TMI Blog2009 (1) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... year the sale receipts on account of transfer of trademark/brand name mentioned above is not liable to capital gain tax. - The same has been clarified by the judgment of the Hon’ble Delhi High Court in the case of Milk Food Ltd. (2005 - TMI - 9369 - DELHI High Court ) - Decided in favor of assessee. - IT APPEAL NO. 2985 (MUM.) OF 2005 - - - Dated:- 22-1-2009 - J. SUDHAKAR REDDY, GEORGE GEORGE K., JJ. P.J. Pardiwala for the Appellant. S.K. Mohanty for the Respondent. ORDER George George K., Judicial Member. This appeal filed by the assessee is directed against CIT(A) s order dated 14-2-2005. The assessment year concerned is 2001-02. 2. The ground raised by the assessee is as follows: "1. The ld. CIT(A) has erred in confirming the addition of Rs. 1,03,11,500 as deemed dividend under section 2(22)( e) of the Act since the said amount is not covered by the provisions of section 2(22)( e), the addition ought to be deleted." 3. The assessee-company raised an additional ground through his application dated 27-12-2007 which reads as follows: "The ld. CIT(A) has erred in treating consideration received on sale of Brands as long-term capital gain without a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer. For the reasons mentioned in para 6 of the CIT(A) s, order the appeal of the assessee was dismissed. The relevant portion of the CIT(A) s order is reproduced below: "6. In order to ascertain the factual position, the assessee was required to furnish the following facts for the last three years: (i)Party-wise details of amount of loans given and interest received by the said three companies; (ii)Party-wise details of amount of loans taken and interest paid by the said three companies; (iii)Break up of net interest on loans and other income. From the details furnished, it is seen that during the relevant previous year, Madhav Nandini Trading Investment Pvt. Ltd. had given loan of Rs. 25 lakhs to the assessee on which interest of Rs. 1,39,021 was earned. Likewise during the relevant previous year Anandita Arnav Trading Investment Pvt. Ltd. had given loan of Rs. 42.75 lakhs to the assessee-company on which interest earned was Rs. 2,10,723. These two companies had not advanced loans only to the assessee and to no other party. The third company, i.e., Rajvi Rishabh Trading Investment Pvt. Ltd. had during the relevant previous year given loan of Rs. 38. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posits. Similarly he also referred to the balance sheet of the other two companies which has advanced unsecured loans to the assessee-company and contended that the amounts received by the assessee are in the nature of inter-corporate deposits and not loans/advances. He also relied on the following decisions to point out the distinction between loans/advances and vis-a-vis deposits : (1)Housing Urban Development Corpn. Ltd. v. Jt. CIT [2006] 5 SOT 918 (Delhi) (SB), (2)Durga Prasad Mandelia v. Registrar of Companies [1987] 61 Comp. Cas. 479 (Bom.), (3)Pennwalt India Ltd. v. Registrar of Companies [1987] 62 Comp. Cas. 112 (Bom.), (4)Gujarat Gas Financial Service Ltd. v. Asstt. CIT [2008] 115 ITD 218 (Ahd.) (SB). 7. Alternatively it was contended that as per clause 2 of section 2(22)( e) of the Act, dividend does not include any advances or lending money to shareholders in the ordinary course of business, where lending is substantial part of the business of the company. It was submitted that the three companies are engaged in the business of advancing funds in addition to investment in shares. The copies of Memorandum and Articles of Association and balance sheet of the th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but a loan or advance and hence provisions of section 2(22)( e) of the Act is applicable to the facts of the case. The ld. DR drew support from the order of the CIT(A) which held that lending money was not a substantial part of the business of the three companies which advanced loans to assessee. 10. We have heard the rival submissions and perused the material on record. The authorities below have not controverted the claim of the assessee-company that the amount received from above three companies is inter-corporate deposits. The Assessing Officer held against the assessee only on account that it had failed to explain, the investment is neither loan or advance. It is a settled position that deposits cannot be equated with loans or advances. The Jurisdictional High Court in the Durga Prasad Mandelia s case (supra) has noticed the distinction between deposits and loans in the context of section 370 of the Companies Act. The Court held as under : "There can be no controversy that in a transaction of a deposit of money or a loan, a relationship of a debtor and creditor must come into existence. The terms "deposit" and "loan" may not be mutually exclusive, but nonetheless in ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve carefully considered the matter and find that the definition of interest does not speak of excluding this amount in its definition. Accordingly therefore, the inclusion by the Assessing Officer of these items is found justified and is upheld. (69) The submission of the assessee is that these ICD s being neither loans or advances, interest earned on these is not exigible to interest tax in view of the decision of Ahmedabad Tribunal in the case of Utkarsh Fincap (P.) Ltd. (supra). Reliance is also placed on the decision of Housing Urban Development Corpn. Ltd. v. Jt. CIT [2006] 5 SOT 918 (Delhi) (SB), Stanrose Holding Ltd. [IT Appeal No. 25 (Mum.) of 1966] and Persepolis Investment Co. (P.) Ltd. [IT Appeal No. 51 (Mum.) of 1997]. The ld. DR on the other hand supported the decision of the CIT(A) and submitted that when assessee itself had offered it to tax where the question of allowing it as not taxable. He also submitted that it is taxable as held in Bajaj Auto Holdings Ltd. v. Dy. CIT [2005] 95 ITD 356 (Mum.). (70) We have heard the parties and considered the rival submissions. It might be true that assessee had offered it to tax initially but he claimed it as not taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclude the interest on inter-corporate deposit from the assessment of the assessee. Consequently, the levy of penalty made would also not stand. They are, accordingly deleted. 71. It has considered the decision of Bajaj Auto Holdings Limited s case (supra) referred to by the CIT(A) and distinguished by stating that Mumbai Bench has proceeded on a footing that deposit would be an advance and would be includible in the term with "interest on deposit and advance". The Bombay Bench is more persuaded by the reason that the interest on deposit was not excluded from the definition of interest and the term "interest on loans and advances" was wide enough to include the same. It had not considered that whether it was not a loan nor an advance and as to whether the amended definition of "interest" under the Act was exhaustive or inclusive. In holding that the ICD is not an advance the Ahmedabad Tribunal also noticed that the meaning of the term "advance" as understood in the commercial words and as stated under the title "What is advance" in the following words : It was held in K.M. Mohammed Abdul Kadir Rowther v. S. Muthia Chettiar [1960] 2 Mad. LJ 13 at 15 that "advance" means liter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chargeable interest under the Interest-tax Act." From the above it is clear there is distinction between deposits vis-a-vis loans/advances. Section 2(22)( e) enacts a deeming fiction whereby the scope and ambit of the word dividend has been enlarged to bring within its sweep certain payments made by a company as per the situations enumerated in the section. Such a deeming fiction would not be given a wider meaning than what it purports to do. The provisions would necessarily be accorded strict interpretation and the ambit of the fiction would not be pressed beyond its true limits. The requisite condition for invoking section 2(22)( e) of the Act is that payment must be by way of loan or advances. Since there is a clear distinction between the inter-corporate deposits vis-a-vis loans/advances, according to us the authorities below were not right in treating the same as deemed dividend under section 2(22)(e ) of the Act. Since we hold that ICDs do not come within the purview of deemed dividend under section 2(22)( e) of the Act, the alternative contention of the assessee namely by virtue of section 2(22)(e )(ii) of the Act, the unsecured loans received by the assessee is not divid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived on assignment of name "Parachute" and "Saffola" is not chargeable to tax under the Act, being self- generated assets. It was contended that capital asset transferred by the company being trademark/brand name and not being goodwill, the receipts on such transfer is not chargeable to capital gains tax. He stated that the words "Trademark or brand name associated with business" were introduced in section 55(2) with effect from 1-4-2002 and thus capital gains could not be taxed in case of transfer of Trademark or brand name for the concerned assessment year. He also relied on the decision of Hon ble Delhi High Court in the case of CIT v. Milk Food Ltd. [2006] 280 ITR 331 3 (Delhi), Voltas Ltd. v. Dy. CIT [1998] 64 ITD 232 (Bom.), ICI India Ltd. v. Dy. CIT [2002] 81 ITD 348 (Cal.), for the proposition that since no cost is incurred for acquisition of Trademark/brand name, the company is not liable for capital gain tax in respect of sale proceeds mentioned above for the relevant assessment year. 13. The ld. D.R. on the other hand, opposed the admission of the ground by stating that the assessee himself has offered for long-term capital gain by filing revised return. As regards t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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