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2019 (7) TMI 1312 - AT - Income TaxConsideration received on assignment of know-how - assignment of know how relating to scientific, medical and technical documents relating to development and manufacture of non-pegylated liposomal doxorubicin an oncology product under development - characterization of income - the assessee claimed as exempt as capital receipt - AO taxed u/s 41(1) - in appeal CIT(A) taxed as capital gain as self generated assets - HELD THAT:- CIT(A) has held that the cost of acquisition is to be determined in the present case by relying on the fiction contained in section 55(2)(a). According to him the capital asset which was transferred in the present case was a right to manufacture, produce or process any article or thing and hence, the cost of acquisition must be deemed to be Nil. In the present case, first of all the know-how was under development and therefore, as a consequence of its transfer, the transferee did not acquire any right to manufacture, produce or process any article or thing at this stage. Further, the simplicitier transfer of knowhow cannot be equated to a right to manufacture as contemplated by section 55(2)(a). The know-how when fully developed would énable’manufacture or production or processing of an article or thing. However, it would not give any ‘right’ in respect thereof. It is well settled position in law that know-how with respect to a product would give knowledge about how the product is to be manufactured. The said know-how is not registered. Therefore, it does not confer any rights on its owner. The said knowledge only enables the manufacture of the product but does not confer any manufacturing rights. In view thereof, transfer of know-how cannot be regarded as transfer of ‘right’to manufacture or produce or process an article or thing for the purposes of Section 55(2)(a) of the Act. What the section contemplates is the grant of a right to manufacture say by grant of a license to use a patent. Moreover, section 55(2)(a) of the Act makes no reference to know-how, which is the asset under consideration. Hence, the CIT(A) was not justified in holding that the capital gains should be computed with the cost of acquisition in respect of the said asset being taken as Nil. He ought to have held that the cost of acquisition of know-how under development being a self-generated asset is not ascertainable, and hence, no chargeable capital gains would arise
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