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TMI Blog1993 (6) TMI 112X X X X Extracts X X X X X X X X Extracts X X X X ..... will and Rs. 1 lakh for the copyright. The 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 agreement and it was not a case of mere licence to use these assets. 4. The ITO did not accept the contentions. He took the view that the assessee's brain was his fixed capital and the book, a product of the brain, was floating or circulating capital, or, in other words, the assessee's stock-in-trade and, therefore, the receipts from OLH were taxable as the assessee's income. The receipt of Rs. 2 lakhs in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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' from practising law to the profession of being an author. There is also no merit in the argument of the revenue that the assessee must be taken to have switched over to authoring of books as a profession merely because he had approached ELH first and not vice versa and because the assessee was free, under the agreement, to write books on subjects other than Company Law and to enter into arrangements for publ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 book and the author as a reputed author. AND WHEREAS the publishers are agreeable to purchase the goodwill as well as the copyright of the said book and publish the book maintaining its standard which is necessary in the interest of both the publishers and the author. Now therefore it is hereby agreed by and between the parties as follows : 1. The publishers will pay to the author a sum of Rs. 4,00,000 (Rupees fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (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 position in law : "Rule 19(2), however, deals only with patents. In this case we are not concerned with patents but with copyright. Copyright is a species of incorporeal property. The Copyright Act, 1911, which is a consolidating Act repealing earlier Acts, makes it perfectly clear that the ownership of copyright can be transferred by assignment either wholly or partially and 'either for the whole term of the copyright or for any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 tax depends upon the meaning and context of the language used in accordance with the ordinary rules of construction. It was not suggested that there was bad faith or fraud vitiating the agreement. In the absence of bad faith or fraud and where unambiguous and unequivocal language is used in the agreement, full effect has to be given to the intention of the parties. In CIT v. B.M. Kharwar [1969] 72 ITR 603 the Supreme Court held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 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 the present case shows that there is no such habit; the assessee has written just one book in his life so far. The decisions cited on behalf of the assessee are thus in support of his case. 15. One other contention raised on behalf of the revenue was that the bifurcation of the receipt into two parts, one for the assignment of the copyright and the other for goodwill is not justified. But we have earlier held that the terms of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 taxable as held by the Income-tax Officer and by the High Court." The purpose of specifically excluding capital gains chargeable to tax under section 45 from the purview of section 10(3) is to prevent an assessee from claiming exemption on the ground that receipts arising from the sale of capital assets are casual and non-recurring. Separate provision has been made in section 45 for the charging of capital gains. From this, it cannot be in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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