TMI Blog1993 (6) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of Rs. 5 lakhs was received as below : In the financial Assessment Amount Towards year ending year Rs. 1981-82 1982-83 1,00,000 Goodwill 1982-83 1983-84 1,50,000 Goodwill 50,000 Copyright 1983-84 1984-85 1,50,000 Goodwill 50,000 Copyright -------- 5,00,000 -------- 3. In the returns filed for the assessment years 1983-84 and 1984-85, the assessee claimed that the receipts were not taxable since, according to him, they were capital receipts. The assessee further claimed that the receipts cannot be taxed as capital gains also since both goodwill and copyright were self-generated assets having no cost of acquisition. It was also contended that the assessee had assigned the copyright and sold the goodwill to OLH under the agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw. Pleading in the Courts of law and authoring a book on Company Law are two unconnected things. It was then pointed out on behalf of the Department that the assessee has devoted much of his time, which he would have otherwise devoted to his profession, to the writing of the book as can be seen from the substantial earnings by way of royalty from the first edition of the book. This fact was also relied upon to suggest a conscious decision on the part of the assessee to "branch out" from practising law to authoring of books. But we fail to see any such branching out. It must be remembered that the book was written in 1970 and published first in 1973. If at all, only during this period of about three years it could be said that the assessee had devoted time to write the book. But then, we have little evidence to show that during that period his professional earnings had dwindled because of that. After the publication of the first edition, all that the assessee had to do was to receive the royalty. It is also not disputed that the assessee did not write any other book in his career. It is, therefore, not possible to spell out any intention on the part of the assessee to 'branch out' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t-Law, of P-9, Lake Road, Calcutta 700 029 (hereinafter referred to as the 'author' which term will include unless the context otherwise requires his heirs and legal representatives) of the ONE PART and ORIENT LAW HOUSE, a partnership firm carrying on business as publisher and book seller, opposite Allahabad High Court, Allahabad, its partners GELA RAM KATARIA, GANESH RAM KATARIA, RAM CHAND KATARIA AND RAJ PAL KATARIA all of Allahabad (hereinafter referred to as the 'Publishers' which term will include their successors, heirs, legal representatives and assigns) of the other part. The author has written, inter alia, a book captioned 'Company Law' which was being published by the Eastern Law House Private Limited, Calcutta, and henceforward will be published by the said publishers, the Eastern Law House Private Limited having given its 'No objection' certificate for such publication. AND WHEREAS the said book has acquired a goodwill because of its special features and the standing of the author. AND WHEREAS the publishers are desirous to establish themselves in the publishing business by publishing quality books of reputed authors and they consider the 'Company Law' a quality boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id right purchased or acquired by them from the author unless the parties hereto otherwise agree. 8. The author will not lend his name or write any book similar to and competitive with the said book "Company Law". This is however without prejudice to the rights of the author in other books on the subject already in the market or books on other subjects written or that might be written." The first three clauses and clause (5) make it clear that the assessee has assigned the copyright in the book to OLH, the publishers, and also sold to them the goodwill for a price. This is further clarified by clause (7) which states that the publishers can in turn sell the copyright to others. In the case of a person who is not a professional author, the assignment of the copyright amounts to a sale of a capital asset and the payment therefor would be capital. There is ample authority for this proposition --- See Withers (Inspector of Taxes) v. Nethersole [1948] 16 ITR (Suppl.) 92 (HL) and Shiner v. Lindblom 39 TC 367, two English decisions. The same proposition was laid down in Beare (Inspector of Taxes) v. Carter 23 TC 353. In Nethersole's case, the following paragraph brings out the positio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re purchased by him as investment, were held not liable for income-tax on the grounds that (i) it was not part of the taxpayer's profession (as actor) to dispose of copyright, (ii) the amounts received were distinct from his professional earnings, and (iii) the taxpayer was realising his investment. 11. These authorities show that the receipts of the assessee before us under the agreement with OLH cannot be treated as his income from profession. 12. It was contended on behalf of the revenue that the agreement has to be "pierced" in order to find out the true nature of the receipts and it was suggested that the receipts were in truth and reality "royalty" receipts chargeable as income. In this connection, it was submitted that there was only a change in the mode of payment from royalty linked to a sale of the book under the agreement with ELH to a lump sum payment or a payment once for all under the agreement with OLH and that the character of the payment remained the same. But we cannot give effect to this submission. In CIT v. Motors General Stores (P.) Ltd. [1967] 66 ITR 692 it was held by the Supreme Court that when a transaction is embodied in a document the liability to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an author by profession. On the facts of the case, there is great difficulty in treating the receipts under the agreement as income. The assessee has realised his capital assets for a price and the price represents capital receipt in his hands. 14. We may briefly notice two more decisions cited on behalf of the assessee. In Murray (Inspector of Taxes) v. Imperial Chemical Industries Ltd. [1969] 71 ITR 661, a decision of the Court of Appeal, it was held that lump sum receipts under an exclusive licence and for covenanting not to complete were capital in nature. In IRC v. Sangster 12 TC 208 it was held that even in the case of a non-exclusive licence (as against an outright assignment) granted by Mr. Sangster, who has been an inventor of patents and held about 400 such patents, the royalties were not assessable as his business income. This case is undoubtedly an extreme case but that does not detract from its authority. The point to be noticed is that the Rowlatt, J. took the view that in all cases of this type it is necessary to enquire whether the taxpayer sells the patents "habitually" so "as to bring him within the category of people who carry on a business". Such enquiry in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at page 418, the Supreme Court has held, on the interpretation of section 4(3)(vii) of the 1922 Act which is the forerunner of section 10(3) of the 1961 Act, as under : "As the section made it clear, in order to be entitled to exemption, the receipts must be of income character first. In the instant case, there is no doubt that if a sum of money is received for the purpose in pursuance of an avocation or vocation, it arose out of this vocation or profession. If that is so, then this was income under the Act. Such income could only be excluded if it was specifically excluded by any provision of the Act. The High Court held, in and in our opinion rightly, that in view of the facts and circumstances of this case as found by the Tribunal, these amounts were not excluded under section 4(3)(vii) of the Act. The position was thus, these amounts were received by the assessee in the course of his avocation or vocation and were given to him for the purpose of the same. These were, therefore, incomes which were not also of a casual and non-recurring nature nor were these capital gains under section 12B of the Act. If that was the position, then, in our opinion, the amounts were clearly taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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