TMI Blog2014 (11) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... ible evidence - the assessee has not given any basis for bifurcation of the consideration between “trade mark” and “good will” - the consideration of ₹ 3.00 crores be divided between the “trade mark” and “good will” in the ratio of 75% and 25% - the 75% portion of ₹ 3.00 crores pertaining to trade mark shall not be taxable during the year - The balance amount pertaining to good will shall be taxable as Capital gains – Decided partly in favour of assessee. Taxability of non-compete fees relating to transfer of three bands – Held that:- The assessee had received non-compete fee for not competing with the purchaser of the marketing know how relating to Nitro Glycering based formulations for a period of five years - there was loss of source of income from marketing of Nitro Glycerine based products for a period of five years, it was a capital receipt - the assessee effectively lost the source of income for a period of three years by entering into “non-compete agreement” - “Right to manufacture” is different from “Agreeing not to manufacture” - the amount received as noncompete fee is not taxable during the year – thus, the order of the CIT(A) is set aside – Decided in fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viz., Alex, Flucort Sensur . (c) Taxabiility of ₹ 3.00 crores received on transfer of Self generated Trade Mark named Sensur . (d) Taxability of ₹ 2.25 crores received as Non-compete fees relating to the transfer of three brands referred above. (e) Taxability of ₹ 2.75 crores received on transfer of brand of Animal Husbandary Division . (f) Taxability of ₹ 2.25 crores received on transfer of marketing know how (wrongly mentioned as Non-compete fees in the grounds) relating to the transfer of brand of Animal Husbandary Division . 3. The assessee company is engaged in the business of manufacturer and sale of bulk formulations of pharmaceutical products. During the year under consideration, the assessee transferred the trade marks, self generated technical know-how, self generated marketing know-how pertaining to the products named Alex, Flucort and Sensur to M/s Glenmark. The assessee had also sold trade marks purchased by it earlier. The assessee offered the amount received on sale of purchased trade marks for taxation. However, the assessee claimed that the amount received on sale of self generated technical know-how, self generated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Mad) (c) BASF India Ltd Vs. Addl. CIT (2009)(119 ITD 337)(Mum). The Ld A.R submitted that the decisions rendered in the case of PL. Chemicals and BASF India Ltd (supra) are related to transfer of marketing know-how and it was held that the sale consideration thereof is not taxable as it constitutes capital receipt not exigible to taxation in those years. The Ld A.R submitted that the consideration received on transfer of technical know was made taxable only in subsequent years only. 6. On the contrary, the Ld D.R placed strong reliance on the order of Ld CIT(A) and submitted that the assessee has only shared the technical know how and marketing know-how, but did not transfer them. 7. We have heard the rival contentions and perused the record. All the case law relied upon by the assessee related to the transfer of technical know-how and marketing know-how . However, in the instant case, the Ld CIT(A) has given a clear finding, after going through the terms of agreement entered by the assessee with M/s Glenmark, that the assessee has only shared the technical know-how and marketing know-how, but did not transfer them. It is a well settled proposition of law that the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot supported by any credible evidence. However, on a reading of the decision rendered by the Tribunal in the case of Kwality Frozen Foods Ltd (supra), we notice that the Tribunal has held that the term Good Will cannot be extended to trade mark. However, we have noticed earlier that the Ld CIT(A) has rendered his decision on the understanding that the good will and trade mark may mean one and same. Thus, there is clear misunderstanding on the part of Ld CIT(A). The above said amount of ₹ 3.00 crores pertain to transfer fo trade mark with good will. Hence the considerations pertaining to trade mark and Good will have to be considered separately. However, the assessee has not given any basis for bifurcation of the consideration between trade mark and good will . Under these circumstances, in order to put the issue to rest, we are of the view that the consideration of ₹ 3.00 crores be divided between the trade mark and good will in the ratio of 75% and 25%. We have assigned more weightage to the trade mark on the reasoning that the trade name of the product sensur shall normally carry more weightage in the commercial circles. The ld A.R submitted that the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the view the decision rendered in the assessee s own case in AY 1998-99, referred supra, is applicable in the instant year also and accordingly we hold that the amount received as noncompete fee is not taxable during the year under consideration. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO not to assess the non-compete fee received by the assessee. 14. The next issue relates to the taxability of ₹ 5.00 crores (Rs.2.75 crores received on transfer of trade mark and ₹ 2.25 crores received on transfer of marketing right) of animal husbandary division to M/s Lyka Exports Ltd. The AO held that the consideration of ₹ 2.75 crores was received in respect of transfer of good will and the consideration of ₹ 2.25 crores received on transfer of marketing right is taxable as business receipt. 15. The Ld CIT(A) has noticed that the amount of ₹ 2.75 crores was received for transfer of trade marks with good will. While considering an identical issue in respect of transfer of product named Sensur , we have held that the consideration can be bifurcated between trade mark and good will in the ratio of 75% and 25% on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the ld A.R placed reliance on the decision rendered by the jurisdictional Bombay High Court in the case of CIT Vs. HDFC Bank in Income tax Appeal No.330 of 2012 dated 23-07-2014 to support the view taken by Ld CIT(A). 20. We heard the parties on this issue. The Ld CIT(A) has noticed that the assessee had invested a sum of ₹ 1.25 crores in the years relevant to the AY 1994-95 and 1995-96 and in those years, the assessee had own funds to the tune of ₹ 25.80 crores. These factual findings have not been controverted by the revenue. Since the Ld CIT(A) has rendered his decision by considering the facts prevailing in the instant case, we do not find any reason to interfere with his decision on this issue. 21. The next issue relates to the assessment of notional interest on the deposit of ₹ 75.00 lakhs given towards flat taken in rent for the residence of the Managing Director of the assessee company. We notice that the co-ordinate bench of Tribunal has considered identical issue in the assessee s own case in ITA No.2146/Mum/2008 and ITA No.2147/Mum/2008 relating to the AY 2003-04 and 2004-05 and has upheld the order of the Ld CIT(A) in deleting the notional int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total issued and paid equity share capital of LHHCL. However, it is required to be seen as to how long the restriction on competition was in force. In the immediately preceding year, we have held that the non-compete fee received for agreeing not to compete for three years is capital receipt and hence not taxable. Since the fact pertaining to this issue have not been properly brought out, we are of the view that this issue requires fresh examination. Accordingly, we set aside this issue to the file of AO with the direction to examine this issue afresh by duly considering the contentions of the assessee and the case laws cited by it and take appropriate decision in acccordance with law. Accordingly the order of Ld CIT(A) on this issue is set aside. 25. The next issue relates to the taxability of ₹ 7.40 crores received on transfer of Scientific know-how and technical information. The Ld CIT(A) has given a finding that the assessee has only shared the information and not transferred any right to LHHCL. Accordingly, the Ld CIT(A) has held that the above said amount of ₹ 7.40 crores is taxable as business receipt. Under identical set of facts, we have upheld the view tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpete fee etc. We notice that the tax authorities have not examined this factual aspect vis- -vis contention of the assessee. The Ld A.R also submitted that the investment of ₹ 64,17,300/- made prior to 1.4.2001 was also made out of own funds, which was also not examined by the tax authorities. Accordingly, we are of the view that this issue requires fresh examination at the end of the AO. Accordingly, we set aside the order of Ld CIT(A) on this issue and restore the same to the file of the AO with the direction to examine the same afresh by having regard to the accounts of the assessee and also by duly considering the explanation of the assessee. 30. The next issue relates to the taxability of ₹ 20.00 crores claimed to have been received on transfer of market information and technical know how. During the year under consideration, the assessee transferred its export business to a newly formed joint venture company named Lyka BDR International Ltd and received a sum of ₹ 42.50 crores, which included a sum of ₹ 20.00 crores towards market information/technical know-how Non-compete fees. The assessee claimed the same to be capital receipt. The AO did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd (2006)(284 ITR 434) prevailed according to which no interest u/s 234B is chargeable for non-payment of minimum alternative tax. Accordingly the Ld A.R submitted that the decision of Kwality biscuits ltd shall be applicable to the year under consideration and hence the AO was not justified in charging interest u/s 234B of the Act for non payment of MAT tax u/s 115JB of the Act. The Ld A.R also placed reliance on the following tribunal decisions:- (a) Rockline Developers P Ltd Vs. ITO (2014)(31 ITR (Trib) 123 (Mum) (b) Charbhuja Industries P Ltd Vs. Addl CIT (2014)(31 ITR (Trib) 89(Mum) 34. However, we are unable to agree with the contentions of Ld A.R. The decision in the case of Kwality biscuits Ltd (supra) was rendered in the context of Sec. 115J of the Act, whereas the decision in the case of Rolta India Ltd was rendered in the context of sec. 115JA/115JB of the Act. The provisions of sec. 115JA/115JB contain saving clause, viz., sec. 115JA(4) and sec. 115JB(5), where as the provisions of sec. 115J does not contain the same. Hence, the decision rendered under sec. 115, in our view, will not apply to the provisions of sec. 115JA/115JB of the Act. Further, the Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X
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