Orient Blackswan Private Limited, Secunderabad V. DCIT, 16(3), Hyderabad

ITA 252/HYD/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 6346 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 19-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 16-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K J RAO; U MINICHANDRAN
• Assessee Lawyers: M V ANIL KUMAR; A V SADASIVA
• Keywords: Capital asset; Business income; Cost of acquisition; Capital receipt; Revised return; Revenue expenditure
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI D.MANMOHAN, VICE PRESIDENT AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ITA NO.252/HYD/2012 : ASSESSMENT YEAR 2008-09 ITA NO.731/HYD/2014 : ASSESSMENT YEAR 2009-10 ITA NO.732/HYD/2014 ` : ASSESSMENT YEAR 2010-11 M/S. ORIENT BLACKSWAN PRIVATE LIMITED, HYDERABAD (PAN AAACO 2722 Q ) V/S ASSTT. COMMISSIONER OF INCOME - TAX CIRCLE 16(3), HYDERABAD (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.V.SADASIVA & SHRI MV ANIL KUMAR RESPONDENT BY : SHRI K.J.RAO & SMT.U. MINICHANDRAN DATE OF HEARING 22.6.2016 DATE OF PRONOUNCEMENT 06.07.2016 O R D E R PER PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER : THESE THREE APPEALS FILED BY THE ASSESSEE ARE DI RECTED AGAINST SIMILAR BUT SEPARATE ORDERS OF THE COMMISSI ONER OF INCOME- TAX(APPEALS) V, HYDERABAD DATED 21.12.2011 FOR THE ASSESSMENT YEARS 2008-09 AND DATED 31.10.2013 FOR THE ASSESSMENT YEA RS 2009-10 AND 2010-11. SINCE COMMON ISSUES ARE INVOLVED IN THESE APPEALS INVOLVING COMMON FACTUAL BACKGROUND, THESE APPEALS ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. CONDONATION : 2. AT THE OUTSET, IT MAY BE NOTED THAT THERE IS A DELAY OF 69 DAYS IN THE FILING OF THE APPEALS FOR THE ASSESSMEN T YEARS 2009-10 AND ITA NO.252/HYD/2012 & TWO OTHERS M/S. ORIENT BLACKSWAN PVT LTD. HYDERABAD 2 2010-11, FOR WHICH CONDONATION PETITIONS, ACCOMPANI ED BY AFFIDAVITS IN SUPPORT THEREOF, HAVE BEEN FILED BY THE ASSESSEE FO R ADMISSION OF BELATED APPEALS. THE ASSESSEE HAS MADE OUT A CASE THAT THE DELAY OCCURRED IS NOT INTENTIONAL OR DELIBERATE. THE SMAL L DELAY HAS NOT CAUSED ANY PREJUDICE TO OTHER SIDE EITHER. CONSIDE RING THE REASONS FOR THE DELAY NARRATED IN THE SAID PETITIONS, WE ARE CO NVINCED THAT SUFFICIENT CAUSE FOR THE DELAY IN THE FILING OF THE SE APPEALS EXISTS. NO MALA FIDE CAN BE IMPUTED IN THE CAUSE NARRATED. CA USE OF SUBSTANTIAL JUSTICE DESERVES TO BE PREFERRED OVER TECHNICAL CON SIDERATIONS IN THE FACTS OF THE PRESENT CASE. WE ACCORDINGLY CONDONE THE DELAY IN TERMS OF S.253(5) OF THE ACT AND PROCEED TO DISPOSE OF TH ESE APPEALS ON MERITS. 3. SOLITARY ISSUE ARISING FOR CONSIDERATION IN AL L THESE APPEALS IS WHETHER THE COMPENSATORY SUM RECEIVED IN TERMS O F SETTLEMENT AGREEMENT FOR NOT USING THE WORD LONGMAN IN THE N AME OR TRADE MARK OF THE ASSESSEE IS BUSINESS INCOME OR A CAPIT AL RECEIPT NOT LIABLE TO TAX. 4. FACTS OF THE CASE RELEVANT TO THE ISSUE IN DIS PUTE, AS TAKEN FROM THE APPEAL FOR THE ASSESSMENT YEAR 2008-09, AR E THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PUBL ISHING AND TRADING OF EDUCATIONAL AND ACADEMIC BOOKS ON ITS OWN AS WEL L AS ON BEHALF OF OTHER PUBLISHERS FOR WHICH THE ASSESSEE EARNS COMMI SSION. FOR THE FINANCIAL YEAR 2007-08 RELEVANT TO ASSESSMENT YEAR 2008-09, THE ASSESSEE ORIGINALLY FILED RETURN OF INCOME UNDER S. 139(1) OF THE ACT DISCLOSING TOTAL INCOME OF RS.6,18,83,754 UNDER THE NORMAL PROVISIONS OF THE INCOME TAX ACT,1961 AND BOOK PROFIT OF RS. 6,30,10,217 FOR THE PURPOSES OF S.115JB OF THE ACT. SUBSEQUENTLY, HOWE VER, THE ASSESSEE REVISED THE SAID RETURN ON 9.3.2009, ADMITTING TOTA L INCOME UNDER THE ITA NO.252/HYD/2012 & TWO OTHERS M/S. ORIENT BLACKSWAN PVT LTD. HYDERABAD 3 NORMAL PROVISIONS OF THE ACT OF RS.80,56,646 ONLY AND BOOK PROFIT OF RS.6,01,46,772 ONLY. THE CASE WAS REOPENED BY ISSUA NCE OF A NOTICE UNDER S.148 OF THE ACT ON 1.12.2009 ON THE BELIEF T HAT INCOME TO THE EXTENT OF RS.5,38,27,108 CHARGEABLE TO TAX HAS ESC APED ASSESSMENT DUE TO REVISION OF RETURN. 4.1. DURING THE YEAR UNDER CONSIDERATION, THE ASSE SSEE RECEIVED AN AMOUNT OF RS.5,38,27,108 AS COMPENSATION IN TERM S OF SETTLEMENT AGREEMENT DATED 22.11.2007 FROM M/S. LONGMAN COMMUN ICATIONS LIMITED, LONDON(LCL), WHICH IS PRESENTLY KNOWN AS P EARSON GROUP. THE LCL WAS STATED TO BE TAKEN OVER BY THE PEARSON GROU P, U.K. THE ASSESSEE WAS PREVIOUSLY NAMED AND STYLED AS ORIENT LONGMAN PVT. LTD. THE ASSESSEE WAS REQUIRED TO CHANGE THE NAME OF THE ENTITY EXCLUDING THE WORD LONGMAN AS PER A TOMLIN ORDER . ACCORDINGLY, THE NAME OF THIS ASSESSEE WAS CHANGED TO ORIENT BLACKSW AN PVT. LTD. THE GENESIS OF THE PRESENT DISPUTE LIES IN A TRADE MARK HELD BY THE ASSESSEE IN THE NAME OF ORIENT LONGMAN . THE ASS ESSEE HAD REGISTERED THE TRADE MARK WITH THE TRADE MARKS AUTH ORITY IN INDIA SINCE IN 1980. AS SUBMITTED, THERE WERE PENDING DISPUTES REGARDING THE USE OF THE TRADE MARKS AND USE OF THE NAME LONGMAN BY THE ASSESSEE IN THE COURTS OF UNITED KINGDOM AND INDIA. SUBSEQUENT LY, THESE DISPUTES WERE STATED TO BE SETTLED BY MEANS OF A SETTLEMENT AGREEMENT DATED 22.11.2007 BETWEEN PEARSON GROUP AND ASSESSEE, FOLL OWED BY A COMPROMISE ORDER KNOWN AS TOMLIN ORDER PASSED BY THE HIGH COURT OF JUSTICE, CHANCERY DIVISION U.K. GIVING EFFECT TO THE SETTLEMENT AGREEMENT DATED 22.11.2007. AS PER THIS AGREEMENT, THE ASSESSEE HAS UNDERTAKEN NOT TO USE ANY TRADE MARK OR TRADE MARKS WHICH INCLUDE THE WORD LONGMAN OR ANY WORD OR PHRASE C ONFUSINGLY SIMILAR TO THE WORD LONGMAN IN INDIA OR ANY WHERE IN THE WORLD. THE ASSESSEE AND ITS ASSOCIATE ENTITIES WERE OBLIGED TO CANCEL OR SURRENDER ITA NO.252/HYD/2012 & TWO OTHERS M/S. ORIENT BLACKSWAN PVT LTD. HYDERABAD 4 THE REGISTRATION OF EXITING TRADE MARK AFTER THE E XPIRY OF SOME TIME FRAME REFERRED AS PRIMARY PERIOD AND SECONDARY PERIOD AS PER SETTLEMENT AGREEMENT. SIMILARLY, THE PERSON GROUP ON ITS PART UNDERTOOK THAT IT SHALL NOT USE THE NAME LONGMAN IN COMBINATION WITH THE NAME ORIENT OR ANY NAME CONFUSINGLY SIM ILAR TO NAME ORIENT IN INDIA OR ANYWHERE ELSE IN THE WORLD. HENCE, THE ASSESSEE WAS ESTOPPED FROM USING THE TRADE MARK WHICH INCLU DES THE WORD LONGMAN AND SIMILARLY, THE LONGMAN GROUP OR PEARS ON GROUP WERE ESTOPPED FROM USING THE WORD ORIENT IN COMBINATIO N WITH LONGMAN. A TOMLIN ORDER AS PER CONSENT TERMS OF THE PARTIE S SET OUT IN THE SETTLEMENT AGREEMENT WAS PASSED BY THE U.K. COURT I N THIS REGARD. UNDER THE TERMS OF SETTLEMENT DEED, THE ASSESSEE WA S ENTITLED TO RECEIVE A SUM QUANTIFIED AT RS.16,14,81,323 IN AGGR EGATE TOWARDS IMPUGNED SETTLEMENT. THIS AMOUNT WAS AGREED TO BE PAID TO THE ASSESSEE IN THREE EQUAL INSTALMENTS OF RS.5,38,27,1 08, WITH THE FIRST INSTALMENT BECOMING RECEIVABLE BY THE ASSESSEE WIT HIN FIVE WORKING DAYS FROM THE SETTLEMENT DATE, SECOND INSTALMENT ON 21.11.2008 (FALLING IN ASSESSMENT YEAR 2009-10) AND THE LAST O NE ON 23.11.2009 (FALLING IN ASSESSMENT YEAR 2011-12). IN PURSUANC E OF THE SETTLEMENT AGREEMENT, THE ASSESSEE RECEIVED FIRST INSTALMENT O F RS.5,38,27,108 FROM ORIENT LONGMAN COMMUNICATIONS DURING THE PREVI OUS YEAR RELEVANT TO ASSESSMENT YEAR 2008-09. SIMILARLY BAL ANCE INSTALMENTS WERE RECEIVED IN SUBSEQUENT ASSESSMENT YEARS AS AG REED. 4.2 IN THE ORIGINAL RETURN FILED ON 22.9.2008, TH IS AMOUNT WAS CONSIDERED AS BUSINESS INCOME BY THE ASSESSEE. HO WEVER SUBSEQUENTLY THIS AMOUNT WAS WITHDRAWN BY THE ASSES SEE FROM THE AMBIT OF CHARGEABILITY BY FILING A REVISED RETURN O N 9.3.2009 ON THE GROUND THAT IT IS A CAPITAL RECEIPT NOT FORMING PAR T OF THE TOTAL INCOME. IT IS IN THIS BACKGROUND, THE CASE WAS REOPENED ALL EGING ESCAPEMENT. ITA NO.252/HYD/2012 & TWO OTHERS M/S. ORIENT BLACKSWAN PVT LTD. HYDERABAD 5 A QUERY WAS RAISED BY THE ASSESSING OFFICER IN THE COURSE OF RE- ASSESSMENT PROCEEDINGS AS TO WHY THE IMPUGNED AMOUN T OF RS.5,38,27,108 RECEIVED FROM PEARSON GROUP DURING THE RELEVANT ASSESSMENT YEAR, VIZ. 2008-09 SHOULD NOT BE TREATE D AS BUSINESS INCOME IN VIEW OF THE RECENTLY INSERTED PROVISIONS OF S.28(VA) OF THE ACT. 4.3. IN REPLY, THE ASSESSEE INTER ALIA CONTENDED T HAT THE CONSIDERATION WAS RECEIVED AS PER THE SETTLEMENT AG REEMENT AND VETTED BY TOMLIN ORDER OF THE COURT OF U.K. IN CONS IDERATION OF RESTRAINING THE ASSESSEE FROM THE USE OF THE NAME LONGMAN AND AS SUCH, IT IS A CAPITAL RECEIPT NOT LIABLE TO TAX AT ALL. ASSESSEE FILED SUBMISSIONS ON THIS ASPECT BEFORE THE ASSESSING OFF ICER, WHICH ARE NOTED HEREUNDER- '5 . DURING THE COURSE OF ASSESSMENT PROCEEDINGS , VIDE ORDER SHEET ENTRY DATED 03 . 11.2010 THE ASSESSEE WAS ASKED TO EXPLAIN HOW THE AMOUNT OF RS . 5 , 38,27,108/- RECEIVED FROM M/S LONGMAN GROUP WAS NOT TREATED AS REVENUE RECEIPT BUT TREATED AS CAPITAL RECEIPT KEEPING IN V I EW THEPROVISIONSOFSEC.28 OF THE 1. T . ACT : 5 . 1 IN R ESPONSE. THE ASSESSEE F U RN I SHED A NOTE CONTENDING AS UNDER : THE P R OV I SIONS OF SE C 28 OF THE INCOME TAX ACT , 1961 DO NOT APPLY T O THE FACTS OF THE C ASE . SECT I ON 28 OF THE ACT STARTS BY STATING THAT ' THE FOLLOWING I NCOMES SH A L L BE CHARGEABLE TO INCOME TAX UNDER THE HEAD ' PROF I TS AND GA I NS OF BUSI N ESS OR PROFESSION ' ... VA ANY SUM , WHETHER RECE I VED OR RECEIVABLE, I N CASH OR KIND , UNDER AN AGREEME N T FOR (A) NOT CARRYING OUT ANY ACTI V ITY IN RELATION TO ANY BUSINESS: OR ITA NO.252/HYD/2012 & TWO OTHERS M/S. ORIENT BLACKSWAN PVT LTD. HYDERABAD 6 (B) NOT SHARING ANY KNOW-HOW , PATENT, COPYRIGHT, TRADE-MARK , LICENSE, FRANCHISE OR ANY OTHER BUSINESS OR COMMERCIAL RIGHT OF S I MILAR NATURE OR I NFO R MATION OR TECHN I QUE LIKELY TO ASSIST I N THE MANUFACTURE OR PROCESSING OF GOODS OR PROVISIONS FOR SERVICES; ANY SUM, WHETHER RECEIVED OR RECEIVABLE, IN CASH OR KIND, ON ACCOUNT OF TRANSFER OF THE RIGHT TO MANUFACTURE, PRODUCE OR PROCESS ANY ARTICLE OR TILING OR RIGHT TO CARRY ON ANY BUSINESS, WHICH IS CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS ', THUS IT CAN BE SEEN THAT THE CATEGORIES OF ITEMS TO BE CHARGED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS SHOULD AB-INITIO BE IN THE NATURE OF INCOME'. AS EXPLAINED EARLIER THE CONSIDERATION FOR THE PAYMENT WAS HAVING ITS ORIGIN IN AN ORDER PASSED BY THE HIGH COURT OF JUSTICE CHANCERY DIVISION GIVEN EFFECT TO THE SETTLEMENT AGREEMENT DATED 22.11.2007. THE SETTLEMENT AGREEMENT WAS REGARDING THE USE OF TRADEMARK AND THE USE OF THE NAME 'LONGMAN' BY ORIENT LONGMAN. SINCE THIS IS AN AGREEMENT FOR RESTRAINT ON TRADING, THE DECISION OF HOUSE OF LORDS, WHICH THE HONOURABLE S.C . OF INDIA FOLLOWED IN MANY CASES IN THE CASE OF BEAK (INSPECTOR OF TAXES) VS. ROBSON 1943 1J ITR 23 (SUPP) (HL) SQUARELY APPLIES WHEREIN IT WAS HOLD THAT SUCH RECEIPTS WERE CAPITAL RECEIPTS. SIMILARLY, THE HONOURABLE S.C . IN MAHARAJA CHINTAMANI SARAN NATH SAHOEO VS. CIT 1961 41 ITR 506 (SC) HELD THAT LICENSE FEES GIVEN UNDER RIGHT TO ENTER UPON LAND AND MINE THE LAND WAS CAPITAL RECEIPT. IT MAY ALSO BE SUBMITTED THAT THERE IS NO TRANSFER OF A 'TRADE MARK' OR A LICENSE AS SUCH BUT A SETTLEMENT OF THE RIGHT TO ACQUIRE A 'TRADE MARK' OR REGISTER A TRADEMARK BY ORIENT LONGMAN (NOW ORIENT BLACKSWAN). ' 4.4. THE ASSESSING OFFICER HOWEVER OBSERVED THAT T HE PROVISIONS OF S.28(VA) HAVE BEEN INSERTED IN THE I NCOME TAX ACT,1961 WITH EFFECT FROM 1.4.2003 RELEVANT TO ASSESSMENT YE AR 2003-04 ONWARDS . THE AFORESAID PROVISION HAS SUPERSEDED RU LINGS OF VARIOUS JUDICIAL FORA WHICH HELD THAT A SUM RECEIVED FOR A RESTRICTIVE COVENANT IS CAPITAL RECEIPT. THE ASSESSING OFFICER THEREFO RE TOOK A VIEW THAT AFTER THE INSERTION OF CLAUSE (VA) TO S.28, THE LAW HAS CHANGED ITS ITA NO.252/HYD/2012 & TWO OTHERS M/S. ORIENT BLACKSWAN PVT LTD. HYDERABAD 7 COURSE AND SUCH RECEIPTS ARE LIABLE TO BE TAXED AS REVENUE RECEIPTS. HE ACCORDINGLY REJECTED THE CONTENTION OF THE ASSES SEE THAT THE RECEIPT IN QUESTION ARE CAPITAL IN NATURE. HE ACCORDINGLY BROUGHT THE AFORESAID RECEIPT TO TAX AS BUSINESS INCOME OF THE ASSESSEE. 5. AGGRIEVED THEREBY, THE ASSESSEE PREFERRED APPEA L BEFORE THE CIT(A). THE ASSESSEE REITERATED THAT THE AMOUNT RECEIVED FROM LONGMAN GROUP IS TOWARDS RESTRAINING THE ASSESSEE F ROM USING THE NAME LONGMAN IS IN THE NATURE OF A CAPITAL RECEIP T AND SUCH RECEIPTS ARE THEREFORE NOT COVERED WITHIN THE AMBIT OF S.28( VA)(B) OF THE ACT. IT WAS SUBMITTED BEFORE THE CIT(A) THAT ALL CAPITA L RECEIPTS ARE NOT AUTOMATICALLY CONVERTED INTO REVENUE RECEIPTS UNDER THE PROVISIONS OF S.28(VA). 5.1. THE CIT(A) CITED CASE-LAWS AS RECORDED IN PAR A 4.4 OF HIS ORDER AND HELD THAT THE IMPUGNED RECEIPTS AROSE AS COMPENSATION IN THE COURSE OF BUSINESS AND ARE IN THE NATURE OF A R EVENUE RECEIPT. THE CIT(A) ALSO EXAMINED THE MATTER FROM A DIFFERENT PE RSPECTIVE. HE NOTED THAT WHEN A PERSON REGISTERS OR PURCHASES A TRADE MARK, THE EXPENDITURE INCURRED FOR THIS PURPOSE WOULD FALL WI THIN THE CLASS OF REVENUE EXPENDITURE AS IT DOES NOT CREATE AN ASSET. THEREAFTER THE CIT(A) EXAMINED THE ISSUE WITH REFERENCE TO THE SET TLEMENT AGREEMENT AND CAME TO THE CONCLUSION THAT THE SETTLEMENT AGRE EMENT VETTED BY THE TOMLIN ORDER OF THE U.K. COURT DOES NOT COME IN THE WAY OF CARRYING ON OF THE BUSINESS OF THE ASSESSEE AT ALL. IT WAS OBSERVED THAT THERE IS ABSOLUTELY NO COVENANT OR RESTRICTION ON THE ASSESSEE TO PRINT BOOKS OR TO ENGAGE IN THE BUSINESS IN WHICH I T IS ALREADY ENGAGED. THE CIT(A) NOTED THAT FROM THE AGREEMENT, IT EMERGE S THAT ONLY AFTER THE SPECIFIED PERIOD, THE ASSESSEE COMPANY SHALL NO T USE THE WORDS ORIENT LONGMAN OR THE WORD LONGMAN. ITA NO.252/HYD/2012 & TWO OTHERS M/S. ORIENT BLACKSWAN PVT LTD. HYDERABAD 8 5.2 THE CIT(A) THEREAFTER OBSERVED THAT THE ASSES SEE WAS NOT BEING ALLOWED TO USE THE WORD LONGMAN BECAUSE THE PEARSON GROUP OF UK WHICH HAS ORIGINALLY OWNED THE ASSESSEE COMPA NY AND HAS ITS TRADE MARK LONGMAN HAS SOLD ITS ENTIRE SHARE HOLD ING IN THE ASSESSEE COMPANY TO THE DIRECTORS OF THE ASSESSEE COMPANY. T HEREFORE, THE REAL TRANSACTION IS THAT OF THE SALE OF SHAREHOLDING OF THE PEARSON GROUP IN THE ASSESSEE COMPANY. HENCE, THE REAL OWNER OF THE TRADE MARK WAS PEARSON GROUP AND ONCE THEY HAVE NO STAKE IN THE A SSESSEE COMPANY, THEY WANTED THAT AFTER A FIXED TIME FRAME, THE ASS ESSEE COMPANY IS NOT ENTITLED TO USE THE WORD LONGMAN IN ITS NAME. IN THESE CIRCUMSTANCES, IN THREE EQUAL INSTALMENTS OF RS.5.3 8 CORES EACH, COMPENSATION WAS AGREED TO BE PAID TO THE ASSESSEE COMPANY. 5.3 THE CIT(A) OBSERVED THAT IN THE LIGHT OF THE AFORESAID FACTUAL BACKGROUND, THERE IS NO RESTRICTIVE COVENAN T ON THE ASSESSEE TO CARRY ON THE TRADE OR BUSINESS OF THE ASSESSEE PER SE . THE CIT(A) CONCLUDED THAT IN VIEW OF CLAUSE (VA) OF S.28, RECE IPTS IN THE NATURE OF NON-COMPETE FEE AND FEES FOR EXCLUSIVITY RIGHTS HAV E BEEN BROUGHT WITHIN THE PURVIEW OF TAXATION WITH EFFECT FROM ASS ESSMENT YEAR 2003- 04. 5.4 ON THESE PREMISES, THE CIT(A) CONFIRMED THE A CTION OF THE ASSESSING OFFICER. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), ASSESSEE PREFERRED SECOND APPEAL BEFORE THIS TRIBUNAL. 7. LEARNED AUTHORISED REPRESENTATIVE, SHRI A.V.SA DASIVA, AT THE OUTSET SUBMITTED THAT THE ASSESSING OFFICER HAS WRONGLY INVOKED THE PROVISIONS OF S.28(VA)(B) TO INCLUDE THE SUM RE CEIVED IN TERMS OF ITA NO.252/HYD/2012 & TWO OTHERS M/S. ORIENT BLACKSWAN PVT LTD. HYDERABAD 9 THE SETTLEMENT AGREEMENT/TOMLIN ORDER OF U.K. COURT WITHIN THE PURVIEW OF TAXATION. HE SUBMITTED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PUBLISHING AND TRADING I N EDUCATIONAL AND ACADEMIC BOOKS AND A TRADE MARK WAS REGISTERED WITH THE INDIAN AUTHORITIES IN 1980 IN THE NAME OF ORIENT LONGMAN AND THE TRADE MARK ENCOMPASSES THE WORD LONGMAN. THE LEARNED AR SUBMITTED THAT THE CONTROVERSY REVOLVES AROUND THE NATURE OF RECEIPT EMANATING FROM THE SETTLEMENT AGREEMENT WITH LONGMAN COMMUNIC ATIONS LTD., LONDON, WHICH IS PRESENTLY KNOWN AS PEARSON GROUP. HE SUBMITTED THAT SUCH RECEIPTS WERE BESTOWED ON THE ASSESSEE T OWARDS FOREGOING THE RIGHT TO USE THE TRADE MARK OR TRADE MARKS, WHI CH INCLUDE THE WORD LONGMAN AND ANY WORD OR PHRASE CONFUSINGLY SIMILA R TO THE WORD LONGMAN IN INDIA OR ANYWHERE ELSE IN THE WORLD. IN CONSIDERATION THERETO, M/S. PEARSON GROUP HAD AGREED TO PAY RS.1 6,14,81,323 IN AGGREGATE IN THREE EQUAL ANNUAL INTALMENTS OF RS.5, 38,27,108 EACH FALLING IN THREE SUCCESSIVE ASSESSMENT YEARS UNDER APPEAL. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THESE RECE IPTS CANNOT BE CONSIDERED AS REVENUE INCOME IN NATURE OF BUSINESS INCOME IN THE FACTS OF THE CASE AS SUCH RECEIPTS DO NOT FALL WITH IN THE PURVIEW OF S.28(VA) OF THE ACT. LEARNED AUTHORISED REPRESENTA TIVE SUBMITTED THAT THE AFORESAID AMOUNT HAS NOT BEEN RECEIVED TOW ARDS SHARING ANY TRADE MARK (ORIENT LONGMAN) OR ANY COMMERCIAL RIG HTS ETC. TOWARDS PROVISION OF SERVICES SO AS TO COME WITHIN THE CLUT CHES OF S.28(VA) OF THE ACT. HE EMPHASISED THAT WHILE THE ASSESSEE IS PROHIBITED TO USE THE WORD LONGMAN IN ITS TRADE MARK, THE OTHER PAR TY IN THE SETTLEMENT AGREEMENT IS ALSO NOT ENTITLED TO USE TH E WORD ORIENT. THEREFORE, ESSENTIALLY, THE COMPENSATION WAS NOT DE RIVED FOR OT SHARING THE TRADE MARK PER SE . THE LEARNED AUTHORISED REPRESENTATIVE EMPHASISED THAT THE ASSESSEE IS ENTITLED TO USE THE WORD ORIENT, WHICH THE OTHER PARTY SHALL NOT BE ENTITLED TO USE OR SHARE. HE NEXT ITA NO.252/HYD/2012 & TWO OTHERS M/S. ORIENT BLACKSWAN PVT LTD. HYDERABAD 10 STRIDENTLY CONTENDED THAT IN ORDER TO FALL WITHIN T HE PURVIEW OF (VIA) OF S.28, THE RECEIPT MUST BE IN THE NATURE OF INCOME W HICH IS CHARGEABLE TO TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINES S OR PROFESSION. THE LEARNED AUTHORISED REPRESENTATIVE VOCIFEROUSLY CONT ENDED THAT THE RECEIPT IS INHERENTLY IN THE NATURE OF A CAPITAL RE CEIPT AND NOT A REVENUE RECEIPT AND THEREFORE, THERE IS NO SCOPE FO R TAXING THE SUM AS INCOME CHARGEABLE TO TAX. SECONDLY, IT WAS CONTEND ED THAT THE RECEIPT HAS NOT ARISEN IN THE COURSE OF BUSINESS OR TRADE I N ORDER TO BE TAXED UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PR OFESSION. THE COMPENSATION HAS BEEN RECEIVED BY IT FOR ABSTAINING TO USE A PART OF TRADE MARK I.E. THE WORD LONGMAN WHICH DOES NOT PER SE RESULTS IN ANY TRANSFER OF ANY TRADE MARK TO OTHER PARTY. IN SUBSTANCE, THE LEARNED AUTHORISED REPRESENTATIVE EXHORTED THAT THI S PROVISION APPLIES TO A RECEIPT IN CONSIDERATION OF NOT SHARING OF A P ATENT OR A TRADE MARK OR RIGHTS OF SIMILAR NATURE, WHICH IS NOT THE CASE HERE AND THEREFORE, A RECEIPT, WHICH IS OTHERWISE CAPITAL IN NATURE CANNO T BE TAXED BY VIRTUE OF S.28(VA) OF THE ACT. 8. WITHOUT PREJUDICE AND NOTWITHSTANDING THE FACT THAT THE PROVISIONS OF S.55(2) HAVE NOT BEEN INVOKED BY THE REVENUE, THE LEARNED AR SUBMITTED THAT THERE IS NO TRANSFER OF ANY TRADE MARK PER SE. THEREFORE THERE IS NO SUCH RELINQUISHMENT OF RIGHT TO USE THE TRADE MARK IN FAVOUR OF THE PEARSON GROUP AND THEREFORE, IN THE ABSENCE OF ANY TRANSFER, THE PROVISIONS RELATING TO CAPITAL GA INS ARE NOT ATTRACTED. HE SUBMITTED THAT A CAPITAL RECEIPT, WHICH DOES NOT INVOLVE TRANSFER OF A CAPITAL ASSET AND WHICH DOES NOT HAVE ANY PERCEPT IBLE COST OF ACQUISITION IS CLEARLY FREE FROM THE LEVY CAPITAL GAINS TAX IN THE LIGHT OF THE DECISION OF THE APEX COURT IN THE CASE OF B.C.S RINIVASA SETTY (128 ITR 294)(SC). ON THE ISSUE OF RECEIPT OF COMPENSAT ION TOWARDS LOSS DUE TO A RESTRICTIVE COVENANT BEING A RECEIPT OF CA PITAL NATURE, HE ITA NO.252/HYD/2012 & TWO OTHERS M/S. ORIENT BLACKSWAN PVT LTD. HYDERABAD 11 HEAVILY RELIED UPON THE DECISION OF THE HON'BLE SU PREME COURT IN THE CASE OF CIT V/S. BEST & CO.(60 ITR 1). HE SUBMITTE D THAT IN THAT CASE, THE QUESTION OF COMPENSATION RECEIVED DUE TO LOSS OF AGENCY BUSINESS WAS DISCUSSED BY THE HON'BLE SUPREME COUR T WHICH HAS USEFUL APPLICATION IN THE PRESENT CASE. IN THAT CA SE, THE RECEIPT AROSE ON ACCOUNT OF LOSS OF PARTICULAR AGENCY OUT OF SEVE RAL AGENCIES, WHICH WAS IN THE COURSE OF AND INCIDENTAL TO THE ORDINARY BUSINESS AND THEREFORE, WAS HELD TO BE A REVENUE RECEIPT IN NATU RE. HOWEVER, WHERE THE AMOUNT IS RECEIVED OWING TO LOSS OF ANY ENDURIN G ASSET, IT WOULD BE IN THE NATURE OF CAPITAL RECEIPT AS OBSERVED BY THE SUPREME COURT. IN THE INSTANT CASE, THE COMPROMISE ORDER RESULTED IN THE LOSS OF AN ENDURING ASSET AND HENCE, THE RECEIPT IN QUESTION I S A CAPITAL ASSET. 9. PER CONTRA, THE LEARNED DEPARTMENTAL REPRESENTA TIVE VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. HE SUBMITTED THAT THE AMOUNT HAS BEEN CLEARLY RECEIV ED IN CONSIDERATION OF LOSING THE RIGHT TO USE THE WORD LONGMAN AND THIS CLEARLY FALLS WITHIN THE PROVISIONS OF S.28(VA)(B) OF THE ACT INS ERTED WITH EFFECT FROM ASSESSMENT YEAR 2003-04 WITH AN OBJECTIVE TO TAX SU CH RECEIPTS. THE LEARNED DEPARTMENTAL REPRESENTATIVE FURTHER SUBMITT ED THAT A READING OF SETTLEMENT AGREEMENT WOULD SHOW THAT THE ASSESS EE HAS BEEN PERMITTED TO USE THE WORD LONGMAN UNTIL THE EXPIR Y OF THE PRIMARY PERIOD AND IT IS ALSO ENTITLED TO USE THE TERM FOR MERLY ORIENT LONGMAN UNTIL THE EXPIRY OF THE SECONDARY PERIOD. THEREFORE , THE ASSESSEE CONTINUES TO ENJOY THE WORD LONGMAN ON THE ONE HA ND AND HAS RECEIVED THE CONSIDERATION ON THE OTHER HAND. THE L EARNED DEPARTMENTAL REPRESENTATIVE HEAVILY RELIED UPON THE PROVISIONS OF SUB- SECTION (VA) OF S.28 TO SUBMIT THAT THE CONSIDERATI ON HAS BEEN RECEIVED TOWARDS NOT SHARING TRADE MARK OR ANY OTHER BUSINES S OR COMMERCIAL RIGHTS OF SIMILAR NATURE. THE LEARNED DEPARTMENTAL REPRESENTATIVE ITA NO.252/HYD/2012 & TWO OTHERS M/S. ORIENT BLACKSWAN PVT LTD. HYDERABAD 12 SUBMITTED THAT THE CASE-LAWS RELIED UPON BY THE LEA RNED AUTHORISED REPRESENTATIVE RELATE TO THE ASSESSMENT YEARS PRIO R TO THE INSERTION OF SUB-SECTION (VA) OF S.28 AND THEREFORE ARE OF NO RE LEVANCE IN THE PRESENT CONTEXT. THE IMPUGNED RECEIPTS SQUARELY FAL LS WITHIN THE AMBIT OF S.28(VA). HE THEREFORE PLEADED THAT NO INTERFER ENCE IS CALLED FOR. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS, THE ORDERS OF THE AUTHORITIES BELOW AND THE MATERIAL AN D DOCUMENTS AS REFERRED TO US BY THE PARTIES IN THE COURSE OF HEAR ING AND ALSO THE CASE-LAWS CITED AT BAR. THE ASSESSEE IN THE INSTAN T CASE HAS RECEIVED CERTAIN CONSIDERATION AS NOTED ABOVE, BY VIRTUE OF SETTLEMENT AGREEMENT ENTERED INTO WITH PEARSON GROUP. THE SETT LEMENT AGREEMENT WAS VETTED BY THE TOMLIN ORDER OF THE U.K . COURT. IN TERMS OF THE SETTLEMENT AGREEMENT THE ASSESSEE OR ITS ASS OCIATES SHALL NOT BE ENTITLED TO USE THE WORD LONGMAN WHILE CARRYING O N THEIR BUSINESS IN THE FIELD OF PRINTING AND PUBLISHING. IT IS THE CAS E ON BEHALF OF THE ASSESSEE THAT THE TRADE MARK OBTAINED IS STYLED AS ORIENT LONGMAN AND NOT LONGMAN. THE ASSESSEE IN TERMS OF THE SET TLEMENT AGREEMENT IS REQUIRED TO DROP THE WORD LONGMAN, WHILE ITS R IGHT TO USE THE WORD ORIENT WHICH IS INTEGRAL PART OF THE TRADE MARK H AS NOT BEEN PARTED WITH. LIKEWISE WITHOUT PREJUDICE TO THE RIGHT OF P EARSON GROUP TO USE THE WORD LONGMAN IT WILL NOT BE ENTITLED TO USE THE WORD LONGMAN IN COMBINATION WITH THE WORD ORIENT OR ANY NAME CON FUSINGLY SIMILAR TO THE NAME ORIENT IN INDIA OR ANY WHERE ELSE IN THE WORLD. IN THIS BACKGROUND THE QUESTION THAT ARISES FOR OUR CONSIDE RATION IS WHETHER THE AMOUNT RECEIVED IN CONSIDERATION OF LOSING THE RIGHT TO USE THE WORD LONGMAN WHICH IS PART OF ITS TRADE MARK HITH ERTO IS AN INCOME CHARGEABLE TO INCOME-TAX UNDER THE HEAD PROFITS A ND GAINS OF BUSINESS OR PROFESSION IN TERMS OF S.28(VA) OF THE ACT OR NOT. ITA NO.252/HYD/2012 & TWO OTHERS M/S. ORIENT BLACKSWAN PVT LTD. HYDERABAD 13 10.1 SINCE THE ISSUE REVOLVES AROUND THE APPLICAB ILITY OF S.28(VA) OF THE ACT, IT WILL BE APT TO REPRODUCE TH E RELEVANT PORTION OF THE PROVISION HEREUNDER- 28. PROFITS AND GAINS OF BUSINESS OR PROFESSION THE FOLLOWING INCOME SHALL BE CHARGEABLE TO INCOME- TAX UNDER THE HEAD' PROFITS AND GAINS OF BUSINESS OR PROFESSION', - (I) TO (V) . (VA ) ANY SUM, WHETHER RECEIVED OR RECEIVABLE, IN CASH OR KIND, UNDER AN AGREEMENT FOR ( A ) NOT CARRYING OUT ANY ACTIVITY IN RELATION TO ANY BUSINESS; OR ( B ) NOT SHARING ANY KNOW-HOW, PATENT, COPYRIGHT, TRAD E-MARK, LICENCE, FRANCHISE OR ANY OTHER BUSINESS OR COMMERC IAL RIGHT OF SIMILAR NATURE OR INFORMATION OR TECHNIQUE LIKELY T O ASSIST IN THE MANUFACTURE OR PROCESSING OF GOODS OR PROVISION FOR SERVICES: PROVIDED THAT ...... EXPLANATION. FOR THE PURPOSES OF THIS CLAUSE, 10.2 THE SUB-CLAUSE (A) APPLIES TO RECEIPTS IN TH E NATURE OF NON- COMPETE FEE WITH WHICH WE ARE NOT CONCERNED IN THE PRESENT CASE. THE APPLICABILITY OR OTHERWISE OF SUB CLAUSE (B) IS IN QUESTION. IT IS TRITE THAT CAPITAL RECEIPTS ARE NOT CHARGEABLE T O TAX SAVE AND EXCEPT EXPRESS PROVISION FOR TAXABILITY IN THIS REGARD. TH EREFORE, A CAPITAL RECEIPT CAN BE BROUGHT TO TAXATION ONLY WHEN SUCH R ECEIPTS STRICTLY FALLS WITHIN THE PURVIEW OF SUCH PROVISION WHICH IN THE I NSTANT CASE IS S. 28(VA)(B) OF THE ACT. WHILE THE REVENUE HOLDS THAT SUCH RECEIPTS FALLS UNDER THE PROVISION OF S. 28(VA)(B) OF THE ACT, THE CASE OF THE ASSESSEE IS THREE FOLD. FIRSTLY, THE RECEIPT IS NOT AN INCOM E TO TRIGGER SECTION 28 OF THE ACT. SECONDLY, THE ALLEGED RECEIPT DID NOT A RISE IN THE COURSE OF TRADE OR BUSINESS PER SE AND THEREFORE NOT A BUSINE SS RECEIPT. THIRDLY, TRADE MARK IS REGISTERED IN THE NAME OF ORIENT LON GMAN AND WHEN THE WORD ORIENT WHICH IS INTEGRAL PART OF THE TRA DEMARK CONTINUES TO BE AVAILABLE TO THE ASSESSEE FOR ITS COMMERCIAL EXP LOITATION AS GOING ITA NO.252/HYD/2012 & TWO OTHERS M/S. ORIENT BLACKSWAN PVT LTD. HYDERABAD 14 CONCERN, THE QUESTION OF SHARING OF TRADE MARK OR O THERWISE DOES NOT ARISE AT ALL. IT IS THE CASE OF THE ASSESSEE THAT T HE TRADE MARK ORIENT LONGMAN CAN NEITHER BE USED BY THE ASSESSEE NOR BY THE LONGMAN/ PEARSON GROUP. THE TRADE MARK PER SE HAS NOT BEEN R ELEASED IN FAVOUR OF PEARSON GROUP. AS A RESULT OF THE SETTLEMENT, WH ILE THE WORD ORIENT WILL BE EXCLUSIVELY AVAILABLE TO THE ASSESSEE, THE RIGHT TO USE OF OTHER WORD LONGMAN WILL STAND EXTINGUISHED. IT WILL BE RELEVANT TO EXTRACT THE RELEVANT OBLIGATION CLAUSES OF EACH PARTY TO TH E AGREEMENT. 5 ORIENTS OBLIGATIONS: 5.1 REFERENCE IN THIS CLAUSE TO USING ANY TRADE MAR K, NAME OR SIGN SHALL BE DEEMED TO INCLUDE USING SUCH MARK, NAME OR SIGN IN ANY LANGUAGE OR SCRIPT. 5.2 WITHOUT PREJUDICE TO CLAUSE 4.2, ORIENT, JKR AN D NRR SHALL AND UNDERTAKE TO PROCURE THAT THEIR ASSOCIATED ENTITIES SHALL: (A) NOT USE ANY OF THE TRADE MARKS OR ANY TRADE MAR K WHICH INCLUDES THE WORD LONGMAN: OR ANY WORD OR PHRASE CONFUSINGLY SIMILA R TO THE WORD LONGMAN IN INDIA OR ANYWHERE ELSE IN THE WORLD AFTER EXPIRY OF THE SECONDARY PERIOD AND SHALL PROCURE THAT THE REGISTRATION OF THE TRADE MARKS IS CANCELLED OR SURRENDERED AS SOON AS REASONABLY PRACTICABLE THEREAFTER. (B) NOT USE THE ORIENT LONGMAN NAME OR ANY NAME WH ICH INCLUDES THE WORD LONGMAN OR ANY WORD OR PHRASE CONFUSINGLY SIMILAR TO THE WORD LONGMAN: IN INDIA OR ANYWHERE ELSE IN THE WORLD AFTER EXPIRY OF THE PRIMARY PERIOD, BUT ORIENT MAY, AT ITS ABSOLUTE DISCRETION, CONTINUE TO USE TH E TERM FORMERLY ORIENT LONGMAN: AND./OR FORMERLY ORIENT LONGMAN PRIVATE LIMITED: UNTIL THE EXPIRY OF THE SECONDARY PERIOD. AFTER WHICH IT SHALL NOT USE EITHER TERM OR ANY CONFUSINGLY SIMILAR TERM IN INDIA OR ANY WHERE ELSE IN THE WORL D. (C) AND TO PROVIDE PEL A COPY OF THE CERTIFICATE G RANTED BY THE ROC FOR THE NEW CORPORATE NAME AS SOON AS REASONABLY PRACTICABLE FO LLOWING RECEIPT OF THE SAME. ITA NO.252/HYD/2012 & TWO OTHERS M/S. ORIENT BLACKSWAN PVT LTD. HYDERABAD 15 (D) IN ANY EVENT NOT HEREAFTER USE THE NAME OR SIG N LONGMAN: OR OL OR ANY NAME OR SIGN CONFUSINGLY SIMILAR TO THE NAME OR SIG N LONGMAN OR OL IN INDIA OR ANYWHERE ELSE IN THE WORLD FOR ANY PURPOSE AFTER THE EXPIRY OF THE SECONDARY PERIOD (E) NOT HEREAFTER ASSIGN, LICENCE OR GRANT NAY RIGH TS TO ANYONE IN ANY OF THE TRADE MARKS THE ORIENT LOGNMAN NAME OR THE ORIENT DOMAIN NAME AND SHALL IT PURPORT TO DO SO. (F) NOT PRINT ANY BOOKS UNDER THE ORIENT LONGMAN NA ME, WHETHER UNDER LICENCE FROM ANY THIRD PARTY OR IN ITS OWN PUBLICATIONS, AF TER 31 JULY, 2008. (G) NOT REPRINT ANY MORE BOOKS UNDER LICENCE FROM P EL AND/OR LCL FROM AND INCLUDING 1 DECEMBER 2007 AND IT IS HEREBY AGREED THAT ALL REPRINT LICENCES GRANTED TO ORIENT BY PEL AND /OR LCL ARE TERMINATED WITH EFFECT FROM 1 DECEMBER 2007; (H) PROCURE THAT IT SELLS ALL ITS BOOKS PRINTED U NDER LICENCE FROM PEL AND/OR LCL BY NO LATER THAN THE DATE OF THE EXPIRY OF THE PRIM ARY PERIOD FAILING WHICH IT SHALL DESTROY THOSE BOOKS AS SOON AS REASONABLY PRACTICAB LE THEREAFTER UNLESS PEL AND/OR LCL PROVIDE THEIR EXPRESS WRITTEN CONSENT FO R ORIENT TO SELL THE REMAINING PRINTED BOOKS THEREAFTER. (I) NOT HEREAFTER PRINT OR STOCKPILE ANY PUBLICAT IONS BEARING THE ORIENT LONGMAN IMPRINT IN QUANTITIES EXCEEDING THOSE IT WOULD ORDI NARILY PRINT OR STOCKPILE IN THE NORMAL COURSE OF BUSINESS. (J) NOT SUBJECT TO ANY RIGHTS THAT ORIENT MAY HAVE UNDER CLAUSE 6.2, SEEK TO CHALLENGE PELS., LCLS, DKLS OR ANY ASSOCIATED E NTITIES USE OF THE LONGMAN NAME NOR SEEK TO OPPOSE, CHALLENGE , REVOKE OR INVA LIDATE ANY OF THEIR TRADE MARKS OR TRADE ARK APPLICATIONS IN ANY WAY IN INDIA OR IN ANY OTHER JURISDICTION IN SO FAR AS ORIENT, JKR AND NRR MAY BE SO BOUND UNDER THE LAWS OF ENGLAND AND WALES. ORIENT JKR AND/OR NRR SHALL CONSENT TO ANY TRADE MA RK APPLICATION MADE BY PEL, ITA NO.252/HYD/2012 & TWO OTHERS M/S. ORIENT BLACKSWAN PVT LTD. HYDERABAD 16 LCL OR DKL IN INDIA OR ELSEWHERE FOR ANY MARK INCOR PORATING THE LONGMAN NAME IF SUCH CONSENT BE REQUIRED IN ORDER FOR THE TRADE MARK APPLICATION TO BE GRANTED. () NOT USE ORIENTS DOMAIN NAME AFTER EXPIRY OF TH E PRIMARY PERIOD SAVE THAT UNTIL EXPIRY OF THE SECONDARY PERIOD. ORIENT MAY USE THE ORIENT DOMAIN NAME FOR THE SOLE PURPOSE OF REDIRECTING INTERNET USERS TO ORIEN TS NEW WEBSITE; AND THEY SHALL NOT USE ORIENTS DOMAIN NAME AT ALL AFTER THE EXPIR Y OF SECONDARY PERIOD AND SHALL PROCURE THAT THE REGISTRATION OF THE ORIENT DOMAIN NAME IS CANCELLED AS SOON AS REASONABLY PRACTICABLE THEREAFTER; (M) NOT HEREAFTER APPLY FOR OR REGISTER ANY TRADE MARK, INTERNET DOMAIN NAME, CORPORATE NAME OR BUSINESS NAME IN INDIA OR ANYWHER E ELSE IN THE WORLD WHICH INCORPORATES THE NAME LONGMAN OR ANY NAME CONFUSI NGLY SIMILAR THERETO. (N) NOT HEREAFTER PROCURE OR OTHERWISE KNOWINGLY TA KE ANY POSITIVE STEP TO AUTHORISE OR ENTITLE ANYONE ELSE TO DO ANY OF THE AFORESAID (SAVE AS REQUIRED ABOVE) 6 PEARSONS OBLIGATIONS: 6.1 PEARSON SHALL PROCURE THAT: (A) IT PAYS, AS ORIENT MAY DIRECT, THE SETTLEMENT S UM TO THE DESIGNATED ACCOUNT ( OR SUCH OTHER ACCOUNT AS ORIENT MAY DIREC T IN WRITING) IN THREE EQUAL INSTALMENTS OF 53,827,108 INDIAN RUPEES WITHI N 5 WORKING DAYS OF THE SETTLEMENT DATE, 22 NOVEMBER 2008 AND 23 NOVEMBER 2 009 RESPECTIVELY; (B) IT TRANSFERS THE ENTIRE LEGAL AND BENEFICIAL OW NERSHIP IN THE SHARES FOR NO CONSIDERATION TO THE RECIPIENT OR RECIPIENTS (HE REINAFTER REFERRED TO AS THE ORIENT SHAREHOLDER) AS DIRECTED BY A RESOLUTION O F THE BOARD OF ORIENT WITHIN 21 DAYS OF RECEIVING A COPY OF SUCH RESOLUTI ON AND SUBJECT TO THE LAWS AND REGULATIONS PERTAINING TO THE TRANSFER OF SHARE S FROM A NON-RESIDENT PARTY IN INDIA OR SRI LANKA; ITA NO.252/HYD/2012 & TWO OTHERS M/S. ORIENT BLACKSWAN PVT LTD. HYDERABAD 17 (C) IT DOES NOT, PENDING THE TRANSFER OF THE SHARES , EXERCISE OR PURPORT TO EXERCISE ANY RIGHTS THAT IT MAY HAVE AS A SHAREHOLD ER IN ORIENT; (D) ITS REPRESENTATIVE DIRECTORS, NAMELY JOHN CROWT HER MAKINSON AND PETER JAMES FIELD RESIGN WITHIN 5 WORKING DAYS FROM THE BOARD OF DIRECTORS OF ORIENT AND ALL PARTIES AGREE TO TAKE ALL SUCH ST EPS AS ARE NECESSARY TO EFFECT THEIR RESIGNATIONS. 6.2 PEARSON UNDERTAKES THAT: (A) WITHOUT PREJUDICE TO ITS RIGHT TO USE THE LONGMAN NAME IT WILL NOT AT ANY TIME ATTEMPT TO USE THE NAME LONGMAN IN COMBI NATION WITH THE NAME ORIENT OR WITH ANY NAME CONFUSINGLY SIMILAR TO TH E NAME ORIENT IN INDIA OR ANYWHERE ELSE IN THE WORLD FOR ANY PURPOSE AND I T UNDERTAKES TO PROCURE THAT NONE OF ITS ASSOCIATED ENTITIES, WHETHER NOW O R IN THE FUTURE, WILL, AT ANY TIME, ATTEMPT TO SUE THE NAME LONGMAN IN COMB INATION WITH THE NAME ORIENT OR WITH ANY NAME CONFUSINGLY SIMILAR TO THE NAME ORIENT IN INDIA OR ANYWHERE ELSE IN THE WORLD FOR ANY PURPOSE : (B) IT WILL NOT AT ANY TIME ATTEMPT TO SUE THE TRADE MARKS OR ANY OTHER TRADE MARKS REGISTERED IN INDIA BY ORIENT INCLUDING BUT NOT LIMITED TO REGISTRATION NUMBER 306385 IN INDIA OR ANYWHERE ELS E IN THE WORLD FOR ANY PURPOSE AND IT UNDERTAKES TO PROCURE THAT NONE OF I TS ASSOCIATED ENTITIES, WHETHER NOW OR IN THE FUTURE, WILL AT ANY TIME ATTE MPT TO SUE THE SAID TRADE MARKS IN INDIA OR ANYWHERE ELSE IN THE WORLD FOR PU RPOSE; (C) IT WILL NOT AT ANY TIME SEEK TO REGISTER A DOMAIN NAME UNDER THE NAME ORIENT LONGMAN OR ANY NAME IN THE FORM LONG MAN IN COMBINATION WITH THE NAME ORIENT OR WITH ANY NAME CONFUSINGLY SIMILAR TO THE NAME ORIENT. 6.3 PEARSON HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS, WHETHER CONTEMPLATED OR NOT, TO THE PAYMENT OF ANY DIVIDEND , ROYALTY OR OTHER PAYMENT THAT MAY BE DUE BY ORIENT THAT ARISES OUT O F OR IN CONNECTION WITH ITS SHARES IN ORIENT, ORIENTS PRINTED PUBLICATIONS UNDER LICENSE, AND ORIENTS DISTRIBUTION OF ANY PEARSONS BOOK. ITA NO.252/HYD/2012 & TWO OTHERS M/S. ORIENT BLACKSWAN PVT LTD. HYDERABAD 18 6.4 FOR THE AVOIDANCE OF DOUBT, PEARSON SHALL HAVE NO OBJECTION TO ORIENT MAKING THE NECESSARY MODIFICATIONS/ AMENDMENTS TO O RIENTS ARTICLES OF ASSOCIATION AS MAY BE LEGALLY REQUIRED TO ENSURE TH AT PEARSONS RIGHT IF ANY IN THE EXISTING MEMORANDUM AND ARTICLES OF ASSOCIAT ION ARE REMOVED / DELETED. FROM THE ABOVE, IT CAN BE NOTICED THAT THE AGREEMEN T WAS TOWARDS SETTLING VARIOUS DISPUTES ON THE USE OF NAME LONG MAN AND DOES NOT RELATE TO ANY TRANSFER OF TRADE MARK ETC. WHILE THE ASSESSEE IS PRECLUDED FROM USING THE NAME LONGMAN, THE CORRES PONDING PEARSON GROUP IS ALSO PRECLUDED FROM USING THE NAME ORIENT . THUS, MUTUAL OBLIGATIONS EXISTS ON BOTH PARTIES TO THE AGREEMENT . 10.3 WE NOTE THAT THE SETTLEMENT AGREEMENT HAS NOT BEEN ENTERED INTO IN THE ORDINARY COURSE OF BUSINESS, TH EREFORE COMPENSATION RECEIVED UNDER A NEGATIVE COVENANT FOR IMPAIRMENT OF RIGHT TO USE THE WORD LONGMAN IS IN THE NATURE OF CAPITAL RECEIPT. WE FIND SUPPORT FOR THIS PROPOSITION FROM THE DECISION OF COORDINATE BENCH IN CASE OF GOVINDBHAI C. PATEL VS. DY. CIT AHMEDABA D BENCH 1 ITR 34 (2010) WHEREIN IT WAS HELD THAT COMPENSATION RECEIV ED TOWARDS RELINQUISHMENT OF THE ASSESSEE'S RIGHT TO SUE IT IN THE COURT OF LAW CANNOT BE TREATED AS REVENUE RECEIPT TAXABLE AS BUS INESS INCOME UNDER S. 28(VA). THE DECISION IN THE CASE OF BEST & CO. 6 0 ITR 1 (SC) AND GUFFIC CHEM. 332 ITR 602 REFERRED TO ON BEHALF OF T HE ASSESSEE LAYS DOWN THAT A CAPITAL RECEIPT IS NOT TAXABLE IN THE H ANDS OF ASSESSEE. HENCE, SUCH RECEIPT TOWARDS RELINQUISHMENT OF RIGHT TO USE WORD LONGMAN CANNOT BE TAXED UNLESS IT IS SHOWN THAT I T FALLS WITHIN THE PURVIEW OF SECTION 28(VA)(B) OF THE ACT. 10.4 TO DETERMINE THE APPLICABILITY OF S. 28(VA)(B ) IN THE CONTEXT OF THE FACTS OF THE PRESENT CASE, WE NOTICE THAT THE ASSESSEE ITA NO.252/HYD/2012 & TWO OTHERS M/S. ORIENT BLACKSWAN PVT LTD. HYDERABAD 19 HAS BEEN RESTRAINED FROM USING THE WORD LONGMAN B Y THE COURT FROM DOING SO. AS A SEQUEL TO THE COURT ORDER, THE ASSES SEE IS REQUIRED TO CANCEL THE TRADE MARK. THE TRADE MARK IS NO LONGER AVAILABLE FOR USE BY THE ASSESSEE. NOTWITHSTANDING THE FACT THAT CERTAIN CAPITAL RECEIPTS HAVE BROUGHT TO TAX AS CHARGEABLE INCOME UNDER S. 2 8(VA) OF THE ACT, THE EXTENDED MEANING OF TAXABLE INCOME IS CONTROLLE D BY THE WORDS NOT SHARING. SECTION 28(VA)(B) ONLY DEALS WITH P AYMENT RECEIVED FOR NOT SHARING TRADE MARK ETC. THIS WOULD PRESUPPOSE T HAT THE ASSESSEE SHOULD OWN THE TRADE MARK AND FOR A GIVEN CONSIDERA TION, HAS AGREED NO TO SHARE IT WITH ANY OTHER PERSON. THE WORD SHA RING POSTULATES THERE MUST BE SOMEONE TO USE THE TRADE MARK. BUT IN THE PRESENT CASE, THE SHARING OR OTHERWISE IS NOT POSSIBLE WHEN TRADE MARK ITSELF CEASES TO EXIST. 10.5 HENCE, IN THE TOTALITY OF CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE PAYMENT RECEIVED CANNOT BE BROUGHT TO TAX AS BUSINESS INCOME UNDER SECTION 28(VA). HENCE, WE FIND MERIT IN THE APPEAL OF THE ASSESSEE. 11. IN THE RESULT, APPEAL OF THE ASSESSEE FOR ASSE SSMENT YEAR 2008-09, BEING ITA NO.252/HYD/2012 IS ALLOWED. 12. AS NOTED ABOVE, FACTS OF TEH CASE FOR THE ASS ESSMENT YEARS 2009-10 AND 2010-11 BEING IDENTICAL, THE REAS ONING NOTED HEREIN ABOVE, WHILE DISPOSING OF APPEAL FOR ASSESSM ENT YEAR 2008-09, ITA NO.252/HYD/2012, WILL APPLY MUTATIS MUTANDIS TO THESE APPEALS ALSO. FOR THE PARITY OF REASONING, THE APPEALS ITA NO.731 &732/HYD/2014 FOR ASSESSMENT YEARS 2009-10 AND 201 0-11 ARE ALSO STANDS ALLOWED. ITA NO.252/HYD/2012 & TWO OTHERS M/S. ORIENT BLACKSWAN PVT LTD. HYDERABAD 20 13. IN THE RESULT, ALL THE APPEALS OF THE ASSESS EE ARE ALLOWED. PRONOUNCED ACCORDINGLY IN THE OPEN COUR T ON 06.07.2016. SD/-/- SD/-/- (D.MANMOHAN) (PRADIP KUMAR KEDIA) VICE PRESIDENT ACCOUNTANT MEMBER DT/- 06 TH JULY, 2016. COPY FORWARDED TO: 1. M/S. ORIENT BLACKSWAN PRIVATE LIMITED, C/O. M/S. M.ANANDAM & CO., CHARTERED ACCOUNTANTS 7A SURYA TOWERS, S.D. ROAD, SECUNDERABAD . 2. DY. COMMISSIONER OF INCOME - TAX CIRCLE 16(3), HYDERABAD 3. 4. COMMISSIONER OF INCOME - TAX(APPEALS) V, HYDERABAD COMMISSIONER OF INCOME - TAX IV , HYDERABAD 5. DEPARTMENTAL REPRESENTATIVE ITAT, HYDERABAD B.V.S.