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TMI Blog2010 (10) TMI 11X X X X Extracts X X X X X X X X Extracts X X X X ..... x Laboratories India Limited (for short "Colfax"). 7200 share i.e. 40% of the equity of Colfax was held by Shulton (GB) Ltd, United Kingdom. The remaining 202 shares were held by three other individuals. Shulton (GB) Ltd., U.K., a 100% subsidiary of Shulton Inc. USA, is the registered proprietor in India of a trade mark "Old Spice". By an agreement entered in the year 1967 Shulton (GB) granted to Colfax right to use and market products under the brand name "Old Spice". In the year 1990-91, Procter and Gamble, Cincinatti, USA took over and acquired Shulton Inc. USA. Procter and Gamble USA thus became the holding company of Shulton (GB) Ltd., UK. On account of the aforesaid acquisition, Procter and Gamble (India) Ltd., (for short "PGI") through Procter and Gamble USA became the owner of the trade mark "Old Spice" in India. PGI also appointed a director on the board of Colfax. On acquisition of Shulton Inc., the Procter and Gamble USA became interested in using the trade mark Old Spice by itself or through its Indian subsidiary the PGI. It appears that it was not interested in renewing the agreement with Colfax permitting it the use of the trade mark Old Spice. The arrangement/agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance payment or windfall amount and did not amount to an income within the meaning of Section 2(14) of the I.T. Act. The contention was rejected and the Assessing Officer who hold that the amount received by each members of Menezes family from PGI as an income chargeable to tax. On appeal, the Commissioner of Income-tax (Appeals) Belgaum confirmed the decision of the Assessing Officer treating the amounts received by the members of Menezes family from PGI as an income. Aggrieved by the decision of the CIT (Appeals), the members of Menezes family filed separate appeals before the Tribunal. The Tribunal by an order dated 28th September, 2001 allowed all the 22 appeals filed by the members of Menezes family and held that the amount received by Menezes family from PGI could not be considered as an income within the meaning of Section 2(24) of the I.T. Act and was, therefore not chargeable to tax under Section 4 thereof. That decision is impugned in this appeal. Findings of the Tax Authorities: (5) Before we proceed to consider the rival submissions of the parties, it would be useful to refer to certain findings of fact recorded by the authorities below. The Assessing Officer ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red on 31st December, 1993. He further held that the fact that Colfax entered into the manufacturing arrangement/ agreement with PGI on 21st October, 1993 showed that Colfax had full knowledge that the right to use the trade mark under the agreement dated 12th July, 1967, which was renewed from time to time upto 31st December, 1993, would not be renewed after 1st January, 1994. He, therefore, rejected the contention that Rs.3.5 crores were received on account of any diminution in the value of shares (in Colfax) held by the members of the Menezes family and, therefore, constituted a capital receipt. He, therefore, affirmed the decision of the Assessing Officer. (7) On a further appeal, the Tribunal held that the initial trade mark agreement of the year 1967 was last renewed on 1st January, 1991 upto 31st December, 1993. The agreement permitting the use of trade mark "Old Spice" by Colfax lapsed as on 31st December, 1993. The Tribunal, however, held that since the manufacturing and marketing was done by Colfax and the marketing was taken away by somebody else (PGI), it was definitely a disadvantage to the shareholders, especially the majority shareholders of Colfax. Therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by itself, did not take away any marketing right of Colfax. Therefore, by passing a resolution dated 11th February, 1994 Colfax did not lose any right and there was no erosion or sterilization of the profit making apparatus by reasons of the resolution dated 11th February, 1994. Consequently, the payment received by the members of Menezes family could not be said to be on account of erosion in the value of the shares in Colfax held by the members of Menezes family. Therefore, the money received from PGI cannot be regarded as a capital receipt as held by the Tribunal. She further submitted that the decision of the Supreme Court in the case of CIT vs. Sirpur Paper Mills Limited (supra) relied upon by the Tribunal, therefore had no application to the facts of the present case. (9) Ms. Dessai further invited our attention to the finding of fact recorded by the Assessing Officer, as well as the CIT (Appeals) that the money which was received by the members of Menezes family was not proportionate to the shares held by them in Colfax. If there was erosion in the value of the shares, on account of giving up of the marketing right under the brand name Old Spice by Colfax, the erosio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt and was liable to tax. The Tribunal held that the amount received by the assessee was to compensate it for the loss or damage to its stock in trade and the fixed assets. The compensation received was not a revenue receipt and hence not liable to tax. The High Court held that the question whether a receipt was in the nature of a capital receipt or revenue receipt it would depend upon the facts and circumstances of each case and no rigid test for determination of it could be laid down. On the facts of the case, the High Court held that the compensation was received to replace the assets and substitute for the part of the assets damaged. The money which was received by way of a compensation for the damaged or the destroyed assets and consequently would not be a profit or gain in the business. Merely because some amount was saved out of the compensation by adopting a device to repair the machinery instead of substituting it, that would not alter the nature of the compensation. While confirming the decision of the High Court, the Supreme Court observed "So far the first question is concerned, it was not disputed on behalf of the revenue that the sum of Rs.7,83,207/-received by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Alternative submission of the respondent. (11) Learned Counsel for the respondents, however, submitted that it was the case of the respondents all along and in the alternative that the amount received was a lucky chance payment and paid to the members of Menezes family for voting in favour of the resolution and, therefore, this did not amount to an income within the meaning of Section 2(24) of the I.T. Act. The Counsel invited our attention to the assessment order wherein this contention raised by the assessee has been specifically noted at the very beginning of the assessment order. The contention was also repeated before the CIT (Appeals) and has been noted by him in paragraph No.7 of the order. Before the Tribunal, the assessee had raised the same contention which had been noted and accepted by the Tribunal in paragraphs 39 & 40 of its decision which read as follows : " 39. The appellants are not engaged in the business of charging fees for voting ion resolutions on the strength of their shareholdings. The act of affirmatively supporting a resolution is not an event, which has happened regularly or is expected to so happen. The impugned receipt was the on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the use of Old Spice brand. It did not even want to wait for creating its own manufacturing facilities and that is why it entered into a manufacturing agreement with Colfax for a period of 10 years. In order to avoid any possibility of litigation and any interruption in the use of the brand, it desired to have a resolution to be passed in the general body meeting of Colfax with a twin fold arrangement, one of extension of manufacturing right in Colfax for a period of 10 years and the other recognition of its marketing right and use of the brand name Old Spice. PGI, a subsidiary of a multinational company, offered to pay the money of Rs.3.5 crores to the members of Menezes family not by way of charity, but as a condition to ensure that they vote in favour of the resolution at the general body meeting of Colfax and support the resolution. The money was paid for casting an affirmative vote by the members of Menezes family for one resolution namely the resolution recognizing extinction of the marketing rights of Colfax. The Tribunal has recorded a finding of fact that the voting on the resolutions in a particular manner was not a business of the members of the of Menezes family. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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