TMI Blog2018 (11) TMI 790X X X X Extracts X X X X X X X X Extracts X X X X ..... ition would be nil - the contention of the assessee is that after the expiry of the 2 years the appellant can make use of its right to know how and the product information to manufacture or produce its own goods - Held that:- According to the assessee there is no transfer of any right to manufacture, produce or process. On careful consideration of this argument it is apparently clear that by transferring the know-how and the product information in respect of goods the appellant has not ceased its right to manufacture, produce or process the goods. Even otherwise, it is only for the 2 years that the assessee has entered into a non-compete agreement. Therefore we find ourselves in agreement with the finding of the learned CIT appeal that the said capital receipt is not liable to tax within the meaning of the provisions of section 55 (2) of the act. In view of this, the sale of knowhow and the sale of the product of ₹ 25 lakhs and ₹ 75 lakhs respectively is not chargeable to tax under the head capital gains. Disallowance on account of service charges paid to M/s TriStar Home products private limited - Held that:- The claim of the assessee is that the super stockiest was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed into an agreement dated 1/8/1997 for sale of its trademarks, know-how, product information, goodwill, et cetera to Henkel Spic India Limited at a total consideration of ₹ 4.5 crores. The assessee also gave the breakup of the above consideration into sale of trademarks of ₹ 1.75 crores, goodwill of trademark ₹ 25 lakhs, sale of knowhow ₹ 25 lakhs, sale of product information ₹ 75 lakhs and consideration towards noncompetition of ₹ 1.5 crores. In the return of income filed by the assessee, the consideration of ₹ 1.5 crore received towards noncompetition fee was offered for taxation. But the remaining consideration of ₹ 3 crores was claimed as exempt as capital receipt, though credited to the profit and loss account. The main contention of the assessee is that in terms of section 55 (2) only consideration received against the transfer of goodwill, tenancy right et cetera are chargeable to tax whose cst of acquisition is Nil. However, trademarks, know-how etc have not been included in that section, therefore if they do not have any cost of acquisition, the provisions of charging capital gain on sale of thee assets fails. Thus, accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3513/ against the returned income of ₹ 1 034649/ . 10. The assessee carried matter before the learned commissioner of income tax appeals V III, New Delhi. The learned commissioner appeals vide order dated 21/3/2002 has held that the ₹ 1.75 crores received by the assessee toward sale of trademarks is not chargeable to tax being a capital receipt. He further held that ₹ 25 lakhs received on account of transfer on sale of knowhow and ₹ 75 lakhs on account of product information is no towards the right to manufacture a product and also not chargeable to tax under the head capital gains. However he held that ₹ 25 lakhs received by the assessee for sale of goodwill related to trademark is chargeable to tax under the head capital gain. Assessee did not prefer any appeal before us as it may not be aggrieved with this order. However, ld AO filed an appeal before us contestsing the capital gain and disallowance deleted by the ld CIT A. 11. The revenue is challenging the order of the learned commissioner of income tax appeals, which deleted the addition of ₹ 1.75 crores on account of trademark, ₹ 25 lakhs on account of sale of know-how, of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by showing the sufficient cause. It was further stated that merely because the assessee has received the advice it cannot be stated that the delay was for sufficient cause. It was further stated that even otherwise the assessee has not shown when the advice was received and when the assessee filed across objection and it also did not explain the delay with that aspect. 15. We have carefully considered the rival contention and perused application of the assessee for condonation of delay. Considering the facts before us it is apparent that delay is not occasioned on account of any deliberate or culpable negligence or mala fide from the side of the assessee. The issue raised by the assessee is purely legal and which has also on account of some legal precedents in favour of the assessee which has come to its knowledge later on. It is not required to be explained by the assessee about each days delay, but if assessee explains the reasons for delay which are acceptable in a rational and pragmatic manner same should be condoned. The above principles have also been laid down by the honourable Supreme Court in 167 ITR 471 and therefore the delay of 552 days in filing the cross objectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in a case where the issue has not been considered or dealt by the lower authorities. He vehemently relied upon the decision of coordinate benches and stated that the cross objection cannot be entertained at this stage. 19. The learned authorised representative submitted that the provisions of section 253 (4) of the act provides that wherein appeal is filed by the appellant against the order of the learned commissioner of income tax appeals, respondent is entitled to file cross objections before the tribunal. The aforesaid section clearly provides that the memorandum of cross objections shall be disposed of by the tribunal as if it were an appeal presented before the tribunal. He further stated that according to the income tax appellate tribunal rules 1963, as per rule 22 the memorandum of cross objection filed under section 253 (4) of the act shall be registered and numbered as an appeal and all the rules relating to disposal of normal appeal shall apply to cross objections. He further placed reliance upon several decisions and stated that there are no fetters on the respondent to raise new plea/grounds in cross objection. He further stated that it has been held that it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds of cross objection cannot be limited to the grounds raised in the appeal of the revenue. However, the question that arises is that whether in the cross objection the assessee or revenue (AO) can raise an issue, which was not at all a matter of dispute before the assessing officer or before the 1st appellate authority. The provisions of section 253 (4) authorizes the other party to file cross objection against any part of the order of the Commissioner (Appeals). Therefore, it is apparent that the issue must have been decided in the order of the 1st appellate authority, then only the assessee can file a cross objection. In the present case, the assessee himself has offered ₹ 1.5 crores as income of the assessee. It was not agitated before the assessing officer that such income is a capital receipt. It was also not agitated before the commissioner appeals that such income is not chargeable to tax. In the cross objection, assessee has raised that issue. Therefore, apparently the taxability of ₹ 1.5 crores as income of the assessee was not at all part of the order of the commissioner appeals. Hence it cannot be considered in cross objection. Hence same cannot be raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tant Commissioner, and therefore the assessee could agitate before the tribunal. Furthermore the decision cited before us does not deal with the right of the assessee under section 253 (4) of the act. Therefore, the reliance placed by the learned authorised representative on that decision is improper for the issue before us. 24. The learned authorised representative has also relied upon the decision of the honourable Bombay High Court in case of B R bamasi versus Commissioner of income tax (1972) (83 ITR 223) (BOM). On careful reading of that decision it says that that the new ground of the appeal would serve only as a weapon of defence against the appeal. In the present case it is not against the appeal of the revenue that assessee is taking a difference but assessee is taking a ground which was not at all matter of dispute before any of the lower authorities. In view of this the above decisions relied upon by the learned authorised representative does not support the case of the assessee. 25. The another decision relied upon by the learned authorised representative is CIT versus Purbanachal Paribahan Goshthi [ 234 ITR 663] where the honourable court has held that A combined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction under section 35B of the act in respect of warehouse charges paid abroad. In the assessment the learned assessing officer allowed the weighted deduction of warehouse charges under section 30 5B (1) (b) (iv) of the act read with rule 6AA of the income tax rules 1962. The Commissioner revised the order under section 263 and withdrew the said deduction. The assessee filed an appeal before the ITAT against the order under section 263 of the income tax act. The tribunal dismiss the appeal of the assessee and confirmed the order of the Commissioner. In the press assessment proceedings the assessee objected to the withdrawal of weighted deduction on several grounds. The learned AO rejected the contention of the assessee and further appeal was preferred by the assessee before the commissioner appeals. The Commissioner allowed the claim of the assessee and therefore the revenue was before the tribunal. Further the tribunal rejected 1 of the contention of the assessee with respect to the disallowance as the assessee did not file any appeal or cross objection but the revenue filed the appeal. Therefore, in that particular case the dispute was before the assessing officer, the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 years, which is not covered within the provisions of section 55 (2) (a) of the act. Accordingly he deleted the addition of ₹ 2.75 crores made by the assessing officer in respect of consideration received against the transfer of trademarks, know-how and product information. 30. The learned departmental representative vehemently referred to the order of the learned assessing officer and extensively that the same and relied upon it. 31. The learned authorised representative submitted that the consideration received against the transfer of various assets such as trademark, knowhow does not constitute transfer of goodwill. He further referred to the various judicial precedents where the goodwill has been interpreted. He further stated that though goodwill has not been defined under the income tax act but the judicial precedent says that goodwill is made up of of whole lot of factors, such as influencing the final make-up of business. He further submitted that goodwill is closely associated with the name and reputation of the assessee carrying on the business. He therefore stated that in the present case assessee has not transferred its goodwill/name/reputation to the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt as it is received for the sale of goodwill or for the right to manufacture. The AO further held that the appellant has transferred its right to manufacture, process or produce the goods by transferring the know-how and product information in respect of those goods as the appellant lost its right to produce and market those goods for the agreed period of 2 years. For holding so, the learned assessing officer stated that since the appellant has sold its major trademarks which contributed towards substantial part of its turnover and that after the date of the said agreement no sale of any other product was made by the appellant the sale of trademark is to be considered as the sale of goodwill of business for the purpose of section 55 (2) of the act. He further noted that the appellant s operations have substantially reduced in the subsequent financial year and that the turnover of the appellant has reduced to ₹ 5.67 lakh against the turnover of ₹ 202.42 lakhs owing to the said a transfer of trademark. He therefore held that sale of trademark is a sale of goodwill of the business and the sale of know-how and product information represent the sale of right to manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost of acquisition shall be taken as nil, however in case of the trademark the cost of registration of trademark is not the cost of acquisition but it is the cost of registration of those intangible assets which are already there. He has further held that goodwill is an advantage of the reputation and connections formed with the customers together with the circumstances making the connection is durable it is that component of the total value of the undertaking which is attributable to the ability of the concerned 1 profits over the course of years or in excess of normal amounts because of reputation, location and other features. Therefore he held that goodwill and trademarks are distinct. No infirmity is pointed out in this finding of the learned commissioner appeals and we fully endorse the same. 33. Further in the present case the assessee has parted with only some of the trademarks and has agreed to not to compete with the Henkel for only f 2 years by using its name. It has also agreed to sell its products to Henkel only exclusively. Therefore substantial business revenue stands transferred to Henkel but it cannot be said that appellant has ceased to exist after the executio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its right to know how and the product information to manufacture or produce its own goods. Therefore, according to the assessee there is no transfer of any right to manufacture, produce or process. On careful consideration of this argument it is apparently clear that by transferring the know-how and the product information in respect of goods the appellant has not ceased its right to manufacture, produce or process the goods. Even otherwise, it is only for the 2 years that the assessee has entered into a noncompete agreement. Therefore we find ourselves in agreement with the finding of the learned CIT appeal that the said capital receipt is not liable to tax within the meaning of the provisions of section 55 (2) of the act. In view of this, the sale of knowhow and the sale of the product of ₹ 25 lakhs and ₹ 75 lakhs respectively is not chargeable to tax under the head capital gains. 35. Accordingly, ground number 1, 2 and 3 of the appeal of the revenue are dismissed. 36. Ground number 4 of the appeal of the revenue is against the deletion of disallowance of ₹ 1.85 lakhs on account of service charges paid to M/s TriStar Home products private limited. 37 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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