TMI Blog2009 (5) TMI 618X X X X Extracts X X X X X X X X Extracts X X X X ..... its arising on transfer of trademarks do not constitute capital receipts consequents to loss of source of income. (2) The ld. CIT (A) erred in holding that the profits arising on transfer of trademarks will be assessable under the head Capital Gains as long-term capital gains or short-term capital gains depending on period of holding by the appellant and its holding company ignoring the following facts : ( i )that the appellant is a 100 per cent subsidiary of Lakme Limited form which it had acquired trademarks; ( ii )the trademarks acquired from its holding company were self-generated assets in the hands of the holding company and as such they were "no cost assets" of the holding company; and ( iii )in view of the provisions of section 49(1)( iii )( e ) of the Income-tax Act, 1961 (the Act), such assets should also be treated as "no cost assets" in the hands of the appellant company. (3) The ld. CIT(A) erred in holding that the cost of acquisition of these trademarks cannot be taken at "no cost" and further erred in holding that the cost of acquisition will be Rs. 79.53 crores ignoring the provisions of section 49(3) of the Act. (4) The ld. CIT(A) ought to have hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or profession . ( iii )Holding that the cost of acquisition of trademarks will be Rs. 79.53 crores instead of taking it as nil while computing the profit on sale of trademarks." The revenue has also raised following additional ground : "The following additional grounds are raised without prejudice to the grounds which have been taken already while filing appeal before the Hon ble ITAT vide this office letter dated 28-4-2003 : ( i )On the facts and circumstance of the case, the ld. CIT(A) has erred in directing the Assessing Authority to compute the short-term/long-term capital gain by taking cost of acquisition at Rs. 79.53 crores (consideration of transfer from holding to subsidiary company) and not resorting to provision of section 49 of the Income-tax Act 1961." ( ii )On the fact and circumstances of the case the ld. CIT(A) has erred in directing the Assessing Authority to compute the period of holding for the purpose of short-term/long-term capital gain by applying the provision of section 49 and sub-clause ( b ) of clause ( i ) of Explanation of section 2(42A) which provides that period of holding will include periods for which it was held by Holding subsidi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounds in the appeal filed by the assessee and the revenue, it was submitted by the ld. A.R. that the assessee Trent Brands Ltd., formerly was known as Lakme Brands Ltd., and had acquired certain trademarks, designs and brand names from its 100 per cent holding company namely Lakme Ltd. which is now known as Trent Brands Ltd. in January, 1996 for a total sum of Rs. 79.53 crores. The said trademarks, designs and brand names acquired by the assessee were shown as fixed assets in the books of the assessee and no depreciation on the same have also been claimed. The said fixed assets were licensed to a company namely M/s. Lakme Lever Ltd., and the assessee was earning royalty income therefrom and the same had also been offered to tax as business income and this was also accepted by the revenue in the assessment for the assessment years 1996-97 to 1999-2000. In May 1998, relevant to the assessment year 1999-2000, the trademarks, designs were assigned by the assessee to M/s. Hindustan Lever Ltd. For a total consi-deration of Rs. 110.05 crores. The same had also been claimed as capital receipt not exigible to tax by the assessee. The Assessing Authority had completed the assessment vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able as the assessee at the time of acquisition, had paid the sum of Rs. 79.53 crores to Trent Ltd., which is the 100 per cent holding company for acquiring the trademarks and the designs and the deeming provisions of section 49(1) of the Act were not applicable, where in actuality, consideration was paid by the assessee for the acquisition of trademarks. It was the submission that the ld. CIT(A) had observed that the deeming provisions of section 49(1) of the Act can be applied only in a situation where the transfer of property was made without consideration. It was further submission that ld. CIT(A) had observed that the provisions of section 49(1)( iii )( e ) did not apply also for the reasons that the transfer of trademarks by the assessee to Hindustan Lever Ltd., was not transfer by the holding company to its 100 per cent subsidiary as per section 47( iv ) of the Act. He further drew our attention to the provisions of section 45, section 47( iv ), section 49(1)( iii )( e ), section 2(42A) Explanation ( b ) and section 48 Explanation ( iii ). It was the submission that section 48 of the Act provides for the mode of computation of income chargeable under the head capital g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equently it was the submission that the cost of acquisition of trademarks and designs in the hands of M/s. Trent Ltd. being the previous owner was indeterminable and consequence in view of the decision of Hon ble Supreme Court in case of B.C. Srinivasan Shetty ( supra ) reaffirmed by the Hon ble Supreme Court in case of PNB Finance Ltd. v. CIT [2008] 307 ITR 75 came into play and no capital gains was liable to tax. It was further submission that it was for the purpose of getting over the decision of Hon ble Supreme Court in the case of B.C. Srinivasan Shetty ( supra ) that the law had been amended by the amendment to section 55(2)( a ) of the Act with effect from 1-4-2002 to deem the cost of acquisition of self generated asset, such as trademarks or designs as nil . It was the submission that the provisions of section 55(2)( a ) was prospective in nature and consequently the gain of transfer of capital asset being trademarks would be taxable only for the assessment year 2002-03 and later. It was the submission that since the provision contained in section 48 of the Act for computation of capital gain arising on the sale of trademarks and designs failed in view of the cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived by the assessee on the sale of trademarks and designs was liable to be treated as business income itself. It was the alternate prayer that if the capital gain was to be computed then as per the claim of the assessee, the cost of assets being the trademarks and designs would have to be treated as zero as on 1-4-1981 as most of the trademarks had been registered by the assessee much earlier to 1-4-1981. It was the alternate prayer that under section 48( ii ), the amount of Rs. 79.53 crores paid by the assessee to M/s. Trent Ltd. would have to be treated as the expenditure incurred on account of cost of improvement. He vehemently supported the order of the Assessing Authority. 10. We have considered the rival submissions. For better appreciation of the case, it would be worthwhile to extract the relevant provisions. Section 47( iv ) reads as follows : "47( iv ) any transfer of a capital asset by a company to its subsidiary company, if ( a )the parent company or its nominees hold the whole of the share capital of the subsidiary company, and ( b )the subsidiary company is an Indian company;" Section 49(1)( iii )( e ) reads as under : "49(1) Where the capital asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous owner of the asset acquired it and increase by the cost of any improvement to the asset incurred and borne by the previous owner or the assessee as the case may be. In short, when determining the cost for the purpose of computation of capital gain for the purpose of section 48, the cost to the previous owner is also to be considered. In the course of hearing, the assessee was asked a question as to whether the expenditure on account of registration of the trademarks and designs had been capitalized by the assessee. To this, the assessee had specifically stated that no expenses had been capitalized on this count. He also placed reliance upon the decision of the Hon ble Supreme Court in the case of CIT v. Finlay Mills Ltd. [1951] 20 ITR 475 wherein it had been held that the expenditure incurred on the 1st registration of trademarks was allowable as revenue expenditure. Thus, it is noticed from the perusal of the paper book filed that no cost has been shown by Trent Ltd., on account of trademarks, designs and brand names. Further, the revenue has also not been able to point out any method for quantifying the cost of the trademarks, designs and brand names in the hands of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. The revenue has not been able to even point out any expenses which has been incurred by the assessee or by M/s. Trent Ltd., to put a cost of improvement to the trademarks and designs. In these circumstances, the provision itself cannot apply for the purpose of computation of long-term capital gain. 12. As section 2(42) categorically specifies that an asset which is held for a period of not more than 36 months, is to be considered as short-term capital asset and also from the record the date of 1st registration of designs and trademarks which have been transferred by the assessee to M/s. Hindustan Lever Ltd., is not coming out this issue is restored to the file of the Assessing Authority who shall verify the date of 1st registration of the trademarks and designs and if such date is found to be more than 36 months prior to May 1998, then the transfer of such trademarks and designs shall be treated as transfer of long-term capital asset and no capital gain would be leviable on the transfer of such long-term capital asset on account of indeterminability of the cost of acquisition and the cost of improvement of such capital asset. If any trademark or designs is found to have b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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