TMI Blog2004 (10) TMI 543X X X X Extracts X X X X X X X X Extracts X X X X ..... sideration of Rs. 24.70 crores as stated above consisted of various payments made towards transfer of assets and rights such as trademark, lease of vehicles, sourcing deposit, non-compete agreement, franchisees arrangement, marketing assets etc. The amounts were received by M/s. Kwality Frozen Foods Limited, the assessee in this case, and its sister concerns viz. M/s. G.L. Ice Creams, M/s. Pure Foods Ice Creams and PIC Gujarat Limited. The amount received by the assessee-company was Rs. 16.20 crores. The details of the receipt are as follows :- On account of Trademark Rs. 3.70 crore On account of Lease of Vehicles Rs. 3.00 crore On account of Sourcing Deposit Rs. 3.00 crore On account of Non-Competition agreement Rs. 2.50 crore On account of Franchisees Rs. 4.00 crore Total Rs. 16.20 crore 3. In the course of assessment, the Assessing Officer examined the nature of above receipts. The Assessing Officer agreed with the argument of the assessee that various deposits included in the receipts would not be taxable. The Assessing Officer also agreed with the assessee that n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om that of goodwill. 7. The assessing authority further relied the following authorities on law:- ( i )Judicial Dictionary (Tenth Edition) - By K.J. Aiyar. ( ii )Mitra s Legal Commercial Dictionary (Fifth Edition) - By A.N. Saha. 8. The Assessing Officer further relied on the decision of the Hon ble Supreme Court in the case of Rustom Cavasjee Cooper v. Union of India [1970] 40 Comp. Cas. 325 (also known as Bank Nationalisation cases), where the Court has held that Goodwill of a business is an intangible asset .....it is the whole advantage of the reputation and connection formed with the customers together with the circumstances making the connection durable. 9. In the light of the above discussion, the Assessing Officer held that trademark is indistinguishable from goodwill and, therefore, the amended provisions contained in section 55(2)( a ) are operative and the amount of Rs. 3.70 crore received by the assessee-company against the sale of trademark is taxable for long term capital gains for the assessment year under appeal. He further held that as there is no cost of acquisition in the present case, the benefit of indexation would not be available to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Finance Act of 2001 amended section 55(2)( a ) of the Income-tax Act to include trade mark and brand names. This meant that prior to 1-6-2001 trademark was to be treated differently from the goodwill. As the cost of the trademark or Brand in Nil, the question of computing capital gains does not arise as held in the case of B.C. Srinivasa Shetty 128 ITR 294 (SC). As on the basis of the Income-tax Act trade marks were not to be included in the year under consideration under section 55(2)( a ) of the Income-tax Act, the question of taxing the same under the head capital gains , does not arise. The addition of Rs. 3,27,76,923 is therefore, without any basis and is deleted." 11. Accordingly, the CIT(A) accepted the contention of the assessee and deleted the addition of Rs. 3,27,76,923 made by the Assessing Officer. 12. It is against the above that the Revenue has come in appeal before us. 13. The ground raised by the Revenue is extracted below : "On the facts and in the circumstances of the case and in law the learned CIT(A) has erred in deleting the addition of Rs. 3,27,76,923 without appreciating the fact that the law concerning goodwill etc. and its taxability has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the reflection of the goodwill and there cannot be two different aspects such as goodwill and trademark in contradistinction. 17. The learned Commissioner contended that as trademark is also very much part of the goodwill, the sale of the trademark involved in this case is covered by the provisions of section 55(2) as amendment with effect from the assessment year 1995-96 in which the goodwill of a business is also treated as a capital asset. He, therefore, submitted that levy of capital gains tax on the sales consideration of trademark is just and proper in law. 18. Without prejudice to the above contention, the learned Commissioner further argued that at any rate "trademark and brand" as particular species have been included in the provisions of section 55(2), treating them as capital assets, for the purpose of levy of capital gain tax. Those inclusions were brought in the provisions of section 55(2) by the Finance Act, 2001. The said amendment is clarificatory or explanatory in nature. The amendment is in fact explaining the different manifestations of the expression "goodwill" and reiterating the applicability of the expression on "trademark and brand". Therefore, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in order to overcome this lacuna that a further amendment was brought in by the Finance Act, 2001 and inserted "trademark and brand" in section 55(2). The law has made it very clear that the said amendment was operative from the assessment year 2002-03 alone. She submitted that from the above history of amendments itself, it is clear that trademark is to be treated as a separate asset for the purpose of capital gains tax and the said asset is amenable for capital gain tax only with effect from assessment year 2002-03. 22. The learned Counsel submitted that the levy of capital gains tax on the sales consideration of trademark in the impugned assessment year 1995-96 is therefore against the provisions of law. 23. The learned Counsel stated that the issue is directly covered by the decision of the ITAT Delhi A Bench in the case of Sunil Lamba v. Dy. CIT [2003] 131 Taxman 35 . In the said case, the assessee was engaged in the marketing and distribution of ice-cream and other related products. Under an agreement, he assigned rights of marketing to BBL with the conditions that he will not engage himself directly or indirectly in such activities for a period of 10 years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered for levying capital gains tax. 27. She submitted that this is because of the judgment of the Hon ble Supreme Court in the case of B.C. Srinivasa Shetty ( supra ) where it was held that in the case of Nil cost of acquisition, capital gains could not be computed. The learned Counsel also relied on the following decisions : ( i ) Addl. CIT v. Ganapathi Raju Jogi [1993] 200 ITR 612 (SC). ( ii ) CIT v. Suman Tea and Plywood Industries (P.) Ltd. [1997] 226 ITR 34 (Cal.). ( iii ) Addl. CIT v. K.S. Sheik Mohideen [1978] 115 ITR 243 (Mad.)(FB). 28. We considered the rival contentions in detail. Goodwill and Trademark, both related to the intrinsic worth of a business. Goodwill is the sum total of the reputation of a business concern. Reputation is built on so many factors such as quality of the product/service, pricing, dependability of delivery, post sales services, adoptability, customer relations, discharge of social obligation etc. It is built over the hard work of years and years. The term is comprehensive enough to include any virtuous aspects of a business concern. Goodwill is an intangible asset. 29. But trademark is more specific. Trademark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manufacture or trader. They are commercially different. Therefore, levy of capital gains tax in the impugned case cannot be made treating the trademark equivalent to goodwill. The first limb of the argument raised by the Revenue is therefore rejected. 33. Next ground raised by the Revenue is that the amendment brought in by the Finance Act, 2001 is explanatory in nature and therefore, retrospective in operation. The term "trademark" has been brought in section 55(2) by the Finance Act, 2001 through section 35 thereof. Section 32 of the Finance Act, 2001 reads as follows : ".... Amendment of section 55. In section 55 of the Income-tax Act, in sub-section (2), in clause ( a ), after the words "goodwill of a business", words "or a trademark or brand name associated with a business" shall be inserted with effect from the 1st day of April, 2002." 34. If we go through the clarifications issued by the CBDT vide its instruction No. 1964, dated 17th March, 1999, it would be clear that the said amendment is only prospective. When the law was amended to overcome the impact of the decision of the Hon ble Supreme Court in B.C. Srinivas Shetty s case, the term "goodwill" was not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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