TMI Blog2015 (10) TMI 1283X X X X Extracts X X X X X X X X Extracts X X X X ..... That apart, if the finding of fact arrived at by the Tribunal were to be set aside, a specific question regarding a perverse finding of fact ought to have been framed by the High Court. The Revenue did not seek the framing of any such question. See K Ravindranathan Nair Versus Commissioner of Income-Tax [2000 (11) TMI 3 - SUPREME Court]. Accordingly, we hold that the High Court was not justified in upsetting a finding of fact arrived at by the Tribunal, particularly in the absence of a substantial question of law being framed in this regard. Therefore, we set aside the conclusion arrived at by the High Court on this question and restore the view of the Tribunal and answer the question in favour of the Assessee and against the Revenue. Eligibility of deduction on the alleged expenditure for acquisition of patent [trademarks] rights, copyrights and know-how, in terms of Section 35A and 35AB - High Court denied any benefit to the Assessee under Section 35A and Section 35AB since it was held that what was auctioned off was only goodwill and no amount was spent by AOP-3 towards acquisition of trademarks, copyrights and know-how - Held that:- As held, in our opinion rather speculativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opyrights and know-how) in terms of Section 32 of the Act as it was at the relevant time. We are, therefore, in agreement with the view taken by the Tribunal in this regard that the Assessee would be entitled to the benefit of Section 32 of the Act read with Section 43(3) thereof.- Decided in favour of assessee. - Civil Appeal Nos. 10547-10548 of 2011 - - - Dated:- 15-10-2015 - Madan B. Lokur And S. A. Bobde, JJ. JUDGMENT Madan B. Lokur, J. 1. These appeals are directed against a judgment and order dated 23rd December, 2010 passed by the Division Bench of the High Court of Karnataka at Bangalore in ITA Nos. 69-70 of 2001. 2. The three substantial questions of law considered by the High Court were as follows:- i) Whether ₹ 12,24,700/- claimed as revenue expenditure by the Association of persons which was constituted by the three partners of the erstwhile firm, MGBW, can be allowed as permissible deduction in the hands of the said Association of persons under Section 37 of the Income-Tax Act, 1961, as being laid out or expended wholly and exclusively for the purpose of business of the said Association of Persons? ii) Whether the Assessee was entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partners of the firm applied for its winding up by filing Company Petition No. 1 of 1988 in the High Court. While entertaining the Company Petition the High Court appointed an Official Liquidator and eventually, after hearing all the concerned parties, a winding up order was passed on 14th June, 1991. 7. In its order passed on 14th June, 1991 the High Court held that the firm is dissolved with effect from 6th December, 1987 and directed the sale of its assets as a going concern to the highest bidder amongst the partners. The relevant extract of the order passed by the High Court reads as follows:- (i) The dissolved partnership firm - Mangalore Ganesh Beedi Works as a going concern shall be sold to such of its partner/s, who makes an offer of a highest price, the same not being less than the minimum (reserved) price of ₹ 30 crores (Rupees Thirty Crores) within 11-7-1991 accepting further liability to pay interest at 15% per annum towards the amount of the price payable to partner/s from 6-12-1987 till the date of deposit. 8. The High Court also prescribed certain other activities such as conducting the auction by the Official Liquidator etc. 9. Pursuant to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was then passed by the High Court as mentioned above. It is under these circumstances that the assessee is now before us in appeal. Question No. 1 15. In respect of the first question the issue really is whether the expenses incurred by the Assessee were for protecting the business of the firm or were expenses incurred for personal reasons namely consequent to disputes or differences relating to the ownership of the going concern with the erstwhile partners of the Assessee. 16. The Tribunal examined the issue in substantial detail. It was held by the Tribunal that the concern was in fact a going concern and therefore, the legal expenses incurred were for defending the business of the going concern and for protecting its interests. It could not be said that the expenses were personal in nature, nor could it be said that the expenses were unreasonable or not bona fide. It was found that the expenses incurred did not pertain to the period prior to the AOP-3 taking over the going concern but they were expenses incurred after the business was taken over by AOP-3 and that they related to legal proceedings that were pending in the High Court. The Tribunal noted that even the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as perverse in any manner whatsoever. That apart, if the finding of fact arrived at by the Tribunal were to be set aside, a specific question regarding a perverse finding of fact ought to have been framed by the High Court. The Revenue did not seek the framing of any such question. In this regard, reference may be made to K. Ravindranathan Nair v. Commissioner of Income Tax [2001] 247 ITR 178 (SC) wherein it was observed: The High Court overlooked the cardinal principle that it is the Tribunal which is the final fact-finding authority. A decision on fact of the Tribunal can be gone into by the High Court only if a question has been referred to it which says that the finding of the Tribunal on facts is perverse, in the sense that it is such as could not reasonably have been arrived at on the material placed before the Tribunal. In this case, there was no such question before the High Court. Unless and until a finding of act reached by the Tribunal is canvassed before the High Court in the manner set out above, the High Court is obliged to proceed upon the findings of fact reached by the Tribunal and to give an answer in law to the question of law that is before it. 20. Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 94 the technical know-how was valued at ₹ 36 crores, copyright was valued at ₹ 21.6 crores and trademarks were valued at ₹ 14.4 crores making a total of ₹ 72 crores. These figures were arrived at by taking 5 times the average profits for the last 5 years (ended 31st March, 1994). It is not necessary to go into calculating the bifurcated value of the three intangible assets except to say that the trademarks were given a value since in the beedi industry the trademark and brand name have a value and the Assessee's product under trademark '501' had a national and international market. As far as the copyright valuation is concerned, beedis are known not only by the trademark but also by the depiction on the labels and wrappers and colour combination on the package. The Assessee had a copyright on the content of the labels, wrappers and the colour combination on them. Similarly, the know-how had a value since the aroma of beedis differs from one manufacturer to another, depending on the secret formula for mixing and blending tobacco. The claim for depreciation/amortization by the Assessee is limited to this amount of ₹ 72 crores. 24. While pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not goodwill. It was also held that when the Revenue alleges that it is goodwill and not trademarks etc. that is transferred, the onus will be on the Revenue to prove it, which it was unable to do. The Tribunal then examined the question whether the sale of these intangible assets would attract capital gains. The question was answered in the negative and it was held that the assets are self-generated and would not attract capital gains. The decision of the Tribunal has been accepted by the Revenue and we really see no reason why a different conclusion should be arrived at in so far as the Assessee is concerned. 27. The High Court denied any benefit to the Assessee under Section 35A and Section 35AB of the Act since it was held that what was auctioned off was only goodwill and no amount was spent by AOP-3 towards acquisition of trademarks, copyrights and know-how. In coming to this conclusion, reliance was placed on the Report of the Chartered Accountants Rao and Swamy who stated that the assets of MGBW were those of a going concern and were valued on the goodwill of the firm and no trademarks, copyrights and know-how were acquired. It was further held, in our opinion rather ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute. When it is so used, those words and phrases must be construed as comprehending not only such things as they signify according to their nature and import but also those things which the interpretation clause declares that they shall include. The word include is also suspectible of other constructions which it is unnecessary to go into. 31. The question is, would intellectual property such as trademarks, copyrights and know-how come within the definition of 'plant' in the 'sense which people conversant with the subject-matter with which the statute is dealing, would attribute to it'? In our opinion, this must be answered in the affirmative for the reason that there can be no doubt that for the purposes of a large business, control over intellectual property rights such as brand name, trademark etc. are absolutely necessary. Moreover, the acquisition of such rights and know-how is acquisition of a capital nature, more particularly in the case of the Assessee. Therefore, it cannot be doubted that so far as the Assessee is concerned, the trademarks, c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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