TMI Blog2003 (5) TMI 208X X X X Extracts X X X X X X X X Extracts X X X X ..... eement, all rights to marketing, sale and distribution of ice-cream, ice lolly, dairy and non-dairy based frozen dessert either manufactured by associates or any other manufacture and further was to undertake that he would desist from engaging directly or indirectly in the business of marketing, selling, distribution of the said product in competition to BBL. In consideration thereof a sum of Rs. 1 crore was received by the assessee from BBL. As per agreement dt.14th Oct., 1994, the assessee surrendered in favour of BBL for 10 years all his rights in respect of marketing, selling and distribution of ice-creams, ice lollies and frozen desserts, etc. The assessee also agreed that for a period of 10 years, he will not engage himself directly or indirectly in the business of distribution of products of its associates or any other manufacturer of ice-cream, ice lollies and frozen desserts. The effective date of agreement was1st Jan., 1995. 3. The assessee also had 50 per cent co-ownership of the registered trade-mark "Kwality". Under a deed of assignment dt.14th Oct., 1994, the assessee assigned his co-ownership in the registered trade-mark "Kwality" in favour of Digital Securities (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration received by the assessee for assignment of his 50 per cent co-ownership share in the proprietary rights of registered trade-mark of the name "Kwality" apparently does not fall within the ambit of charge of tax under "capital gain". 6. Regarding assumption of jurisdiction under s. 263, the assessee relied on the decision of Hon'ble Bombay High Court in the case of CIT vs. Gabrial India Ltd. (1993) 114 (CTR) (Bom) 81 : (1993) 203 ITR 108 (Bom) and submitted that no error of law or facts arise out of the assessment order and, therefore, the assumption of jurisdiction under s. 263 of the Act was illegal. 7. The CIT considered the submissions of the assessee regarding payment received for assignment of the trade-mark "Kwality", the CIT observed as under: "1. Firstly, the trade-mark of 'Kwality' is not a self-generated asset of Shri Sunil Lamba. He was not at all associated with the trade-mark when it was initially registered. 2. Secondly, M/s Pure Ice-creamCo., M/s Pure Ice-cream Co. (P) Ltd. and M/s Gaylord (P) Ltd. are separate legal entries quite distinct from Shri Sunil Lamba. He has acquired rights over the trade marks from these concerns. It is not clear whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was prejudicial to the interest of the Revenue. Reliance was placed on the decisions J.P. Srivastava Sons (Kanpur) Ltd. vs. CIT (1978) 111 ITR 326 (All), CIT vs. Tej Cloth Weaving Factory (1989) 80 CTR (P H) 28 : (1989) 178 ITR 474 (P H), CIT vs. Prithvi Raj Co. (1991) 98 CTR (Del) 216 : (1993) 199 ITR 424 (Del) and CIT vs. O.P. Seth (1993) 111 CTR (Del) 37 : (1993) 201 ITR 635 (Del). It was argued that as the CIT has not given any definite finding, the assumption of jurisdiction under s. 263 was illegal. Learned counsel further argued that the non-competition fee was a capital receipt not liable to capital gains tax. The reliance was placed on the decision Kettlewell Bullen Co. Ltd. vs. CIT (1964) 53 ITR 261 (SC), CIT vs. Best Co. (P) Ltd. (1966) 60 ITR 11 (SC), Oberoi Hotel (P) Ltd. vs. CIT (1999) 152 CTR (SC) 474 : (1999) 236 ITR 903 (SC), Gillanders Arbuthnot Co. Ltd. vs. CIT (1964) 53 ITR 283 (SC), Dy. CIT vs. Goodricke Group Ltd. (2001) 72 TTJ (Cal) 961 : (2001) 77 ITD 245, 326 405 (Cal). It was argued by the learned counsel that if the order passed by the AO was in accordance with the decisions of the Court/Tribunal, there can be no error of law in the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under s. 263 of the Act and his order, therefore, deserves to be quashed. On the other hand, learned Departmental Representative supported the order of the CIT. 12. We have considered the rival submissions. 13. Keeping in view the ratios laid down by various Courts, as mentioned above, we have examined the facts of the case. Admittedly, the CIT has nowhere given any finding to the effect that order passed by the AO was erroneous insofar as the same was prejudicial to the interest of the Revenue. In order, the CIT exercises his powers conferred upon him by this section two prerequisites must be present. The first is that the order of the AO must be erroneous and secondly that the error must be such that it is prejudicial to the interest of the Revenue. If the order is erroneous but it is not prejudicial to the interest of the Revenue, the CIT cannot exercise his revisional jurisdiction. In the instant case, nowhere the CIT has held so. 14. It is necessary to confer jurisdiction on the CIT that there must be some material which enables him to come to the conclusion that the order of the AO is erroneous so as to be prejudicial to the interest of the Revenue. In the instant c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was, therefore, received under a restrictive covenant of not engaging himself directly or indirectly in the activities carried on by it. The Hon'ble Supreme Court in the case of Universal Radiater vs. CIT (1993) 112 CTR (SC) 61 : (1993) 201 ITR 800 (SC) has indicated the following norms to decide whether the amount was revenue receipt or capital receipt "Whether payment is made to compensate any loss of the use of any goods in which the assessee does not carry on any business or the payment is a test equivalent to the cost incurred by the assessee but excess accrues due to fortuitous circumstances or is a windfall than the accrual may be a receipt but it would not be an income arising from business and therefore not taxable under the Act." 17. Similarly, in the case of J.C. Chandiok vs. Dy. CIT (1999) 64 TTJ (Del)(SB) 1: (1999) 69 ITD 75 (Del)(SB) decided by the Special Bench of the Tribunal, Delhi, it was held as under: "All receipts by an assessee cannot necessarily be deemed to be income of the assessee for the purpose of income-tax. The question whether a particular receipt is an income or not depends on the nature of the receipt and the true scope and effect of the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am of the considered view that assessee got this amount of Rs. 6.6 crores under restrictive covenant and that was a capital receipt not taxable and there was no colourable device adopted by the assessee in getting this amount and case is not hit by the ratio of decision of Hon'ble Supreme Court in the case of McDowell. Accordingly, I concur with the finding and conclusion arrived at by the learned AM." 23. The same view was taken by the Delhi Bench of the Tribunal in the case of Inder Kumar Khosla (ITA No. 2047/Del/2001). Looking to the above judicial pronouncement, it cannot be said that the order passed by the AO was erroneous insofar as prejudicial to the interest of the Revenue. Thus even on merits, the CIT was not justified in assuming jurisdiction under s. 263 of the Act. The order under s. 263 is, therefore, quashed. 24. As regards the taxability of the amount received on the assignment of trade-mark, there was a consistent view that the amount received on the assignment of trade-mark was not taxable to capital gains as the cost of acquisition was nil. The provisions of s. 55(2)(a) of the Act were amended w.e.f.1st April, 1998. After the amendment for the purposes of ss. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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