMITTED THAT IT WOULD BE QUITE EVIDENT THAT EACH OF THE IPRS HAVE SPECIFIC AND DEF INITE MEANING IN LAW AND THESE RIGHTS ARE IN NO WAY CONNECTED WIT H RIGHT TO MANUFACTURE ANY PARTICULAR PRODUCT. THE IPRS, WHIC H THE ASSESSEE WAS OWNING AND HOLDING, WERE BEING USED IN CONNECTION WITH MARKETING AND SELLING ITS PRODUCTS I.E. BISCUITS. HOWEVER, MANUFACTURE OR PRODUCTION OF BISCUITS PER SE WAS NOT DEPENDENT ON OWNING AND HOLDING THE IPRS. HE S UBMITTED THAT THE ASSESSEE TRANSFERRED ONLY THE RIGHTS RELAT ING TO TRADEMARK, COPYRIGHTS AND DESIGNS TO BIL BUT RIGHT TO UNDERTAKE MANUFACTURE OR MANUFACTURING KNOW-HOW IN RELATION T HERETO WERE NEVER TRANSFERRED BY THE ASSESSEE. HE ALSO SU BMITTED THAT ON GOING THROUGH THE HISTORY OF AMENDMENTS TO SEC.5 5(2)(A) (EXTRACTED ELSEWHERE OF THIS ORDER), IT WOULD TRANS PIRE THAT EACH OF THE AMENDMENTS WERE MADE APPLICABLE PROSPECTIVEL Y AND NOT RETROSPECTIVELY. IN INTERPRETING PROVISIONS OF SEC .55(2)(A), THERE IS NO SCOPE FOR INTENDMENT BECAUSE THE EXPRES SION USED FOR BRINGING IN THE SWEEP OF TAXATION CAPITAL ASSET S OR RIGHTS OF DIFFERENT PARTIES ARE NOT OVERLAPPING OR SYNONYMOUS . EACH CATEGORY OF RIGHTS OR EACH OF SUCH CAPITAL ASSETS G ET INCLUDED IN ITA NO.1223(BANG)/2009 PAGE 5 OF 29 SEC.55(2)(A) ARE AT DIFFERENT POINTS OF TIME ARE IN DEPENDENT OF EACH OTHER AND ALL DISTINCT. ON THE OTHER HAND, SHRI G.V. GOPALA RAO, LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSE SSEE TRANSFERRED IPRS IN THE FORM OF TRADE MARKS, DESIGN S AND COPYRIGHTS ALONG WITH BUNDLE OF OTHER RIGHTS INCLUD ING THE NON- COMPETE AGREEMENT. THE BUNDLE OF RIGHTS ASSIGNED B Y THE ASSESSEE IN FAVOUR OF BIL INCLUDE THE RIGHT TO MANU FACTURE PRODUCE OR PROCESS THE BISCUITS HITHERTO BEING MANU FACTURED, PROCESSED AND SOLD BY THE ASSESSEE UNDER THE BRAND NAME OF KWALITY. THUS, THE IPRS TRANSFERRED BY THE ASSES SEE HAD FORMED PART AND PARCEL OF GOODWILL OF THE ASSESSEE REFLECTED IN THE MARKET. THUS, THE COMPREHENSIVE ARRANGEMENTS OF TRANSFER OF THESE IPRS TO BIL WAS IN FACT, COMES UNDER THE S WEEP OF TRANSFER OF THEIR RIGHT TO MANUFACTURE BISCUITS FOR A CONSIDERATION OF ` .30 CRORES AND THE SAME WAS RIGHTLY ASSESSED BY THE AO. HE FURTHER SUBMITTED THAT THE CIT(A) RE LIED ON THE BOOKLET PUBLISHED BY THE NATIONAL SCHOOL OF LAW WHI CH SAYS THAT THE GOODWILL IS A COMPREHENSIVE TERM WHICH INCLUDES TRADEMARK AND OTHER IPRS. THEREFORE, THE OPINION GIVEN BY A P REMIER NATIONAL SCHOOL OF LAW CANNOT BE IGNORED IN UNDERST ANDING OR INTERPRETING LAW ON THE SUBJECT. THE CONCLUSION OF THE HONBLE JUDICIAL MEMBER THAT WHAT IS INCLUDED AND CAN BE IN TENDED AND WHAT IS REALLY TRANSFERRED AND WHAT COULD BE SUBJEC TED TO TRANSFER IS RIGHT TO MANUFACTURE BISCUITS IN THE NA ME OF OR USING THE NAME KWALITY BISCUITS DESERVES TO BE SUPPORTE D. THE ITA NO.1223(BANG)/2009 PAGE 6 OF 29 INCLUSION OF TRADEMARK OR BRAND NAME BY THE FINANCE ACT, 2001 W.E.F. ASSESSMENT YEAR 2002-03 IS BY WAY OF ABUNDAN T CAUTION AND THE SAME IS ONLY CURATIVE IN NATURE. RIGHT TO MANUFACTURE, PRODUCTION OF ANY ARTICLE OR THING IS A WIDER AND L ARGER RIGHT THAN THEIR RIGHT TO MANUFACTURE, PRODUCE ANY ARTICL E UNDER TRADE NAME OR BRAND NAME. THUS, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE VIEW TAKEN BY THE HON BLE JUDICIAL MEMBER THAT THE AMENDMENT MADE BY THE FINANCE ACT, 2001, BY INCLUDING TRADEMARK OR BRAND NAME IS ONLY CURATI VE IN NATURE AND IS APPLICABLE WITH RETROSPECTIVE EFFECT. 7. IN HIS REJOINDER, THE LEARNED AR SUBMITTED THAT: (I) THE FIRST ARGUMENT OF THE LEARNED CIT-DR IS TH AT THE CONSIDERATION OF ` .30 CRORES PAID FOR IPRS INCLUDED OTHER BUNDLE OF RIGHTS AND ALSO NON-COMPETE FEE. THIS ARGUMENT IS FACTUALLY INCORRECT. APART FROM ` .30 CRORES PAID TO THE ASSESSEE, BIL PAID ` .8 CRORES AS NON-COMPETE FEE TO THE PROMOTERS/SHARE HOLDERS OF THE ASSESSEE AND NOT TO ASSESSEE. THE NON-COMPETE COVENANTS WERE ACCEPTED BY THE ERSTWHILE PROMOTERS IN THEIR P ERSONAL CAPACITY. ONE MUST KEEP IN MIND THAT IN LAW, COMPA NY IS A SEPARATE AND INDEPENDENT ENTITY FROM ITS SHAREHOLDE RS AND PROMOTERS. THE COMPANY IS NOT BOUND BY ACTS COMMIT TED BY OR AGREEMENTS ENTERED INTO BY THE PROMOTERS/SHAREHOLDE RS IN THEIR PERSONAL CAPACITY. THE PROMOTERS, FOR SEPARATE CON SIDERATION RECEIVED INDIVIDUALLY, AGREED NOT TO ENGAGE IN BUSI NESS CONNECTED WITH THE BUSINESS OF THE ASSESSEE. NO SU M ITA NO.1223(BANG)/2009 PAGE 7 OF 29 WHATSOEVER WAS RECEIVED BY THE ASSESSEE FOR ACCEPTI NG NON- COMPETE COVENANT FROM BIL, AS SUBMITTED BY THE REVE NUE. IN TERMS OF HEADS OF AGREEMENT TO WHICH THE ASSESSEE W AS AN INDEPENDENT PARTY, THE ASSESSEE AGREED TO SELL OR T RANSFER ONLY ITS IPRS RELATING TO KWALITY BRAND FOR A CONSIDER ATION OF ` .30 CRORES. IT IS FOR THIS PURPOSE SEPARATE ASSIGNMENT AGREEMENTS WERE EXECUTED IN WHICH REFERENCES WERE MADE TO SPEC IFIC INTELLECTUAL PROPERTY RIGHTS I.E. TRADEMARKS, COPYR IGHTS AND DESIGNS. ON ASSIGNMENT OF THESE SPECIFIC CORPOREAL REGISTERED INTELLECTUAL PROPERTY RIGHTS, STAMP DUTY AS PER LAW WAS ALSO PAID. THUS, ASSESSEE DID NOT TRANSFER ANY OTHER RIG HT NOR RELINQUISHED OR EXTINGUISHED ITS RIGHT TO MANUFACTU RE. BESIDES THE IPRS RELATING TO KWALITY BRAND, THE ASSESSEE OWNED PRODUCTIVE FIXED ASSETS, HELD REQUISITE PERMISSION, REGISTRATION AND LICENSE FOR MANUFACTURE OF BISCUITS WHICH CONTI NUED TO OWN AND HOLD AND IT IS ON THIS PREMISE THAT BIL AGREED TO PURCHASE ENTIRE SHARE HOLDING OF THE ASSESSEE FROM ITS EXIST ING SHAREHOLDERS. THE ARRANGEMENT BETWEEN SHAREHOLDERS AND BIL WAS IN RELATION TO THE SHARES OF THE ASSESSEE AND N OT IN RELATION TO ASSESSEES BISCUITS BUSINESS. THE INTENTION OF T HE PARTIES WAS ALWAYS THAT THE ASSESSEE WOULD CONTINUE TO OWN AND HOLD ALL THE PRODUCTIVE FIXED ASSETS AS HITHERTO HELD AND THE AS SESSEE WOULD CONTINUE TO MANUFACTURE BISCUITS. HAVING REGARD TO ASSESSEE'S PRODUCTION CAPABILITIES, PRODUCTIVE ASSETS OWNED BY IT AND KEEPING IN MIND ASSESSEE'S TECHNICAL KNOW-HOW IN MA NUFACTURE OF BISCUITS, BIL AGREED TO PURCHASE SHARES OF THE A SSESSEE FROM ITA NO.1223(BANG)/2009 PAGE 8 OF 29 EXISTING SHAREHOLDERS FOR ` .16 CRORES. HAD THE INTENTION OF THE PARTIES WAS THAT THE ASSESSEE WOULD CEASE TO OWN IT S MANUFACTURING APPARATUS AND/OR DISCONTINUE ITS CORE BUSINESS OF MANUFACTURE OF BISCUITS THEN THE PRUDENT INVESTOR S UCH AS BIL WOULD NOT HAVE INVESTED ` .16 CRORES IN ACQUIRING SHARES OF A COMPANY WHICH HAD AGREED NOT TO CARRY ON ITS CORE MANUFACTURING BUSINESS. THE CIT(A) RELIED ON THE COMMENTARY PUBLISHED BY THE NATIONAL LAW SCHOOL WHICH STATED T HAT GOODWILL IS A COMPREHENSIVE TERM WHICH INTER ALIA , INCLUDES TRADEMARK. THE HONBLE VICE-PRESIDENT (AM) IN HIS ORDER, RELYI NG ON THE DECISION OF THE ITAT, MUMBAI HELD THAT EVEN THOUGH GOODWILL, TRADEMARK MAY BELONG TO THE SAME GENEALOGICAL SPECI E, YET IN LAW, THESE CAPITAL ASSETS ARE SEPARATE AND DISTINCT RIGHTS. THE HONBLE JUDICIAL MEMBER WAS IN AGREEMENT WITH THE H ONBLE VICE-PRESIDENT THAT CAPITAL ASSET TRANSFERRED WAS TRADE MARK AND THIS IS SEPARATE FROM GOODWILL. THE HONBLE JM DISAGREED WITH THE HONBLE VICE-PRESIDENTS CONCLUSION THAT A SSESSEE DID NOT TRANSFER RIGHT TO MANUFACTURE. IN HONBLE JM S OPINION, BRAND NAME TRANSFERRED BY THE ASSESSEE WAS RIGHT TO MANUFACTURE AND THEREFORE HE HELD THAT LONG TERM CA PITAL GAINS WAS ASSESSABLE BECAUSE COST OF ACQUISITION OF SUCH RIGHT U/S 55(2)(A) WAS NIL. IN THE PROCEEDINGS U/S 255(4), T HE SCOPE FOR ADJUDICATION FOR THE THIRD MEMBER IS LIMITED TO POI NT OF DIFFERENCE BETWEEN THE MEMBERS. THIS BEING THE CAS E, THE LEARNED DR WAS NOT JUSTIFIED IN RELYING UPON THE CI T(A)S FINDING THAT TRANSFER OF TRADE MARK WAS CHARGEABLE TO TAX IN THE ITA NO.1223(BANG)/2009 PAGE 9 OF 29 ASSESSMENT YEAR 2001-02 BEING TRANSFER OF GOODWILL . AS ALREADY EXPLAINED, RIGHT TO MANUFACTURE BISCUITS AND RIGHT TO MARKET BISCUITS UNDER KWALITY TRADE MARK ARE SEPA RATE AND INDEPENDENT RIGHTS AND IT CANNOT BE SAID THAT RIGHT TO MANUFACTURE INCLUDES TRADE MARK OR BRAND NAME. BOTH THE RIGHTS OPERATE IN THE INDEPENDENT FIELD AND CAN BE OPERATED OR ACTED UPON INDEPENDENT OF EACH OTHER AS WELL. PRIO R TO 29-3-2001, RIGHT TO MANUFACTURE AND RIGHT TO MARKET BISCUITS THE IPRS WERE OWNED, HELD AND EXERCISED BY THE ASSE SSEE. AFTER 29-3-2001 IPRS BECAME BILS PROPERTY. THE RI GHT TO MANUFACTURE, HOWEVER, CONTINUED TO BE HELD AND EXER CISED BY THE ASSESSEE. THE FACTS ON RECORD SHOW THAT EVEN A FTER 29-3-2001 ASSESSEE CONTINUED TO MANUFACTURE BISCUIT S. FOR BISCUITS MANUFACTURED AND MARKETED UNDER BRAND KWA LITY, THE ASSESSEE PAID ROYALTY TO BIL. HOWEVER, THE ASSESSE E ALSO MANUFACTURED BISCUITS FOR OTHER BISCUIT MARKETING C OMPANIES AGAINST JOB CHARGES. SUCH INCOME WAS EARNED IN THE CAPACITY AS MANUFACTURER SIMPLICITOR AND FOR WHICH NO ROYALTY W AS PAID. FOR EARNING INCOME FROM MANUFACTURE OF BISCUITS SIMPLIC ITOR, OWING THE IPRS WAS NOT A NECESSARY CONDITION. (II) THE LEARNED AR OF THE ASSESSEE RELIED ON THE F OLLOWING DECISIONS, (A) SHERWANI INDUSTRIAL SYNDICATE LTD. VS. DCIT (99 TTJ 123)(ITAT)(ALLD.) (B) HCL INFOSYSTEMS LTD. VS. DCIT (85 ITD 42)(ITAT,DELHI) AND ITA NO.1223(BANG)/2009 PAGE 10 OF 29 (C) ASSOCIATED ELECTRONIC & ELECTRICAL INDUSTRIES LTD. VS. DCIT (IT(SS)A NO.9(BANG)/2009 DT.6-2-2009) FOR THE PROPOSITION THAT THE AMENDMENT MADE TO SECT ION 55(2)(A), AS FAR AS TRADE MARK WAS CONCERNED, IT WAS W.E.F. 1-4-2002 ONLY AND IT IS NOT CURATIVE OR RETROSPECTI VE. HE ALSO RELIED ON THE DECISION OF THE CO-ORDINATE BENCH (MU MBAI) OF THE TRIBUNAL IN THE CASE OF BOMBAY OIL INDUSTRIES VS. DCIT (28 SOT 383). HE SUBMITTED THAT FOR THE PROPOSITION THAT TR ADE MARK OR BRAND NAME WAS BROUGHT INTO THE SCOPE OF SEC.55(2) ONLY W.E.F. 1-4-2002 (ASSESSMENT YEAR 2002-03). HE ALSO POINTE D OUT THAT THE AUTHOR OF THE SAID ORDER WAS NONE OTHER THAN TH E HONBLE JUDICIAL MEMBER WHO HAS PASSED A DISSENTING ORDER I N THE PRESENT CASE. THE LEARNED AR ALSO RELIED ON THE DE CISION OF THE APEX COURT IN THE CASE OF GUFFIC CHEM LTD. VS. CIT (332 ITR 602) FOR THE PROPOSITION THAT CHARGING PROVISIONS O F THE ACT CANNOT OPERATE RETROSPECTIVELY BUT ONLY PROSPECTIVE LY. 8. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE HONBLE JM WAS RI GHT IN HOLDING THAT THE ASSESSEE TRANSFERRED ALL ITS RIGHT S INCLUDING THE MARKETING OF ITS BISCUITS BUSINESS. FOR THAT REASON THE ASSESSEE HAD NO LOCUS STANDI TO MANUFACTURE ON ITS OWN THE BISCUIT BUSINESS IN ITS ERSTWHILE BRAND NAME AND MARKET THE M. HE ALSO SUBMITTED THAT THE ASSESSEE CARRIED ON THE MANUFACT URING AND TRADING OF BISCUIT BUSINESS NOT AS AN OWNER OF THES E IPRS BUT AS A LICENSEE FOR AND ON BEHALF OF BIL. THEREFORE, T HE ASSESSEE ITA NO.1223(BANG)/2009 PAGE 11 OF 29 HAD TRANSFERRED ALL ITS RIGHTS WHICH INCLUDED RIGHT TO MANUFACTURE, DISTRIBUTION AND MARKETING OF BISCUITS BUSINESS IN THE ERSTWHILE BRAND NAME KWALITY. THUS THE ARGUME NT THAT THE ASSESSEE CONTINUED THE BUSINESS IS NOT CORRECT. 9. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED T HAT: (I) THE DECISION OF THE ALLAHABAD HIGH COURT IN THE CASE OF SHERWANI INDUSTRIAL SYNDICATE LTD (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE AS THE SAME WAS RENDE RED MAINLY TO CONSIDER THE JURISDICTION ASSUMED BY THE CIT U/S 263 OF THE ACT. ALTHOUGH THE AMENDMENT TO CLAUSE (A) OF SUB-S ECTION (2) OF SEC.55 HAS ONLY PROSPECTIVE EFFECT FROM 1-4-2002 , THE EFFECT OF THE AMENDMENT IN RELATION TO EARLIER PERIOD IS T O BE NECESSARILY CONSIDERED WHILE DETERMINING THE QUESTI ON AS TO WHETHER THE BRAND NAME ASSOCIATED WITH THE BUSINESS WAS INCLUDED IN THE EXPRESSION GOODWILL, THE KERALA H IGH COURT IN THE CASE OF VYSALI CHEMOTHERAPEUTICS (P) LTD. VS. CIT (269 ITR 362) HAS DECIDED. (II) THE DECISION OF THE HONBLE SUPREME COURT IN T HE CASE OF GUFFIC CHEM LTD. VS. CIT (332 ITR 602) WAS PRIMARILY RENDERED IN THE CONTEXT OF AMENDMENT IN THE SECTION 28(VA) AND NOT IN THE CONTEXT OF SEC.55(2). (III) THE DECISION OF THE CO-ORDINATE BENCH OF BANG ALORE IN THE CASE OF ASSOCIATED ELECTRONIC & ELECTRICAL INDUSTRIES LTD. (SUPRA) HAS NO APPLICATION TO THE PRESENT FACTS OF THE CASE AS THIS RELATED TO ASSESSMENT YEAR 1996-97. ITA NO.1223(BANG)/2009 PAGE 12 OF 29 (IV) THE CO-ORDINATE BENCH (BOMBAY) OF THE TRIBUNAL , IN THE CASE OF BOMBAY OIL INDUSTRIES LTD (SUPRA), HAS DECIDED IN A BRIEF MANNER WITHOUT DEEPLY TOUCHING THE ISSUE BUT MAINLY RELYING ON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. MILK FOODS LTD. (280 ITR 331) WHICH RELATED TO ASSESSMENT YEAR 1996-97, MUCH BEFORE THE AMENDMENTS . THUS, THE LEARNED DEPARTMENTAL REPRESENTATIVE PLEADED THA T THE HONBLE JM HAS TAKEN A RIGHT VIEW. 9. IN HIS REJOINDER, THE LEARNED AR OF THE ASSESSEE SUBMITTED THAT: (I) IN THE CASE OF SHERWANI INDUSTRIAL SYNDICATE LTD (SUPRA), IT COULD BE SEEN THAT IN PARAGRAPHS 36 TO 39 OF THE ORDER, THE ITAT ADJUDICATED ON THE ISSUE OF TAXABIL ITY OF CONSIDERATION RECEIVED FOR TRANSFER OF IPRS ON MERI TS AND HENCE, THE DECISION OF THE ALLAHABAD BENCH WAS VERY MUCH R ELEVANT. IT IS ALSO RELEVANT FOR THE REASON THAT IN BOTH THE CA SES THE IPRS TRANSFERRED WERE IDENTICALLY THE SAME. (II) IN DECIDING THE ISSUE ONE MUST APPLY THE RATI O LAID DOWN BY THE COURT AND ONE SHOULD NOT TRY TO COMPARE APPLE WITH APPLE AND MANGO WITH MANGO. THE AMENDMENTS IN SEC.28(VA) AND 55(2)(A) WERE MADE SIMULTANEOUSLY BY THE FINANCE ACT, 2002 SO AS TO MAKE THE AMOUNTS RECEIVE D FOR SURRENDERING RIGHT TO CARRY ON ANY BUSINESS TAXABLE EITHER AS CAPITAL GAINS OR BUSINESS PROFITS. THE APEX COURT HELD THAT THE AMENDMENT TO SEC.28(VA) WAS APPLICABLE ONLY W.E.F A SSESSMENT ITA NO.1223(BANG)/2009 PAGE 13 OF 29 YEAR 2003-04 AS IT IS A CARDINAL PRINCIPLE OF INTER PRETATION OF STATUTES THAT CHARGING PROVISIONS OF THE ACT CANNOT OPERATE RETROSPECTIVELY BUT PROSPECTIVELY. THEREFORE THE D ECISION OF THE APEX COURT IS SQUARELY APPLICABLE IN INTERPRETING A MENDMENT IN SEC.55(2)(A) BY THE FINANCE ACT, 2001 AS WELL. (III) THE CO-ORDINATE BENCH (BANGALORE) OF THE TRIB UNAL, AFTER OBSERVING THE AMENDMENT BROUGHT OUT IN THE FI NANCE ACT,2001, THE EXPLANATORY NOTES TO FINANCE BILL 200 1 AND THE CBDT CIRCULAR NO.14 OF 2001 HELD THAT WHERE THE ASS ET TRANSFERRED IS TRADE MARK, THE SAME IS ASSESSABLE T O CAPITAL GAINS ONLY FROM 1-4-2002 AND ONWARDS. FURTHER, T HE CO- ORDINATE BENCH, IN ARRIVING AT THE CONCLUSION THAT TRADE MARK AS A CAPITAL ASSET, IS SEPARATE AND DISTINCT FROM GOODWILL, FOLLOWED THE DECISION OF THE APEX COURT IN THE CASE OF S.C.KHAMBATTA & CO. VS. CIT (41 ITR 500) WHEREIN THE DISTINCTION BETWEEN THESE TWO RIGHTS WAS RECOGNIZED AND ACCEPTED BY THE APEX COURT. (IV) IN THE CASE OF BOMBAY OIL INDUSTRIES LTD (SUPRA), THE MUMBAI BENCH OF THE TRIBUNAL, WHILE DECIDING THE SA ID ISSUE NOT ONLY REFERRED TO THE DECISION OF THE DELHI HIGH COU RT IN THE CASE OF MILK FOODS LTD. (SUPRA) BUT ALSO THE DECISION OF THE CALCUTTA BENCH IN THE CASE OF ICI LTD. VS. DCIT (81 ITD 348). THE ITAT, CALCUTTA, HAD CATEGORICALLY HELD THAT THE LEGISLATU RE MADE AMENDMENT IN SEC.55(2) BY THE FINANCE ACT 2001 W.E. F. 1-4-2002 BY INSERTING, THE WORDS OR A TRADE MARK OR BRAND ITA NO.1223(BANG)/2009 PAGE 14 OF 29 NAME ASSOCIATED WITH A BUSINESS, AFTER THE WORD, GOODWILL OF THE BUSINESS, CLEARLY ESTABLISHES THAT AS PER THE INTENTION OF THE LEGISLATURE, TRADEMARK CANNOT BE EQUATED WITH GOODW ILL. 10. I HAVE HEARD THE RIVAL SUBMISSIONS AT LENGTH, CONSIDERED THE ENTIRE FACTS AND MATERIAL AVAILABLE ON RECORD INCLUDING THE ORDERS OF THE HONBLE VICE-PRESIDENT AND THE HONBLE JUDICIAL MEMBER AND ALSO THE CASE LAWS CITE D BY BOTH THE PARTIES. IN ORDER TO RESOLVE THE DIFFERENCE, I HAVE TO ADDRE SS TWO ISSUES VIZ., (I) WHETHER THE AMENDMENT MADE TO SEC. 55(2)(A) FOR BRINGING INTO THE FOLD OF THE TERM COST OF ACQ UISITION, TRADE MARK OR BRAND NAME ASSOCIATED WITH THE BUS INESS W.E.F. 1-4-2002 BY THE FINANCE ACT, 2001 IS CURATIV E (RETROSPECTIVE) OR PROSPECTIVE, AND (II) WHETHER TH E ASSESSEE, WHILE TRANSFERRING TRADE MARK, PATENT AND DESIGN TO BIL HAS TRANSFERRED THE RIGHT TO MANUFACTURE, PRODUCE OR PR OCESS ANY ARTICLE OR THING ALSO. 11. LET ME FIRST TAKE UP THE ISSUE WHETHER AMENDME NT MADE TO SEC.55(2)(A) IS PROSPECTIVE OR CURATIVE. I T WOULD BE RELEVANT TO QUOTE THE PROVISIONS OF SEC.55 OF THE A CT. SECTION ITA NO.1223(BANG)/2009 PAGE 15 OF 29 55(2)(A), AS IT EXISTED ON 1-4-2001 AND APPLICABLE FOR ASSESSMENT YEAR 2001-02, WAS AS FOLLOWS: 55. MEANING OF ADJUSTED, COST OF IMPROVEMENT AND COST OF ACQUISITION (1) . . . . . . . .. . . . . . .. . . . . . . . . . . . . . . (2) FOR THE PURPOSES OF SECTIONS 48 AND 49 , COST OF ACQUISITION, - (A) IN RELATION TO A CAPITAL ASSET, BEING GOODWILL OF A BUSINESS OR A RIGHT TO MANUFACTURE, PRODUCE ANY ARTICLE OR THING, 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 (II) IN ANY OTHER CASE (NOT BEING A CASE FALLING UNDER SUB-CLAUSES (I) TO (IV) OF SUB-SECTION (1) OF SECTION 49 ), SHALL BE TAKEN TO BE NIL 11(I) THE MEMORANDUM EXPLAINING THE PROVISIONS OF FINANCE BILL 1997 EXPLAINED THE REASONS FOR THE AME NDMENT AS FOLLOWS: UP TO ASSESSMENT YEAR 1988-89, THE GAINS ARISING O N THE TRANSFER OF GOODWILL WERE NOT LIABLE TO TAX. TH IS WAS ON ACCOUNT OF THE JUDICIAL VIEW APPROVED BY THE SUPREME COURT (CIT VS. B.C.SRINIVASA SHETTY (1981) (128 ITR 294). THIS RATIONALE OF THE COURT WAS THA T GOODWILL BEING A SELF GENERATED ASSET AND NOT COSTI NG ANYTHING IN TERMS OF MONEY, THE GAINS COULD NOT BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE A CT. BY FINANCE ACT, 1987, THE METHOD OF COMPUTING THE C OST OF ACQUISITION AS WELL AS THE COST OF IMPROVEMENT O F GOODWILL WAS PROVIDED FOR. WHERE GOODWILL IS PURCHA SED BY THE TRANSFEROR THE COST OF ACQUISITION IS TAKEN TO BE THE PURCHASE PRICE AND IN ALL OTHER CASES IT IS TAK EN TO BE NIL. THE COST OF IMPROVEMENT IN EITHER CASE IS T AKEN TO BE NIL. ITA NO.1223(BANG)/2009 PAGE 16 OF 29 INSTANCES HAVE COME TO LIGHT WHERE A RIGHT TO MANUFACTURE, PRODUCE OR PROCESS ANY ARTICLE OR THIN G HAVE BEEN EXTINGUISHED FOR A CONSIDERATION. THIS AMOUNT IS SHOWN AS A CAPITAL RECEIPT AND IS NOT TAX ABLE PRESENTLY UNDER THE HEAD CAPITAL GAINS. IT IS PR OPOSED THAT CAPITAL GAINS TAX WOULD BE LEVIABLE ONLY WHERE SUCH AN EXTINGUISHMENT OF RIGHT TO MANUFACTURE, ETC. IS FOR ANY CONSIDERATION. IT IS PROPOSED THAT SUCH RECEIPTS BE ALSO SUBJECTED TO CAPITAL GAINS TAX ON THE SAME BAS IS AS ALREADY ADOPTED FOR TAXING TRANSFER OF GOODWILL AND TENANCY RIGHTS. THE COST OF ACQUISITION AND COST OF IMPROVEMENT WILL BE DETERMINED IN THE SAME MANNER A S FOR GOODWILL THE PROPOSED AMENDMENT WILL TAKE EFFECT FROM 1 ST APRIL 1998 AND WILL ACCORDINGLY APPLY IN RELATION T O ASSESSMENT YEAR 1998-99 AND SUBSEQUENT YEARS . (EMPHASIS SUPPLIED BY ME) TRADE MARK OR BRAND NAME ASSOCIATED WITH THE BUS INESS WAS BROUGHT WITHIN THE PURVIEW OF SECTION 55(2)(A) BY T HE FINANCE ACT 2001. 11(II). NOTES ON CLAUSES OF FINANCE BILL 2001 IS AS UNDER (248 ITR (ST.)126): CLAUSE 32 SEEKS TO AMEND SECTION 55 OF THE INCOME- TAX ACT RELATING TO MEANING OF THE EXPRESSIONS ADJUSTED, COST OF IMPROVEMENT AND COST OF ACQUISITION. UNDER THE EXISTING PROVISION CONTAINED IN CLAUSE (A ) OF SUB-SECTION (2), THE COST OF ACQUISITION IN RELATIO N TO A CAPITAL ASSET, BEING GOODWILL OF A BUSINESS OR A RI GHT TO MANUFACTURE, PRODUCE OR PROCESS ANY ARTICLE OR THIN G, TENANCY RIGHTS, STAGE CARRIAGE PERMITS OR LOOM HOUR S, SHALL BE TAKEN TO BE THE PURCHASE PRICE IN CASE THE ASSET IS PURCHASED BY THE ASSESSEE FROM A PREVIOUS OWNER AND IN ANY OTHER CASE SUCH COST SHALL BE TAKEN TO B E NIL. IT IS PROPOSED TO AMEND CLAUSE (A) OF SUB-SECTION ( 2) TO PROVIDE THAT THE COST OF ACQUISITION IN RELATION TO A TRADE MARK OR BRAND NAME ASSOCIATED WITH A BUSINESS SHALL ALSO BE TAKEN TO BE THE PURCHASE PRICE IN CASE THE ASSET IS PURCHASED FROM A PREVIOUS OWNER AND NIL IN ANY O THER CASE. ITA NO.1223(BANG)/2009 PAGE 17 OF 29 THIS AMENDMENT WILL TAKE EFFECT FROM 1 ST APRIL, 2002, AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASSESSMENT YEAR 2002-03 AND SUBSEQUENT YEARS. (EMPHASIS SUPPLIED BY ME) FROM THE ABOVE HISTORY OF SECTION 55(2)(A) AND THE MEMORANDUM EXPLAINING THE PROVISIONS OF FINANCE ACT , IT TRANSPIRES THAT THE FINANCE ACT 1997 BROUGHT GOODW ILL OF A BUSINESS OR A RIGHT TO MANUFACTURE, PRODUCE OR PR OCESS ANY ARTICLE OR THING, TENANCY RIGHTS, STAGE CARRIAGE PE RMITS OR LOOM HOURS INTO THE HOLD OF SECTION 55(2)(A W.E.F. 1 ST APRIL 1998 (ASSESSMENT YEAR 1998-99). SIMILARLY COST OF ACQUI SITION IN RELATION TO TRADE MARK OR BRAND NAME ASSOCIATED WITH BUSINESS WAS BROUGHT INTO THE SCOPE OF SEC.55(2)(A ) W.E.F. 1 ST APRIL 2002 (ASSESSMENT YEAR 2002-03). 12. THE STATUTE AND THE RULES ARE CONSTANTLY AMENDE D. WHERE AMENDMENT IS FROM 1 ST APRIL, IT IS GENERALLY UNDERSTOOD THAT IT IS APPLICABLE FROM THE ASSESSMENT YEAR STAR TING FROM 1 ST APRIL. FOR EXAMPLE, IF THE AMENDMENT IS EFFECTIVE F ROM 1 ST APRIL 1999, IT SHOULD APPLY FOR THE ASSESSMENT FOR ASSESS MENT YEAR 1999-2000 AND LATER YEARS. THIS IS THE TRITE LAW W HICH HAS BEEN UPHELD EVEN BY THE APEX COURT IN MANY CASES. ALSO SUBSTANTIVE PROVISIONS, UNLESS MADE SPECIFICALLY RETROSPECTIVE CAN ONLY BE UNDERSTOOD AS HAVING PROSPECTIVE OPERATION FROM THE DATE ON WHICH IT BECOMES LAW OR ANY OTHER DATE SPECIFIED IN THE STATUTE. IT ACT IS ONE OF THE MOST CATEGORIC BRANCHES OF LAW AND ITS INTENT IS TO BE GATHERED FROM THE EXPRESS WORDS EMP LOYED TO FURTHER THE CURRENT FISCAL POLICY OF THE GOVERNMENT . IT CAN BE ITA NO.1223(BANG)/2009 PAGE 18 OF 29 SEEN FROM THE HISTORY OF AMENDMENTS NARRATED ABOVE THAT TRADE MARK OR BRAND NAME ASSOCIATED WITH THE BUS INESS WAS BROUGHT WITHIN THE PURVIEW OF SEC.55(2)(A) BY THE F INANCE ACT, 2001 AND IT WAS MENTIONED IN THE MEMORANDUM EXPLAIN ING THE AMENDMENTS SPECIFICALLY THAT THIS AMENDMENT WILL TA KE EFFECT FROM 1 ST APRIL 2002 AND WILL APPLY IN RELATION TO ASSESSMEN T YEAR 2002-03 AND SUBSEQUENT YEARS. THE INTENTION OF THE LEGISLATURE CAN BE GATHERED FROM THE MEMORANDUM EXPLAINING THE AMENDMENT AND THE MEMORANDUM HAS CLEARLY STATED THA T IT IS APPLICABLE FROM 1 ST APRIL 2002 (ASSESSMENT YEAR 2002-03). 12(I) THE CBDT CIRCULAR NO.14 OF 2001, VIDE PARAS.4 2 TO 42.3 CLARIFIED AS UNDER: 42. PROVIDING FOR COST OF ACQUISITION OF CERTAIN INTANGIBLE CAPITAL ASSETS UNDER SECTION 55 42.1 UNDER THE EXISTING PROVISIONS OF SUB-SECTION ( 2) OF SECTION 55 OF THE INCOME-TAX ACT, THE COST OF ACQUI SITION OF AN INTANGIBLE CAPITAL ASSET, BEING GOODWILL OF A BU SINESS OR A RIGHT TO MANUFACTURE, PRODUCE OR PROCESS ANY ARTI CLE OR THING, TENANCY RIGHTS, STAGE CARRIAGE PERMITS OR LO OM HOURS, IS THE PURCHASE PRICE IN CASE THE ASSET IS P URCHASED BY THE ASSESSEE FROM A PREVIOUS OWNER, AND NIL IN A NY OTHER CASE. IT WAS POINTED OUT THAT CERTAIN SIMILAR SELF- GENERATED INTANGIBLE ASSETS LIKE BRAND NAME OR A TR ADE MARK MAY NOT BE CONSIDERED TO FORM PART OF THE GOOD WILL OF A BUSINESS, AND CONSEQUENTLY IT MAY NOT BE POSSIBLE TO COMPUTE CAPITAL GAINS ARISING FROM THE TRANSFER OF SUCH ASSETS. 42.2 THE ACT HAS THEREFORE AMENDED CLAUSE (A) OF SU B- SECTION (2) TO PROVIDE THAT THE COST OF ACQUISITION IN RELATION TO TRADE MARK OR BRAND NAME ASSOCIATED WIT H A BUSINESS SHALL ALSO BE TAKEN TO BE THE PURCHASE PRI CE IN CASE THE ASSET IS PURCHASED FROM A PREVIOUS OWNER AND NIL IN ANY OTHER CASE. 42.3 THIS AMENDMENT WILL TAKE EFFECT FROM 1ST APRIL , 2002, AND WILL, ACCORDINGLY, APPLY IN RELATION TO THE ASS ESSMENT YEAR 2002-2003 AND SUBSEQUENT YEARS. ITA NO.1223(BANG)/2009 PAGE 19 OF 29 HENCE, IT CANNOT BE INTERPRETED TO HAVE RETROSPECTI VE EFFECT. ALSO THERE IS FORCE IN THE CONTENTION OF THE LEARNE D C.A. OF THE ASSESSEE THAT THE CARDINAL PRINCIPLE OF INTERPRETAT ION OF STATUTES THAT CHARGING PROVISIONS OF THE ACT CANNOT OPERATE RETROSPECTIVELY BUT ONLY PROSPECTIVELY. 12(II) THE APEX COURT IN THE CASE OF GUFFIC CHEM LTD. (SUPRA), WHILE DEALING WITH THE AMENDMENT MADE TO S EC. 28(VA) W.E.F. 1-4-2003, HELD THAT COMPENSATION RECEIVED UN DER NON- COMPETE AGREEMENT BECAME TAXABLE AS A CAPITAL RECEI PT AND NOT AS A REVENUE RECEIPT BY SPECIFIC LEGISLATURE AMENDM ENT VIDE SEC.28(VA) AND THAT TOO W.E.F. 1 ST APRIL 2003. IN THAT CASE, THE APEX COURT HELD THAT AMENDMENT TO SEC.28(VA) IS MAN DATORY AND NOT CLARIFICATORY. I ALSO FIND THAT THE AMENDM ENTS TO SEC.28(VA) AND 55(2)(A) WERE MADE SIMULTANEOUSLY BY THE SAME FINANCE ACT. I FIND THAT THE APEX COURT, IN T HE CONTEXT OF SEC.28(VA) HELD THAT IT IS ONLY PROSPECTIVE. HENCE , FOLLOWING THE SAME ANALOGY, I HOLD THAT THE AMENDMENT MADE TO SEC .55(2)(A) BY BRINGING IN TRADE MARK IS ALSO PROSPECTIVE. 12(III) ALSO THE DECISION OF THE DELHI BENCH OF ITA T IN THE CASE OF HCL INFOSYSTEMS LTD. (SUPRA) AND THE DECISION OF THE ALLAHABAD BENCH OF THE ITAT IN THE CASE OF SHERWANI INDUSTRIAL SYNDICATE LTD (SUPRA), AS RIGHTLY CONTENDED BY THE LEARNED C.A. HAVE ALSO DEALT WITH THE MERITS OF THE CASE APART F ROM DEALING WITH THE JURISDICTION U/S 263. IN THAT DECISION, TH E BENCH HAS HELD THAT TRADE MARK OR BRAND NAME ASSOCIATED WI TH THE ITA NO.1223(BANG)/2009 PAGE 20 OF 29 BUSINESS OF THE ASSESSEE CAME WITHIN THE PURVIEW O F THE COMPUTATION OF CAPITAL GAIN W.E.F. 1-4-2002 ONLY. 12(IV) IN THE CASE OF ASSOCIATED ELECTRONIC & ELECTRICAL INDUSTRIES LTD. (SUPRA) THE DIVISION BENCH HAS OBSERVED AS UNDER: SO FAR AS TRADE MARK IS CONCERNED, THE CAPITAL GAI NS ON THE TRANSFER OF THE SAME BECAME ASSESSABLE BY VIRTU E OF THE AMENDMENT MADE TO SECTION 55(2)(A) BY THE FINANCE ACT, 2001 W.E.F. 1-4-2002. WE ARE CONCERNED WITH THE BLOCK PERIOD COMMENCING FROM THE ASSESSMEN T YEAR 1988-89 AND ENDING WITH THE DATE OF SEARCH, NAMELY, 16-10-1997. THE CAPITAL GAINS HAVE BEEN ASSESSED AS UNDISCLOSED INCOME FOR THE ASSESSMENT YEAR 1996-97. THEREFORE, THE ASSESSMENT TO CAPITAL GAINS CAN BE SUSTAINED ONLY IF THE CAPITAL ASSET TRANSFERRED WAS THE GOODWILL OF THE ASSESSEE-COMPAN Y; IF WHAT IS TRANSFERRED IS THE TRADE MARK, THERE WIL L BE NO CAPITAL GAINS TO BE ASSESSED SINCE THE AMENDMENT MAKING THE COST OF ACQUISITION OF TRADE MARK TO BE TAKEN AT RS.NIL CAME INTO EFFECT ONLY FROM1-4-2002. 12(V). IN THE CASE OF BOMBAY OIL INDUSTRIES (ITA NO.2985(MUM) OF 2005 FOR ASSESSMENT YEAR 2001-02 RE PORTED IN 28 SOT 383, THE DIVISION BENCH HELD AS UNDER: IT WAS AN ADMITTED FACT THAT TRADEMARK/BRAND NAME OF PARACHUTE AND SAFFOLA WAS A SELF-GENERATED ASSE T AND THE COST OF THE SAME WAS NIL. THE RECEIPT ON SALE O F TRADEMARK/BRAND NAME WAS NOT EXIGIBLE TO CAPITAL GA INS TAX, PRIOR TO THE INTRODUCTION OF THE WORDS TRADEM ARK OR BRAND NAME ASSOCIATED WITH BUSINESS. THE SAME HAS BEEN CLARIFIED BY THE JUDGMENT OF THE DELHI HIGH CO URT IN THE CASE OF CIT VS. MILK FOOD LTD. (2006) 280 IT R 331. THEREFORE, FOR THE RELEVANT ASSESSMENT YEAR TH E SALE RECEIPT ON ACCOUNT OF TRANSFER OF TRADEMARK/BR AND NAME MENTIONED ABOVE WAS NOT LIABLE TO CAPITAL GAIN S TAX AND, HENCE, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE WAS TO BE ALLOWED. 12(VI) RELIANCE BY THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE DECISION OF THE KERALA HIGH C OURT IN THE ITA NO.1223(BANG)/2009 PAGE 21 OF 29 CASE OF VYSALI CHEMOTHERAPEUTICS (P) LTD. (SUPRA) HAS NO RELEVANCE IN THIS APPEAL BECAUSE THE CASE OF THE HO NBLE JM IS NOT THAT OF GOODWILL. THE HONBLE JM IS ALSO OF TH E VIEW THAT THE CAPITAL ASSET TRANSFERRED WAS TRADE MARK. 12(V). IN THE CBDT CIRCULAR NO.14 OF 2001, AT PARA. 42.1 THE BOARD HAS OBSERVED AS UNDER: 42.1 UNDER THE EXISTING PROVISIONS . IT WAS POINTED OUT THAT CERTAIN SIMILAR SELF-GENERATED INT ANGIBLE ASSETS LIKE BRAND NAME OR A TRADE MARK MAY NOT BE CONSIDERED TO FORM PART OF THE GOODWILL OF A BUSINE SS, AND CONSEQUENTLY IT MAY NOT BE POSSIBLE TO COMPUTE CAPI TAL GAINS ARISING FROM THE TRANSFER OF SUCH ASSETS. BY READING OF THE ABOVE, IT WOULD BE CLEAR THAT THE CBDT WAS OF THE VIEW THAT TRADE MARK OR BRAND NAME ARE DIFF ERENT FROM GOODWILL OF A BUSINESS. THAT IS WHY PERHAPS, IN P ARA.42.2 OF THE CIRCULAR IT IS MENTIONED THAT CLAUSE (A) OF SUB -SECTION (2) IS AMENDED TO PROVIDE THAT THE COST OF ACQUISITION IN RELATION TO TRADE MARK OR BRAND NAME ASSOCIATED WITH A BUSINESS SHALL ALSO BE TAKEN TO BE THE PURCHASE PRICE IN CASE THE ASSET IS PURCHASED FROM A PREVIOUS OWNER AND NIL IN ANY OTHER CASE. 12(VI). IN CASE IT WAS THE INTENTION OF THE LEGISL ATURE TO INCLUDE TRADE MARK OR BRAND NAME IN THE AMBIT OF G OODWILL, THERE WAS NO NEED FOR THE LEGISLATURE TO MAKE THIS AMENDMENT AS MADE IN THE FINANCE ACT. INSTEAD IT WOULD HAVE AMENDED THE WORD GOODWILL ITSELF TO INCLUDE TRADEMARK AND BRAND NAME. HENCE, IT CANNOT BE SAID THAT IT WAS THE INTENTION OF THE LEGISLATURE TO TREAT TRADEMARK AND BRAND NAME AS GO ODWILL. INSTEAD IT WAS TREATED AS A SEPARATE INTANGIBLE ASS ET, MAY BE ITA NO.1223(BANG)/2009 PAGE 22 OF 29 AKIN TO GOODWILL. SO, I AM OF THE VIEW THAT TRADEM ARK OR BRAND NAME WILL NOT FALL IN THE SWEEP OF THE WORD GOODWI LL. 13. I AM IN AGREEMENT WITH THE VIEW TAKEN BY THE HONBLE VICE-PRESIDENT THAT THE AMENDMENT MADE TO S EC. 55(2)(A) BY BRINGING IN THE TERM TRADEMARK AND B RAND NAME IS ONLY PROSPECTIVE AND IS APPLICABLE ONLY FROM THE ASSESSMENT YEAR 2002-03. SINCE THE APPEAL OF THE ASSESSEE RELA TES TO ASSESSMENT YEAR 2001-02 THIS AMENDMENT CANNOT BE AP PLIED RETROSPECTIVELY. 14. NOW LET ME TURN THE OTHER ISSUE WHETHER THE ASSESSEE, WHILE TRANSFERRING TRADEMARK, PATENT AND DESIGN TO BIL HAS TRANSFERRED THE RIGHT TO MANUFACTURE, PRODU CE OR PROCESS ANY ARTICLE OR THING ALSO, AS OPINED BY THE LOWER AUTHORITIES AND THE HONBLE JUDICIAL MEMBER? 15. FOR ARRIVING AT A CONCLUSION ON THIS ASPECT, I HAVE TO MENTION THE FOLLOWING FACTS: ON 29-3-2001, A TRIPARTITE AGREEMENT WAS ENTERED IN TO BY AND BETWEEN SHRI N.GOURISHANKAR REPRESENTING THE SHAREHOLDERS OF THE ASSESSEE, THE ASSESSEE (KBPL) A ND THE BIL EVIDENCING COMPREHENSIVE ARRANGEMENT ARRIVED AT BET WEEN THE PARTIES. THE SAID AGREEMENT WAS TITLED AS HEADS O F AGREEMENT (COPY THEREOF AT PAGES 41 TO 97 OF THE FIRST PAPER BOOK). IN TERMS OF THE SAID AGREEMENT, THE FOLLOWING THINGS W ERE AGREED: ITA NO.1223(BANG)/2009 PAGE 23 OF 29 A) EXISTING SHAREHOLDERS OF THE ASSESSEE AGREED TO SEL L ALL EQUITY SHARES TO BIL AND OR ITS NOMINEES AT AND FOR CONSIDERATION OF ` 16.00 CRORES B) THE ASSESSEE AGREED TO TRANSFER TRADEMARKS, DESIGNS AND COPYRIGHTS TO BIL FOR AN AGGREGATE CONSIDERATIO N OF `. 30 CRORES (CLAUSES 3.1, 3.2 AND 3.4 OF THE AGREEMENT AT PAGES 50 & 51 OF THE PAPER BOOK. C) PROMOTERS OF THE ASSESSEE AGREED NOT TO CARRY ON BUSINESS COMPETING WITH THE BISCUITS BUSINESS OF TH E ASSESSEE. FOR ACCEPTING RESTRICTED COVENANT, THE PROMOTERS WERE PAID CONSIDERATION OF `.8 CRORES (CLAUSE 6.1 AT PAGE 59) D) THE PROMOTERS OF ASSESSEE AGREED TO PROVIDE CERTAI N ADVISORY SERVICES TO BIL FOR WHICH SEPARATE CONSIDERATION WAS AGREED TO BE PAID. THE TERMS AND CONDITIONS AGREED IN THE HEAD OF AGR EEMENT WERE ACTED UPON BY THE PARTIES DURING THE FINANCIAL YEARS 2000- 01 AND 2001-02. SIMULTANEOUSLY WITH EXECUTION OF H EADS OF AGREEMENT, THE ASSESSEE EXECUTED THREE DEEDS OF ASS IGNMENTS ON 29-3-2001 DETAILS OF WHICH ARE AS FOLLOWS: A) AGREEMENT FOR ASSIGNMENT OF TRADEMARKS FOR CONSIDERATION OF ` 12.50 CRORES (PAGES 99 TO 134 OF THE PAPER BOOK) B) AGREEMENT FOR ASSIGNMENT OF DESIGNS FOR CONSIDERATI ON OF ` 1 CRORE (PAGES 135 TO 142 OF THE PAPER BOOK) C) AGREEMENT FOR ASSIGNMENT OF COPYRIGHTS FOR CONSIDER ATION OF ` 16.50 CRORES (PAGES 143 TO 148 OF THE PAPER BOOK). THE CONSIDERATION AS PROVIDED IN THE AGREEMENTS WAS PAID BY BIL ON 29-3-2001 AND EFFECTIVE FROM THAT DATE THE I PRS BECAME PROPERTY OF BIL. THE CONSIDERATION FOR TRANSFER OF SHARES, ITA NO.1223(BANG)/2009 PAGE 24 OF 29 ACCEPTANCE OF RESTRICTIVE COVENANT ETC., WAS HOWEVE R PAID BY BIL SEPARATELY TO THE PROMOTERS AND SHAREHOLDERS OF THE ASSESSEE AND THESE TRANSFERS TOOK EFFECT IN THE SUB SEQUENT ASSESSMENT YEAR I.E. 2002-03. 16. THE HONBLE VICE-PRESIDENT CONSIDERED THE QUES TION WHETHER TRANSFER OF THE ABOVE RIGHTS VIZ., TRADEMAR K, PATENT AND DESIGNS HAS RESULTED IN EXTINGUISHMENT OF RIGHT TO MANUFACTURE, PRODUCE OR PROCESS ANY ARTICLE OR THING. ACCORDING TO HIM, IF THE TRANSFER OF THESE RIGHTS AMOUNTED TO TRANSFER OF RI GHT TO MANUFACTURE, PRODUCE OR PROCESS ANY ARTICLE OR THIN G, THEN THE AMENDMENT BROUGHT WITH EFFECT FROM ASSESSMENT YEAR 1999- 2000 ALONE WOULD HAVE BEEN SUFFICIENT AND THERE WAS NO NEED TO BRING FURTHER AMENDMENT THROUGH FINANCE ACT, 200 1. HE ALSO OBSERVED THAT THE HISTORY OF THE AMENDMENT ON THIS PARTICULAR SUBJECT MATTER OF CAPITAL GAINS TAXATION OF SELF- GENERATED ASSETS ITSELF MAKES IT ABUNDANTLY CLEAR T HAT THE RIGHT TO MANUFACTURE, PRODUCE OR PROCESS ANY ARTICLE OR T HING IS ENTIRELY DIFFERENT FROM THE ITEMS OF TRADEMARK OR B RAND NAME, AT LEAST FOR THE PURPOSE OF INCOME-TAX ACT AND HENC E, THE CONCLUSION OF THE LOWER AUTHORITIES WAS WRONG. 17. THE HONBLE JUDICIAL MEMBER DID NOT ACCEPT THI S FINDING OF THE HONBLE VICE-PRESIDENT. HE, REFERRI NG TO THE EXPLANATORY NOTE TO THE FINANCE BILL, HIGHLIGHTS TH E FOLLOWING SENTENCE: AND NIL IN ANY OTHER CASE, IT HAS BEEN POINTED OUT THAT CERTAIN SIMILAR INTANGIBLE ASSETS LIKE BRAND NAME O R A ITA NO.1223(BANG)/2009 PAGE 25 OF 29 TRADE MARK MAY NOT BE CONSIDERED TO FORM PART OF TH E GOODWILL OF A BUSINESS . BY QUOTING THE ABOVE, HE WAS OF THE OPINION THAT TH E INTENTION OF THE LEGISLATURE BEHIND THE AMENDMENT OF THE ACT IS THAT CERTAIN BUT NOT ALL BRAND NAMES OR TRADEMARKS MAY N OT BE CONSIDERED TO FORM PART OF THE GOODWILL OF THE BU SINESS. WHEN THERE IS A SALE OF BRAND NAME BY A COMPANY HAVING MANUFACTURING ACTIVITY, IT SELLS ITS RIGHT TO MANUF ACTURE ALONG WITH ITS BRAND NAME BUT WHEN THERE IS A SALE OF BRA ND NAME BY A COMPANY WHICH DOES NOT HAVE A MANUFACTURING ACTIV ITY, IT SELLS ONLY ITS BRAND NAME WHICH, ACCORDING TO THE H ONBLE JM, CAN ALSO BE THE INTENTION OF THE LEGISLATURE WHEN T HESE TYPES OF CASES WERE BROUGHT INTO THE DEFINITION OF THE SAID SECTION. 18. IF THAT WAS THE INTENTION OF THE LEGISLATURE, IN MY OPINION, THEY WOULD HAVE STATED IN CLEAR TERMS. ON E CANNOT PRESUME CONTRARY TO THE WORDS SPECIFIED IN THE SECT ION OR MEMORANDUM ETC., WHILE READING THE MIND OF THE LEGI SLATURE. HENCE, IN MY OPINION, DISTINCTION MADE BY THE HONB LE JM BETWEEN COMPANY HAVING MANUFACTURING ACTIVITY AND C OMPANY NOT HAVING MANUFACTURING ACTIVITY DOES NOT HOLD GOO D. FURTHER, IF THAT WAS THE INTENTION OF THE LEGISLATURE, AS RI GHTLY POINTED OUT BY THE HONBLE VP, THEY NEED NOT HAVE ADDED TRA DEMARK AND BRAND NAME BY THE SUBSEQUENT FINANCE ACT WHEN RIGHT TO MANUFACTURE, PRODUCE OR PROCESS ANY ARTICLE OR THIN G IS ALREADY IN THE PARTICULAR SECTION. THUS IT CLEARLY TRANSPIR ES THAT RIGHT TO ITA NO.1223(BANG)/2009 PAGE 26 OF 29 MANUFACTURE, PRODUCE OR PROCESS ANY ARTICLE OR THIN G IS DIFFERENT FROM TRADEMARK, BRAND NAME ETC. 19. THE LEARNED C.A. OF THE ASSESSEE SUBMITTED THA T PRIOR TO 29-3-2001, RIGHT TO MANUFACTURE AND RIGHT TO MAR KET BISCUITS UNDER IPRS WERE OWNED, HELD AND EXERCISED BY THE AS SESSEE. AFTER 29-3-2001, IPRS BECAME BILS PROPERTY. RIGHT TO MANUFACTURE, HOWEVER, CONTINUED TO BE HELD AND EXERCISED BY THE ASSESSEE. FACTS ON RECORD ESTABLISH THAT EVEN AFTER 29-3-2001, ASSESSEE CONTINUED TO MANUFAC TURE BISCUITS. FOR BISCUITS MANUFACTURED AND MARKETED U NDER THE BRAND NAME KWALITY, ASSESSEE PAID ROYALTY TO BIL. HOWEVER, THE ASSESSEE ALSO MANUFACTURED BISCUITS FOR OTHER B ISCUITS MARKETING COMPANIES AGAINST JOB CHARGES. SUCH INCO ME WAS EARNED IN ITS CAPACITY AS MANUFACTURER SIMPLICITER AND FOR WHICH NO ROYALTY WAS PAID. FOR EARNING INCOME FROM MANUF ACTURE OF BISCUITS SIMPLICITER, OWING IPRS WAS NOT A NECESSAR Y CONDITION. I FIND THAT THESE FACTS ARE NOT REBUTTED BY THE DE PARTMENT ALSO. HOWEVER, THE DEPARTMENT WAS OF THE VIEW THAT AFTER 29-3-2001, THE ASSESSEE CONTINUED MANUFACTURE OF BI SCUITS NOT AS AN OWNER OF IPRS BUT AS A LICENSEE AND THEREFORE IT HAD LOST ITS RIGHT TO MANUFACTURE BISCUITS. 20. THE LEARNED C.A. OF THE ASSESSEE ALSO SUBMITTE D THAT IF THE INTENTION OF BIL OR ASSESSEE WAS TO ENTIRELY EXIT FROM THE BUSINESS OF BISCUITS MANUFACTURE, THEN NO PRUDENT P ERSON WOULD HAVE PAID SUCH SUBSTANTIVE SUM TO SHAREHOLDERS, PAR TICULARLY WHEN THE BISCUIT BUSINESS OF THE ASSESSEE WAS TO BE ITA NO.1223(BANG)/2009 PAGE 27 OF 29 PERMANENTLY TRANSFERRED. THESE FACTS, CONSIDERED SIMULTANEOUSLY, CLEARLY SHOW THAT THE PARTIES DID N OT AT ANY STAGE ENVISAGE THAT ASSESSEE WAS TO EXIT FROM THE B USINESS OF BISCUIT MANUFACTURING. RATHER, THE INTENTION OF TH E PARTIES WAS ALWAYS THAT ASSESSEE WOULD REMAIN IN BUSINESS OF BI SCUITS MANUFACTURING BUT ONLY IPRS TO BE TRANSFERRED TO BI L FOR SEPARATE AND DISTINCT CONSIDERATION. BIL HAD AGREE D TO PURCHASE IPRS IN ORDER TO INCREASE ITS OWN MARKET S HARE OF BISCUITS BUSINESS. BIL HAD NO INTENTION TO ACQUIRE OR EXTINGUISH ASSESSEES RIGHT TO MANUFACTURE BISCUITS AS PER SE OR HAD NO INTENTION TO ACQUIRE ITS MANUFACTURING APPARATUS OR KNOW HOW. BIL DID NOT ACQUIRE FROM ASSESSEE EITHER ITS MANUFA CTURING APPARATUS OR FACTORY ESTABLISHMENT OR IT ACQUIRED A SSESSEES RIGHT TO MANUFACTURE BISCUITS. THE FACT THAT THE A SSESSEE CONTINUED TO CARRY ON MANUFACTURING AND TRADING BUS INESS IS EVIDENT FROM SALES TAX ASSESSMENT ORDERS AND OTHER FACTS AND HENCE, IT IS INCORRECT TO HOLD THAT THE ASSESSEE TR ANSFERRED ITS RIGHT TO MANUFACTURE THEREBY CEASED TO CARRY ON MAN UFACTURING OR PRODUCTION OF BISCUITS. I FIND FORCE IN THE CONTENTION OF THE LEARNED C.A. THAT EVEN AFTER 29-3-2001 THE ASSESSEE WAS MANUFACTURING BISCUITS FOR OTHER BISCUIT MARKETING COMPANIES SUCH AS BIL A ND SNACKO BISCUITS PVT. LTD., AGAINST PAYMENT OF JOB CHARGES. I ALSO FIND THAT IT WAS ONLY IN THE MATTER OF MARKETING, DISTRI BUTION AND SALE OF BISCUITS UNDER THE BRAND NAME KWALITY, ASSESSE E FACED RESTRICTIONS BECAUSE OF IPRS IN RELATION TO THE BRA ND NAME ITA NO.1223(BANG)/2009 PAGE 28 OF 29 KWALITY NO LONGER BELONGED TO ASSESSEE. JUST AS THE ASSESSEE WORKED AS CONTRACT MANUFACTURER FOR OTHER BISCUIT M ARKETING COMPANIES, IT ALSO GOT KWALITY BISCUITS MANUFACTURE D FROM OTHER BISCUITS MANUFACTURER ON PAYMENT OF JOB CHARGES. I ALSO FIND THAT MANUFACTURING OF BISCUITS WAS NOT A NECESSARY CONCOMITANT OR PRE-CONDITION FOR MARKETING OF KWALITY BISCUITS BY ASSESSEE. THEREFORE, I AM OF THE CONSIDERED OPINION THAT RIGH T TO MANUFACTURE BISCUITS WAS INDEPENDENT, SEPARATE AND DISTINCT RIGHT FROM RIGHT TO MARKET, DISTRIBUTE AND SELL BIS CUITS UNDER THE BRAND NAME KWALITY. IN MY OPINION, IF THE ASSESS EE HAS TRANSFERRED RIGHT TO MANUFACTURE OR PRODUCE BISCUIT S TO BIL, THEN BIL COULD NOT HAVE PAID `16 CRORES FOR PURCHASE OF SHARES OF THE ASSESSEE. I ALSO FIND THAT THERE WAS A SEPARATE AGREEMENT FOR NON-COMPETE FEE ONLY WITH THE PROMOTE R AND NOT WITH THE ASSESSEE-COMPANY. 21. IN VIEW OF THE ABOVE DISCUSSION, I HOLD AS UND ER: I) RIGHT TO MANUFACTURE, PRODUCE OR PROCESSING OF BISCUITS IS A DIFFERENT RIGHT FROM TRADE MARK, BRAND NAME AND DESIGNS. II) ONE CANNOT PRESUME OTHERWISE, WHEN THE LEGISLATURE ITSELF HAS, IN CLEAR TERMS, MENTIONED ITS INTENTION IN THE ACT AND THE MEMORANDUM EXPLAINING THE PROVISIONS OF THE ACT. ITA NO.1223(BANG)/2009 PAGE 29 OF 29 FACTUALLY ALSO, THE ASSESSEE WAS MANUFACTURING BISC UITS EVEN AFTER 29-3-2001. IN VIEW OF THE ABOVE FINDINGS, I TOTALLY CONCUR WITH THE VIEW OF THE HONBLE VP ON THIS ISSUE ALSO. 22. THUS, I CONCUR WITH THE HONBLE VPS FINDINGS THAT THE AMENDMENT MADE TO SEC.55(2)(A) BY THE FINANCE ACT, 2001 IS ONLY PROSPECTIVE AND APPLICABLE FROM ASSESSMENT YEA R 2002-03 ONLY AND THAT THE ASSESSEE, WHILE TRANSFERRING TRAD EMARK, PATENTS AND DESIGNS TO BIL HAS NOT TRANSFERRED RIGH T TO MANUFACTURE, PRODUCE OR PROCESS BISCUITS. IN EFFEC T, I CONCUR WITH THE FINDING OF THE HONBLE VP THAT IN THE FACT S AND CIRCUMSTANCES OF THE CASE, THE ASSESSEE IS ENTITLED TO CLAIM THE AMOUNT OF `30 CRORES RECEIVED FROM BIL AS NON-TAXABLE CAPITAL RECEIPT FOR THE ASSESSMENT YEAR AND THE SAME IS NOT LIABLE FOR LONG TERM CAPITAL GAINS TAX. 23. THE MATTER WILL NOW GO TO THE REGULAR DIVISION BENCH FOR PASSING THE ORDER AS PER MAJORITY VIEW. SD/- (N.BHARATHVAJA SANKAR) VICE- PRESIDENT PLACE: BANGALORE DATE : 24 TH JANUARY,2012 EKS COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) CONCERNED 4. CIT 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE