TMI Blog2000 (1) TMI 992X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Jaya Bachchan received under agreements dated 10-1-1995 and 11-2-1995 entered into between the assessees and M/s. Amitabh Bachchan Corporation Ltd. (hereinafter referred to as ABCL) in revenue receipt ignoring the fact that the nature of the restrictive covenant agreed by the appellants while assigning their rights in accordance with the terms and conditions specified in the above agreements and wrongly applied the ratio of certain judgments rendered in connection with section 27 of the Indian Contract Act pertaining to the said agreements, which are in restraint of trade to the said agreements mentioned above which assigned valuable rights of the assessees and thereby holding that the amount received by the assessees pursuant to these two agreements would be taxable under the provisions of section 10(3) of the Income-tax Act. It is also agitated that while following the decisions relied upon by the CIT(A), opportunities were not provided to the assessees to rebut the reasoning and observations of those decisions. The assessees have elaborated these points in grounds Nos. 1 to 14 in their respective appeals. 3. In the cross-objection in the case of Shri Amitabh Bachchan the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld also be conformed which the department failed to show. 6. We have considered the rival submissions and have gone through the material available on record. It is an admitted position that these papers were never produced before the Assessing Officer or CIT(A) and it is also not the case of the department that they tried to admit the same before the first appellate authority or were prevented by sufficient reasons from producing the same before any authority. Under these circumstances, the papers which are sought to be produced for the first time, cannot be admitted at this stage. So far as the decision relied upon is concerned, unless the Court requires any document which would help the court in rendering justice between the parties, which is not the case before us, we are of the opinion that the reliance made by the Departmental Representative is not relevant. In view of these facts, we dismiss the additional evidence sought to be admitted by the revenue. 7. The relevant facts are that the assessees are successfull and high-rated cine artistes, who over the years, have won the adulation of the masses as a result of their performances in films, theatre, television, radio, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axation as the assessees follow cash basis system of accounting for their professional income and secondly the amounts have been assigned by the assessees are the brand which has not costed to the assessees at all. Thus, being the brand of a professional, same is exempt as per the decision of the Honourable Supreme Court in the case of B.C. Srinivasa Shetty reported in 128 ITR 294. The amounts also partake the character of exclusivity to the work and give services to the Corporation and, therefore, constitute a capital receipt in the hands of the assessees. Therefore, it was claimed that the same are not taxable following the English decisions of Higgs v. Oliver 33 TC 136 (CA), House of Lords in Beak v. Robson [1943] - 11 ITR Supp. 23 (HL) and Indian decisions of the Supreme Court in Jairam Vaiji ( 35 ITR 148 ); and Bombay High Court in Automobile Products of India Ltd. ( 140 ITR 159 ) . A written submission was also given to the Assessing Officer vide letter dated 26-3-1998. However, the Assessing Officer did not accept the various contentions urged by the assessee briefly on the following reasonings : asset would be of a capital, receipt. In support of this, we may mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her sums paid in respect of the user of a patent ,- In, the case of Withers (Inspector of Taxes) v. Nethersole [1948] 16 ITR 92 (HL), the assessee entered into an agreement of 1939 was granted an assignment of the sole and exclusive motion picture rights through the world for a period of 10 years from 27th January, 1940 in connection with the novel by Kipling the Light that Failed and a play founded on the novel under the agreement the company paid : (i) The various judgments cited by the appellants in support of their contentions were not applicable to the facts of their case. The Assessing Officer was of the view that the facts in those cases were different from the facts of appellants case. (ii) There is no separate head of income from profession under the Income-tax Act. (iii) The appellants have acquired goodwill as a result of being an Actor and goodwill of a personality cannot be separated from an individual and what the appellants had assigned to ABCL is their services as an individual and skill as an artiste i.e. goodwill and that whatever they had received from ABCL are on revenue account. (iv) The argument of the appellants that brand equity is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scharged, reliance was placed on the decision of the Hon ble Supreme Court in the case of H.E.M. Nizam s Religious Endowment Trust v. CIT [1966] 59 ITR 582, Sumati Dayal v. CIT [1995] 214 ITR 801 3, CIT v. Bedi Corpn. (P.) Ltd. [1990] 181 ITR (St.) 19 (SC) and Bombay High Court decision in the case of Smt. Panna Devi Chowdhary v. CIT [1994] 208 ITR 8494. 10. The assessees, in support of their claim that the amounts received by them from ABCL were capital receipt, have also pleaded the following facts before the CIT(A) : (a) By the above agreements, all the rights granted to ABCL have been granted solely and exclusively to ABCL. (b) The meaning of expression products of engagement as defined would include the entire contribution by the artiste in connection with the engagements including without limitation, the creation, alteration, amendment to any work in which copyrights subsist. (c) The term of the agreement is for a period of 10 years. (d) Against the sum of ₹ 15 crores, in the case of Shri Amitabh Bachchan and ₹ 3 crores in the case of Smt. Jaya Bachchan, the appellants have assigned to ABCL the entire copyright whether vested, contingent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CL shall remain entitled to all the rights granted or assigned to ABCL under this agreement and all other rights relating to the engagements of the appellant and all products of the engagement. (iii) The appellants shall be entitled only to such consideration as shall have accrued, due and become payable, payable pro rata on the date of termination. It was emphasised that the amounts received were towards the assignment by appellants of all their rights as artistes to M/s. ABCL for the tenure of the agreements. Besides, there is a separate provision from the assignment of the appellants rights for rendering of services as artistes to ABCL for a guaranteed period of 120 working days during the calendar year. For rendering such professional services as artistes during the guaranteed period as per the agreement dated 10-1-1995 read with the agreement dated, 11-2-1995, the appellants would be paid a remuneration @4% in the case of Shri Amitabh Bachchan and @1% in the case of Smt. Jaya Bachchan of the profit earned by ADCL before the taxation in a year. In support of their contention, the assessees highlighted the following facts, before the CIT(A): (1) The payments were l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s was being carried on by the person in manner ordinarily understood in respect of such business or profession. (15) Even if exclusive rights assigned under the agreement do not give away all the rights, but the grant of even a portion of such rights would put a curb on appellants in the free exercise of their profession and such sum could not be considered to be received in the ordinary course of exercise of his profession. Such nature of lump sum payment received is for assignment of capital rights solely and exclusively and cannot be considered to be in the nature of casual or non-recurring income as it is not received as an incident of exercising or carrying out his profession. (16) No evidence or material has been brought on record by the Assessing Officer to suggest that there was a regular practice amongst other actors and actresses to grant exclusive licences or assigned such rights as an incident of exercising their profession. There is no such trade practice. 11. It was also pleaded that right to conduct business or profession or right to manage one business or profession is a property as held by the Hon ble Calcutta High Court in the case of CIT v. National ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent dated 10-1-1995 to ABCL. It is also a normal incident in the exercise of their profession to transfer, sale or to grant of such rights pertaining to exercise of their profession. Therefore, in such a situation, these rights which are in the nature of property and the amounts received on transfer of such rights would be capital in nature. 14. Alternatively it was submitted that even if brand equity or copyright represents personal goodwill enjoyed by the assessees in their profession, even then, transfer of such goodwill of their profession will not be taxable under the Income-tax Act. Reference was invited to section 2(13) which defines business and 2(36) which defines profession . 15. The learned counsel for the assessees further invited the attention of the CIT(A) to section 55(2)(n) which brought goodwill of bualnoaa to business right from assessment year 1989-90 onwards and tried to point out that before this amendment as per the decision of the Hon ble Supreme Court in the case of B.C. Srinivasa Shetty (supra), the goodwill was treated as self-generated asset and was not treated as taxable. It was further pointed out that commercially goodwill is considered as dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them in the free and unrestricted exercise of their profession. Any money received against such restrictions or curb on the free exercise of their profession would be in the nature of capital receipt. A lump sum payment pertains to restraints imposed by these agreements on the exercise of their profession contrary to the sole and exclusive rights granted to ABCL. The compensations were paid under the agreements not for the exercise of their craft as per free will, but paid for restraining their free will in the exercise of their profession. Reliance in this connection was placed on the following judgments : (1) CIT v. Saraswathi Publicities [1981] 132 ITR 207 (Mad.) (2) CIT v. Vazir Sultan Sons [1959] 36 ITR 175 (SC) (3) UK decision in Higgs v. Olivier 33 Tax Cas. 136 (CA) (4) Morgerison v. Tyresoles Ltd. 25 Comp. Cas. 72 (sic) (5) Hose v. Warwick 27 Tax Cas. 459 (6) Beak (Inspector of Taxes) v. Robson [1943] 11 ITR 23 (S) (HL) (7) Murray (Inspector of Taxes) v. Imperial Chemical Industries Ltd. [1969] 71 ITR 661 (CA). It was submitted that the ratio laid down in the above cases fully apply to the facts of the appellants cases. 18. The l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rson. Thus, he was of the opinion that personal attributes of a person is inseparable from an individual. In this connection he has also referred to the Copyright Act. 19. With regard to the legal position, he stated that Palkhiwala at page 259 has opined that the Supreme Court decision in the case of Barendra Prasad Ray v. ITO [1981] 129 ITR 2951 is not correct and requires reconsideration. After discussing various case laws relied upon by the appellants and the contentions raised before him, he came to the conclusion that the assessees are artistes and derive income on exercise of their profession and in order to carry out their profession as artistes entered into agreement with ABCL. At the same time, they kept themselves free to lend their services as actor/actress to any other company they may choose. Therefore, it is established beyond shadow of doubt that the assessees are not giving up their profession nor had they ceased the same for any compensation as such which may be regarded as restraint of trade. He further mentioned that the principle of decision of restrictive covenants of business activity cannot be blindly applied to the restraint of professional activities. E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eed to perform for and on behalf of ABCL in accordance with the said clause for the payment as agreed upon by them of the profit earned by M/s. ABCL. In addition to what is provided in clause 4.1, in the event of M/s. ABCL producing or co-producing a feature film in each year, M/s. ABCL was to pay the artiste as mentioned in the agreement on every second film. Based on the terms and conditions contained therein, the assessees were of the view that the amount received on assignment of right to use their name and other rights were not taxable under the Income-tax Act and they have given such notes in their returns of income claiming it to be of a capital receipt. 22. Clause 1 of the agreement gives the definitions and interpretation for the purposes of the said agreement such as engagements , guaranteed payment , guaranteed period , product of engagement , trademark. In clause 1.2 it is specifically mentioned that all rights hereby granted to ABCL are solely and exclusively to M/s. ABCL. Clause 1.4 specifically states that where the context so admits the products of the engagements shall include the entire contribution made by the artistes provided the artistes in connection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s assignment of such personal rights or brand had not been acquired by the assessees for any cost, but were self-generated. So any amount received on assignments of such rights or brand is a capital receipt in view of the decision of the Hon ble Supreme Court in the case of CIT v. B.C. Srinivasa Shetty [1981] 128 ITR 2941. 25. It is pointed out that section 55(2) defines cost of acquisition for the purposes of sections 48 and 49 in relation to capital asset which being goodwill of a business, tenancy rights, stage carriage permits or look hours, the cost of acquisition would be nil. This particular provision would not apply to appellants case as what was being realised by appellants as a result of agreements was not goodwill of a business as they have never carried on any business but were exercising a profession and these rights were assigned to ABCL in the nature of brand equity and it cannot be considered as a goodwill, of business. Reliance was placed on the following decisions : CIT v. Dr. V.K. Ramachandran [1981] 128 ITR 727 2 (Mad.), Natvarlal Ambalal Dave v. CIT [1997] 225 ITR 936 (Guj.), Dr. P. Vadamalayan v. CIT [1969] 74 ITR 94 (Mad.). 26. Alternatively, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt. Further reliance in this connection was placed on the following decisions : 1.Voltas Ltd. v. Dy. CIT [1998] 64 ITD 232 (Bom.) 2.Dy. CIT v. Chandra Mohan [1999] 70 ITD 33 (Chd.) (TM) 3.CIR v. British Salmon Aero Engines Ltd. 22 TC 20 4.168 ITR (St.) 105 para 228 3 CBDT circular 5.Barendra Prasad Ray v. ITO [1981] 129 ITR 2953 (SC) William v. Nethersole 51 ITR 511 (sic) 28. It was further submitted that a brand trademark or copyright is a valuable right in the nature of property. In this connection, our attention was invited to various clauses of section 14 of the Copyright Act, 1957 specifically to sections 2, 18, etc. and emphasis was laid on the definition of work in which copyright subsists . It is mentioned that subject to the provisions of these sections and other provisions of this Act, copyright was subsisted through out India in the following classes of work : (a) original literary, dramatic, musical or artistic work; (b) cinematographic films; (c) records. Reference was also invited to section 2( qq) which defines the word performer which include an actor and 2(q) defines the word performance in relation to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcise by them on their profession. Even if the exclusive right granted under the agreement is considered to be not the total rights, then also, grant of substantial right would also hamper, and affect them in their free and unrestricted exercise of their profession. So, the sums received for, such restriction or curb is in the nature of capital receipt. The learned counsel for the assessee relied on the following decisions : -CIT v. Rai Bahadur Jairam Valji [1959] 35 ITR 148 (SC) -CIT v. Automobile Products of India Ltd. [1983] 140 ITR 1591 (Bom.) 31. Lastly, it was submitted that if the department wants to bring certain receipt in the taxing provision, it is incumbent upon them to show that the receipt was within the taxing provisions and the burden lies upon the department, which they have not discharged. In this connection our attention was invited to various case laws as has been placed before the CIT(A), which are listed in the CIT(A) s order. Reliance was placed on the following decisions : -Parimisetti Seetharamamma v. CIT [1965] 57 ITR 532 (SC) -Smt. Panna Devi Chowdhary v. CIT [1994] 208 ITR 8492 (Bom.) 32. The learned departmental representative, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this connection our attention was invited to clause 2 of the agreement and it is further submitted that only the first feature film is made without remuneration as per supplementary agreement. In this connection, the learned departmental representative submitted that even if the agreement is taken as it is, this should be interpreted or analysed on the basis of principles of governing interpretation of document. In this connection it is submitted that the meaning of the document or a particular part of it is to be sought for in the document itself and nothing should be imported from outside. The intention may prevail over the words used but words are to be taken in their liberal meaning, which depends on the facts and circumstances of the terms and conditions entered into between the parties. The technical/legal terms will have its legal meaning and nothing should be imported from outside. The deed document is to be construed as a whole and in a contract like the present one, the later clauses are to be preferred to the earlier clauses. Continuing his argument, he further submitted that if two interpretations are possible, the one favourable to the party, who has drafted the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c right or assignment thereof. Further, the feature films in which the artistes are required to act would otherwise be copyrights of the producers, which would also include M/s. ABCL as in the case of other producers. The artistes thus do not have any right in feature film in which they would act for ABCL, which could be assigned. The artistes did not possess any right in any performance on date of agreement which can be assigned. The only rights which they could assign would have been their performance in the public after the execution of the agreement which right or rights they would be vesting with them in view of the changes made in the Copyright Act. Section 38 of the Copyright Act defines such right which has been made effective from 10-5-1995 whereas section 18 of the Copyright Act prescribes the assignment of copyright in any future work which shall take effect only when the work comes into existence. Therefore, during the period, when sums of ₹ 15 crores to Shri Amitabh Bachchan and ₹ 3 crores to Mrs. Jaya Bachchan were paid to the appellants, there was nothing in return to be given to ABCL by the appellant in the form of assignment of Rights either in performa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 3 crores to Mrs. Jaya Bachchan were made and on the basis of which modifications were effected in the supplementary agreement. Another facet of the latent ambiguity in the non-disclosure of nature of performance, whether present, past or future through rights in the performances have been assigned but there appears to be no rights of the artistes in present or past performances which have been assigned. Subsequent acts and events also raise strong doubts about the genuineness and purpose of these agreements. In the course of hearing in the case of Mr. Amitabh Bachchan it was canvassed on behalf of the assessee that the assignment of rights by artistes, the company, M/s. ABCL could earn more than ₹ 30 crores from the successful TV show Kaun Banega Crorepati (KBC). This claim has been strongly challenged on behalf of the department that by the pointing out various copies of relevant accounts filed with the return of income for the assessment year 2001-2002 wherein it is the artiste Shri Amitabh Bachchan who has initially received the sums from M/s. E-Entertainment Ltd., a company registered in Singapore and TDS certificate has also been issued in the name of the artiste w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e failed in this regard. This fact also strongly indicates that the payment is not in the nature of brand equity or goodwill because these are standard methods for valuation of equity or goodwill. The assessee has failed to discharge his onus. In this connection reliance was placed on the decision in the cases of CIT v. Orissa State Warehousing Corpn. [1993] 201 ITR 729 (Ori.) at 733 and CIT v. Motor General Finance Ltd. [2002] 254 ITR 449 1 (Delhi). 38. The assessee have invited our attention to section 55(2) of the Income-tax Act which came on the statute by Finance Act, 1997, w.e.f. 1-4-1998 which speaks of goodwill of business only. However, the same is also applicable to the goodwill of profession also. In this connection our attention was invited to the decision of the Hon ble Supreme Court in the case of Barendra Prasad Ray v. ITO [1981] 129 ITR 295 . 39. The learned departmental representative invited our attention to the items of clauses (ii) to (xviii) of the agreement under heading engage- ment and it is submitted that it is an illusory clause. The personal attributes of the individual are inseverable and inseparable and, therefore, cannot be transferred. Only th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Addl. CIT v. Poddar Auto Dealers [1975] 101 ITR 14 (Pat.) at 16 CED v. Satyanarayan Babulal Chaurasia [1983] 140 ITR 158 1 (Bom.) Gammon India (P.) Ltd. v. CIT [1993] 202 ITR 986 2 (Bom.) CIT v. H. Millers Co. Ltd. [2000] 246 ITR 316 3 (Mad.) CIT v. Ralliwolf Ltd. [1983] 143 ITR 720 4 (Bom.). 41. In the rejoinder, the learned counsel for the assessee submitted that the revenue authorities laid emphasis on the fact that the agreement cannot be considered at arm s length on account of the fact that the assessees, Shri Amitabh Bachchan and Smt. Jaya Bachchan held 84% of the share capital of the company, ABCL. The learned counsel submitted that although the assessees held so much of shares, yet, the other shareholders are to the extent of 16% and secondly, the revenue itself had assessed M/s. ABCL as a separate legal juridical entity and M/s. ABCL has not been considered as a non-existent company. It is pointed out that M/s. ABCL have active engagements other than those with the assessees and had produced many television serials and have undertaken the beauty pageant for Miss World Contest at Bangalore. Therefore, it cannot be considered that the agreements ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, the argument that the agreements were not signed by the Directors of ABCL is erroneous and misplaced and further Board sanctions were obtained under section 297 read with section 299 after necessary compliance. 44. Alternatively, it was submitted that for the sake of argument, without admitting the same/that the agreement is void, then it must follow that the amounts have been received by the assessees under a mistake. In such a case the provisions of section 72 of the Indian Contract Act, 1872 would clearly apply and the money received would be held in trust for the payer. In such an event clearly the amount cannot be held to be income of the appellants. 45. The learned counsel for the assessee pointed out that the case of the revenue is that the lump sum amount received were for future performance, therefore, constitute as payments made by a producer to artistes for acting in the film. In this connection it was submitted that the argument is completely erroneous and not based on any factual data. With a view to clarify the allegation made without placing on record any facts, the assessees produced copies of agreement signed between the assessee and Prakash Mehra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existing work or the prospective owner (Emphasis supplied) of the copyright in a future work (Emphasis supplied) may assign to any person the copyright either wholly or partially and either generally or subject to the limitations and either for the whole term of the copyright or any part thereof. The proviso to this section recognises that although there can be a present assignment of copyright, in any future work the assignment shall take effect only when the work comes into existence. This draws distinction between a present assignment of a future work and the assignment taking effect in future. If the argument of the learned departmental representative is accepted, then the question arises who would have been the owner of the performer s right or owner of the copyright in a dramatic work or in any other work which would come into existence in the future. The answer to this is that the owner of the performer s right or the copyright on the performance of the future work, would have been the appellants. By assigning presently that future work, the owner of the future work would be ABCL and not the appellants. So, the agreement has created the ownership in the hands of M/s. ABCL fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s arising as a result of any breach in performance by the artistes of their obligations and under the agreement and clause 11 deals with the equitable relief. Clause 6.12 deals with the obligations of the artistes under the agreement and clause 11 recognises that unique and unusual extraordinary character of the engagement and empowers to ABCL to weak, equitable relief to prevent actual or threatened breach by the artistes. These two clauses dealt with different things and different occasions and no conflict exists between each other as perceived by the learned departmental representative. Section 39 of the Contract Act deals with the consequence in the event of a party to a contract refuses to perform the contract wholly. Therefore, it has no relevance. 49. So far as the argument that the tax deducted at source on a payment received from E. Entertainment Ltd. by Shri Amitabh Bachchan, our attention was invited to the return of income for assessment year 2001-2002 and the professional receipt in the year ended 31-3-2001. It is pointed out that the programme Kaun Banega Crorepati (KBC) was a programme which was an engagement within the meaning of that form in the agreement betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and also claimed certain expenditure in the matter of realization of sale proceeds in the profit and loss account. Such sales had taken place year after year and it was in these circumstances that the Bombay High Court held that the burden would be on the assessee to prove that the sale of trees which were shown by him as revenue receipt was, in reality, a capital receipt. On the other hand, insofar as the appellants cases are concerned, life time payments are made, which were never received in the past nor since the agreement. Therefore, the case of assessees is unlike the case of Raj Kumar Ashok Pal Singhji (supra). In appellants cases the payments had not been shown as receipts in the profit and loss account and on the contrary, it had been taken to the credit of the capital accounts as pointed out by the learned departmental representative himself. Therefore, it was pleaded that the case of CIT v. Raj Kumar Ashok Pal Singhji [1977] 109 ITR 581 (Bom.) is distinguishable on facts. 52. The learned counsel then invited our attention to the Supreme Court decision in the case of Best Co. (P.) Ltd. (supra) and argued that this was a case where one out of numerable agencies w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. These logs were sold and a part of the receipt representing profit were sought to be taxed as income. The Hon ble Apex Court held that the payments were capital receipt as the very source of the profit making apparatus of the assessee was sterilized. The Court also observed that if the forest leases were stock-in-trade the payment would then have been revenue receipt. The learned departmental representative made it a point that the principle only applies to existing profit making apparatus and in the case of the appellants there was no existing profit making apparatus. It was, therefore, contended that this assumption is completely misplaced. He contended that the appellants were the most successful artistes of all time in the film world in India and in the BBC poll in the world and to say that an agreement which tied the appellants down for 10 years, if held, is not a sterilization of profit making apparatus, would be making a travesty of the facts. Thus it is submitted that the above decision supports the appellants contention that the profit making apparatus of the appellants is sterilized and, therefore, would constitute capital receipt. 56. He further invited out at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts and source must decide the nature of the payment, the learned counsel contended that the payment has no quarrel and it is the submission of the appellants that having stated this proposition, the learned departmental representative failed to appreciate that distinctive payments are contemplated by the agreement under clauses 3, 4.1 and 4.2 for distinctive obligations under the agreement. 59. The learned assessee s counsel submitted that two English cases viz. Evans Medical Supplies Ltd. v. Moriarty (Inspector of Taxes) [1957] 31 ITR 466 (ChD) and Moriarty v. Evans Medical Supplies Ltd. [1969] 35 ITR 707 (HL) were cited for the proposition that this was unilateral, illusory and ambiguous contract. It was explained that the decision of the Chancery Division went upto the House of Lords in the later cited case. In this case, Evans Medical Supplies Manufacturing Chemists and Druggists entered into an agreement with the Government of Burmah for establishing the pharmaceutical industry in Burmah. The question for consideration was whether the sale of its know-how was a capital receipt or an income receipt. The Chancery Division held that the payment was for sale of the capital rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that goodwill would not attract tax as section 55(2)(a) has no application to professional goodwill. The cases cited by the learned departmental representative in Dr. P. Vadamalayan v. CIT [1969] 74 ITR 94 (Mad.), CIT v. Dr. V.K. Ramachandran [1981] 128 ITR 7271 (Mad.), Natvarlal Ambalal Dave v. CIT [1997] 225 ITR 936 (Guj.) and CIT v. Upasana Hospital [1997] 225 ITR 845 2 (Ker.) is distinguished on facts itself especially, in view of the categorical understanding of the CBDT circular cited above. 62. It was contended by the learned departmental representative that transfer of professional goodwill is covered by section 55(2)(a). Reference was invited to various provisions of the Act, such as sections 32A, 33, 35, 35A, 35AB, 35D and 41(2) and 41(3) and it was argued that the very fact that the professionals are entitled to a deduction in respect of investment allowance, development rebate, scientific research, etc. despite the fact that the expression used is for the purpose of business, indicates that the word business would include profession and, therefore, even though section 55(2)(a) referred to goodwill of the business, professional goodwill would equally be covered. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the compensation paid is capital receipt inasmuch as it represents compensation for giving up a valued right. Atkins J refers to the case of Beak (Inspector of Taxes) v. Robson [1943] 11 ITR 23 (S)(HL). Therefore, the ratio of the decision is that where there is an amount paid in consideration of covenant not to compete directly or indirectly, the amount paid is capital payment. The case of CIR v. British Salmon Aero Engines Ltd. 22 Tax Cases 29 was distinguished on the ground that in that case there were existing rights whereas in the appellants case they had no brand name when the restrictive covenant had been entered into. It is submitted that the distinction made by the learned departmental representative is misplaced. Their Lordships, in British Salmson Aero Engines Ltd. s case (supra) were dealing a case in which a licence had been granted accompanied by a covenant not to compete. Thus, the undertaking restraining oneself from exercising a right of an instructive nature. It lies in the womb of the future and, therefore, what has to be seen is whether the appellants had potentiality of using their name, persona and aura to earn income and whether by refraining and restrai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue income. The decision of Higgs v. Oliver 33 Tax Cases 136 (CA) was cited in that case and the Court observed that there was no material to show that the restrictive covenant was independent of the main contract. No facts were placed by the authorities to evaluate the consideration referable to the covenant contained in clause 7. The question was not even raised before the Tribunal or the officers. The question referred does not comprehend a subsidiary position. The new case that the consideration paid for the released should be allocated between the two heads of capital and revenue cannot now be allowed. This clearly shows that the question of restrictive covenant was not considered. 67. It was further argued that the case of Kettlewell Bullen Co. Ltd. (supra) was referred by the learned departmental representative for the proposition that the compensation received for cancellation of contract of agency could be regarded as revenue expenditure. The Hon ble Supreme Court at page 288 drew the distinction between the compensation for the termination of a contract which is revenue in nature and compensation which affects the trading structure which represents a capital receipt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to this claim of the assessees are mentioned at para 10 above. Therefore, we need not have to repeal the same here. Thus, we now move on to deal with the various submissions vis-a-vis case laws relied on by the parties for different propositions. Burden of proof 70. In this context, the case of the assessee was that the burden lies on the revenue to prove that the receipt was within the taxing provision whereas the learned departmental representative with reference to the decision of the Bombay High Court in the case of Raj Kumar Ashok Pal Singhji (supra) with particular attention to pages 592 and 593 and the observation of the Supreme Court in the case of Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1 submitted that the burden shifts on the assessee. In order to decide the burden of proof we will consider the decisions cited by both the parties. 71. In the case of Raj Kumar Ashok Pal Singhji (supra), the question which arose before the Court was whether the income from sale of trees from spontaneous growth was revenue receipt or capital receipt. The Hon ble Bombay High Court observed that the question of burden of proof cannot be considered in isolation and will ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax authorities are not entitled to raise an inference that the receipt is assessable to income-tax on the ground that the assessee has failed to lead all evidence in support of his contention that it is not within the taxable provision. 72. The case of CIT v. Best Co. (P.) Ltd. [1966] 60 ITR 11 (SC) relied on by the learned departmental representative is distinguishable on the basis that this was a case where one out of numerable agencies was given up and the question was whether the compensation received by an assessee for loss of an agency was a capital receipt or a revenue receipt. The Hon ble Supreme Court pointed out that the compensation attributable to the loss of agency was a revenue receipt and the compensation for restrictive covenant was a capital receipt. The next submission of the learned departmental representative was that as the basis of the compensation has not been determined, it cannot be regarded as capital receipt, as according to him, it was a commutation for future performance, we have gone through the terms of the agreement as also the relevant section of the Copyright Act. The payment was made for existing copyright or future. A separate payment was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of the appellants. In this view of the matter, we hold that the argument of the learned departmental representative is not worthy of acceptance that the burden of proving a particular receipt does not come into the taxing provision is on the assessee. The revenue could not discharge its burden of proof that the particular receipt by assessees is taxable under the Income-tax Act. In any case from the evidence on record we find that the assessee had filed sufficient document and evidence to show that the amount received is not an income which we are discussing in the later paragraphs. Therefore, for the sake of arguments, even if the burden of proving is shifted on the assessees, we are of the view that on the basis of evidence produced before us it stands duly discharged. 75. In order to understand the real nature of the receipt, we have to go through the important terms and conditions of the agreement. The preamble to the agreement states the broad objective of the agreement which is as under : And whereas the artiste has agreed to assign to the Corporation the right to use the Artistes name for the diverse purposes set out herein and other rights described in clause 3 herei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Bombay High Court in the case of New India Assurance Co. Ltd. (supra) held that the right of management is property and has to be equated to a capital asset as being a part of the profit making apparatus of an assessee. Both these decisions were based on the decision of the Hon ble Supreme Court in the case of Dwarkadas Shrinivas v. Sholapur Spg. Wvg. Co. Ltd. [1954] 24 Comp. Cas. 103 where the Hon ble Supreme Court held that - the right to manage its life insurance business was a property of the assessee and it formed part of its capital assets as it constituted a part of its profit making apparatus. Accordingly, it was held that the compensation received by the assessee under section 7 of the Act was for the deprivation of a part of its capital asset and as such it was a capital receipt and was not taxable as a revenue receipt or income in the hands of the assessee . Therefore, from above decisions, it is quite clear that right to manage one s profession and to exercise the same, which have been assigned by the appellants to ABCL under an agreement, cannot be treated as a revenue receipt because if you go through the various features of the agreement coupled with the rati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avoid recurring payment for every future performance and once it is held that the receipt is of revenue nature, it is not relevant whether received in lump sum or periodically. The alternative claim of the assessee that the sums claimed to be represented brand equity or goodwill had not been established since they have not discharged the onus and further the attention was invited to amended section 55(2)(a). Some ground realities of the agreements were also stated as almost similar agreements were made on the same dates in both the cases of the appellants. In the supplementary agreement drastic reduction in the quantum of fee for rendering performances and in clauses (ii) to (xviii ) of the engagement were also stated to be illusory. 79. With regard to these objections of the department, if we read clause 3.1 of the agreement, which shows that the assignment contemplated is of entire copyright, whether vested, contingent or future and of those rights also, which may come into existence in future at any time after the date of agreements and during the period of 10 years, the insinuation that there is no copyright in respect of future performance, which could be assigned flies in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e valuable, which value had been determined at ₹ 3 lakhs by the parties. The amount so received in those circumstances would be in the nature of capital asset. In the case of Chandra Mohan (supra ), while dealing with the case pertaining to the assignment of a patent right has held that the amount received on such patent right would be a capital receipt not taxable in the hands of the assessee. In the case of British Salmon Aero Engines Ltd. (supra) an English company acquired the sole license to manufacture and sell in United Kingdom and its dominions, colonies and dependencies the aeroplane engines made by a French company. The company by an agreement acquired such license for 10 years. In addition sums were payable as royalty during each year of the currency of the license. The Court held that The Special Commissioner decided that the sum of ₹ 25,000 was a capital payment, but that the further payments of ₹ 2,500 were royalties or other sums paid in respect of the user of a patent. In the case of Withers (Inspector of Taxes) (supra), the assessee entered into an agreement of 1939 was granted an assignment of the sole and exclusive motion picture rights through ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he profit making structure of the assessee. Therefore, the compensation was of capital receipt. In the case of Rai Bahadur Jairam Valji (supra) the assessee received compensation on termination of agency. The question was whether the amount received by way of compensation was capital or revenue. The Hon ble Supreme Court found that the agency contract was actual business of the assessee and that it was part of business itself not anything outside it and, therefore, it was held that the agency contract was an incident of the business itself carried on by the assessee and, therefore, the amount received was a revenue receipt. But while rendering this decision, the Supreme Court has clearly laid down the principles that an agency contract which has the character of capital asset in the hands of the person, then the compensation received on termination of such an agency would be a capital receipt. Such compensation would be paid for injury inflicted on the capital asset. Thus, it is clear that the right, which the assessees have assigned solely and exclusively to M/s. ABCL are not an incident of exercise of the profession in view of the terms and conditions entered into between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally or together to make up the goodwill, though locality always plays a considerable part. Shift the locality, the goodwill may be lost. In the case of Rustom Cavasjee Cooper v. Union of India [1970] 40 Comp Cas 325 (SC) has held that the goodwill of a business is an intangible asset. Similarly the Madras High Court in the case of Estate of Kisandas v. CED [1989] 178 ITR 259 1 has held that the goodwill is based and developed on the faith, belief and confidence of the customer in a particular business house or trade and the standing of the business is also one of the contributory factors apart from persons engaged in the business, the place of the business and other like factors. From the above ratio laid down by the Hon ble Supreme Court and various High Courts it is clear that the brand equity/copyright is not goodwill of a business. What section 55(2)(a) wants to bring under the taxing net is the goodwill of a business because there is a clear distinction between the concept of business and the concept of profession. This distinction was very well brought out in the judgment of the Gujarat High Court in the case of CIT v. Dr. K.K. Shah [1982] 135 ITR 146 , to the following effe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill the end. In consideration of those terms Blaze agreed to pay the assessee a sum which was claimed as a capital receipt. On these facts, the Hon ble Madras High Court has held that the receipt was referable to the restrictive covenant; it was a capital receipt not liable to income-tax. In another case of CIT v. Vazir Sultan Sons [1959] 36 ITR 175 (SC) the compensation was received by the assessee for cancellation of his sole agency. The issue before the Hon ble Supreme Court was whether it was capital or revenue. The Hon ble Supreme Court held as under : The agency agreements were not entered into by the assessee in carrying on of their business but formed the capital asset of the assessee s business which was exploited by the assessee by entering into contracts with various customers and dealers in the respective territories; it formed part of the fixed capital of the assessee s business and was not the circulating capital or stock-in-trade of their business; and the payment made by the company as and by way of compensation for terminating or cancelling the agreement was a capital receipt in the hands of the assessee. In the case of Higgs v. Oliver 33 Tax Cases 136 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits or gains in order to taxable must arise or accrue from a profession, in the sense that they arise from exercise of a profession. In Morgerison v. Tyresoles Ltd. 25 Comp. Cas. 72 (sic), a lump sum payment was received in respect of restrictive covenants owning certain patented processes. The question was whether these were trading profits or realization of capital asset. The House of Lords held that lump sum payment received against the restrictive covenants, were receipts of capital nature. Similarly in the case of House v. Warwich 27 Tax Cases 459, the same view was taken by the Court of Appeal. In the case of Beak (Inspector of Taxes) (supra) as also in the case of Murray (Inspector of Taxes) v. Imperial Chemical Industries Ltd. [1969] 71 ITR 661 (CA) same view was taken by the Hon ble Courts. 85. In view of the facts in appellants case vis-a-vis the terms and conditions imposing restrictive covenants. It clearly establishes that the amounts were received by the appellants for sterilization of their source of income and putting a curb in free exercise of their profession, which would amount to capital receipt not liable to tax. 86. The learned departmental repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether any consideration has been paid or not is satisfied. Once that is so, the agreement cannot be treated as sham or illusory one in view of the above Supreme Court decision. 87. The second objection of the learned departmental representative is that the agreement cannot be considered at arm s length on account of the fact that the assessees to whom the payments were made held 84% of the share capital of M/s. ABCL. According to him, the payee and the payer are the same person. Therefore, no significance can be attached to the agreement. It is true that the assessees are holding 84% of the share capital in ABCL and Shri Amitabh Bachchan is the Chairman cum Managing Director of the company. It may be noted that the revenue itself had assessed ABCL as a separate juridical entity. ABCL had produced and distributed films, produced and distributed television serials, music albums, also undertaken beauty pageant for the Miss World contest at Bangalore. The taxing authorities have treated M/s. ABCL as a separate entity and assessed as another separate entity for the purpose of Income- tax Act, 1961, no two incomes were brought to tax together. Further, under the companies law ABCL is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving regard to the various parameters referred to above. The valuation of the brands does not emerge from any given formula. Having gone through the objection and the reply we are of the opinion that there cannot be a straight jacket formula for quantification of the amount and, therefore, we agree with the arguments and submissions of the learned counsel for the assessees in this respect. 88. The next objection of the learned departmental representative was that the assignment of rights is illusory and non-existent. In this connection our attention was invited to the definition of engagements and it was also mentioned that the assessees could not show that they are either accomplished singers or voice recorders or accomplished artistes, comperes, etc. In this connection it was mentioned that the assignment in respect of functions of clauses (ii) to (xvii) are non-existent. It was further argued that the assessees are well known artistes but how the use of name generates revenue is difficult to imagine. The learned counsel in his argument pointed out that the artistes are par excellence in non-commercial fields also. To give some example, he pointed out that Shri Amitabh Bachcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there were no existing patent is not relevant circumstances at all as the payment has not only been received for the transfer of the existing patents, but for refraining them from using their names, persona or aura on their own behalf and instead of lending it to ABCL. To our mind, the ratio laid down in the cases of Higgs (supra), Beak (Inspector of Taxes) (supra), Sonawola and Dinshaw Pandole ( supra) are squarely applicable to the case of the assessees since in the case for the appellants also as a consequence of payment, it sterilized the resource of income and also curbed the free exercise of their profession insofar as their name, brand, persona are concerned. 91. Reference to section 27 of the Contract Act is misplaced as restrictive covenant is an exception to the provisions contained in the Contract Act. The decision in the case of Bharani Pictures (supra) did not even consider the question of restrictive covenant because that was not raised before the High Court. Therefore, this authority is not good for the proposition raised by the learned departmental representative. 92. In the case of Kettlewell Bullen Co. Ltd. (supra), the Hon ble Supreme Court drew distinct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehboob Productions (P.) Ltd. v. CIT [1977] 106 ITR 758 (Bom.), Rani Amrit Kunwar v. CIT [1946] 14 ITR 561 (All.), B.K. Roy (P.) Ltd. v. CIT [1995] 211 ITR 500 (Cal.), International Instruments (P.) Ltd. v. CIT [1982] 133 ITR 2831 (Kar.). It is brought to our notice that till 1972-73, there was no ceiling for exemption and every income receipt, which is casual and non-recurring in nature was exempted to the full extent, so the Central Board of Direct Taxes issued a Circular No. 158 dated 27-12-1974 wherein the effect of the ceiling limit on the exemption under section 10(3) of the Act, by the Finance Act, 1972 has been considered. In view of the above, it is clear that the provisions of section 10(3) cannot be applied to the provisions of the Act. 94. The learned departmental representative further submitted that the agreement is reduced to commutation of payments for future performance to which the learned assessees counsel has replied in the rejoinder. In our view we have to consider various clauses of the agreement in respect of payments. We cannot think of payments divest of various terms and conditions of the Agreement. These payments are contemplated under clauses 4.1, 4.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stage, secondly, we would like to mention that the quantum of payment is not relevant to the character of the payment. It is the character of payment for bringing the amount under the taxing statute. A point was raised with reference to sections 37 and 40A(2). We would like to mention here that this section pertains to expenditure, therefore, is not relevant here. 97. Another point was raised by the learned departmental representative the management have not shown any professional receipt for assessment years 1994-95 to 1996-97 to which the learned assessee s counsel pointed out that during those period, these assessees were NRIs hence no receipts were shown. We find substance in the argument of the learned assessee s counsel. 98. During the argument, the learned departmental representative pointed out that the tax deducted at source on payment received from E-Entertainment was claimed in the hands of the assessee, Shri Amitabh Bachchan. Income for assessment year 2001-02 and the list of professional receipts for the year ended 31-3-2001. He pointed out that credit for TDS of ₹ 1,26,50,007 is given in the hands of Shri Amitabh Bachchan in Form No. 16A, the learned cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of appeal with another appeal No. 454/Bom/2000 was made by the learned departmental representative with a request for adjournment and the hearing was fixed for 29-6-2001. On that day, the Bench could not function and it was fixed for hearing on 24-8-2001. In the course of discussion, it transpired that relief allowed on addition of ₹ 57,59,883 by the Assessing Officer to assess the income on cash basis was not in accordance with the facts and law. The departmental representative for the first time informed the respondent during the hearing of appeal in the case before the Tribunal. Therefore, there is a delay in filing cross-objection and it should be condoned. 102. The learned assessee s counsel objected vehemently for condonation of delay on the ground that firstly, there is no reason in the application for condonation of delay in filing the cross-objection. Secondly, according to the revenue, the appeal was filed on 10-1-2001 and it has come to the knowledge of the department. It is pointed out that before filing of reply/cross-objection or appeal, the Assessing Officer reads the order. If the Assessing Officer had already read the order on 10-1-2001 what was the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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