Record v. Cii, West Bengal,(1959) 36 Itr5?1 And-Seethalakshmi Ammal Ys. Controller Of Estate Duty, Madras,(1966) 61 Itr 317

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH ITA No. 398 of 2005 (O&M)Date of decision: 27.8.2014 The Commissioner of Income Tax I, Chandigarh Vs, .....- Appe M/s Swiit Formation (P) Limited, 78, l.A.U, Chandigarh ....mesponden CORAM: HON BLE MR. JUSTICK AJAY KUMAR MITTALHON BLE MR. JUSTICE FATEH DEEP SINGH Present: Ms. Urvashi Dhugga, Advocate for the appellant. | Mr. S.K.Mukhi, Advocate for the respondent. | Ajay Kumar Mittal,J.. inThis appeal has been preferred by the revenue under section260A of the Income Tax Act, 1961 (in short, “‘the Act’) against the ordedated 31.3.2005, Annexure A.3 passed by the Income Tax AppellateTribunal, Chandigarh Bench 'B' (in short, “the Tribunal”) in ITANo.5 1/Chandi/2002, for the assessment year 1997-98, claiming followinsubstantial questions of law:- 1) Whether amendments in Section 55(2)(a) made by theFinance Act 1997 and Finance Act 2001 indicate that for the earlier period the name or brand name associated with abusiness was included in the expression ‘Goodwill’ of abusiness? 11) Whether the Hon'ble ITAT has erred in law that the sale oftrade marks of 'AMIBEX' and 'ELUSIN' for a sum of47,50,000/- did not fall under the definition of capital asset or asale of goodwill without determining the question as to whetherthe amendments in Section 55(2)(a) indicate that for the earlierperiod the name or brand name associated with a business wasincluded 1n the expression ‘goodwill’ of a business or not?” ? A few facts relevant for the decision of the controversyinvolved as narrated in the appeal may be noticed. The assessee filed itsreturn of income declaring income of -3,26,920/- on 25.11.1998,Assessment was completed at total income of|Ly10,76,920/- on 16.3.2000,Annexure P.1. It was noticed by the Assessing officer that the assessee firmhad debited a sum of=a7,50,000/- in the account of M/s Ind. Swift Limitedon account of sale of trade marks of ‘Amibex' and 'Elucin’. According to theappellant, the brand names in the case of a medicine manutacturingcompany are nothing but goodwill. Their value is basically dependent uponthe reputation of the parent company. The reputation 1s another form ofclassification for goodwill. As the brand names sold were actually transferof a part of goodwill, claim of the assessee was disallowed under section 55}(2)(a) of the Act and an addition of “a7,50,000/- was made to the income of the assessee. Aggrieved by the order, the assessee filed appeal before theCommissioner of Income Tax (appeals) [CIT(A)] who vide order dated35.10.2001, Annexure P.2 deleted the addition holding that the words “righ to manufacture, produce or process any article or thing” have been inserted ITA No.398 of 2005 (O&M) in section 55(2) (a) of the Act by Finance Act, 1997 w. e.f 1.4.1998 1.e. forthe assessment year 1998-99 onwards. The CIT(A) further opined that saleof trademark could not be said to be sale of goodwill. Not satisfied with theorder, the revenue filed appeal before the Tribunal. The Tribunal dismissedthe appeal of the department vide order dated 31.3.2005, Annexure P.3observing that as per section 55(2)(a) of the Act as on 31.3.1997, the sale oftrade marks of 'Amibex' and 'Elusin' did not fall under the definition of‘capital asset’ or ‘sale of goodwill’. 3)We have heard learned counsel for the parties and perused the record. 4Learned counsel for the appellant-revenue submitted that thegoodwill included trade mark or brand name and therefore after amendmentby the Finance Act 1994 effective from 1.4.1995, the sale of brand names"Amibex' and 'Elusin' for a sum oftL7,50,000/- by the assessee was part ofthe goodwill of the business. Support was drawn from judgments of theApex Court 1n Jogta Coal Co.Limited vs. CII, West Bengal,(1959) 36 ITR5?1 and-Seethalakshmi Ammal ys. Controller of Estate Duty, Madras,(1966) 61 ITR 317, 3)We have heard learned counsel for the parties and perused the record. 4Learned counsel for the appellant-revenue submitted that thegoodwill included trade mark or brand name and therefore after amendmentby the Finance Act 1994 effective from 1.4.1995, the sale of brand names"Amibex' and 'Elusin' for a sum oftL7,50,000/- by the assessee was part ofthe goodwill of the business. Support was drawn from judgments of theApex Court 1n Jogta Coal Co.Limited vs. CII, West Bengal,(1959) 36 ITR5?1 and-Seethalakshmi Ammal ys. Controller of Estate Duty, Madras,(1966) 61 ITR 317, 4]Opposing the prayer made by the learned counsel for therevenue, learned counsel for the assessee on the strength of the judgment ofthe Apex Court inCll, Bangalore vs. B.C.Srinivasa Setty,(1981) 128 ITR294 submitted that goodwill relates to reputation and a variety of elementsgoes into its making,It was urged that Finance Act 2001 effective from1.4.2002 had amended Section 55(2)(a) whereby trade mark or brand namewas included therein. It was argued that once specifically the trade mark or ITA No.398 of 2005 (O&M) brand name was included in clause (a) of sub section (2) of Section 55 ofthe Act, the trade mark or brand name could not be held to be included inthe term ‘goodwill’ before the said date. Reliance was placed upon decisionof the Kerala High Court 1nVysalt Chemotherapeutics (P) Limited vs. Commissioner ofIncome Tax,(2004) 269 ITR 362, 6.After hearing learned counsel for the parties, we do not findany merit in the contention of learned counsel for the revenue. Tq The expression ‘cost of acquisition’ in relation to a capital assetfor the purposes of Sections 48 and 49 has been defined in sub section (2) ofSection 55. Looking to the legislative changes brought about in thisprovision,it may be noted that Finance Act, 1994 effective from 1.4.1995substituted clauses (a) and (aa). Under clause (a), goodwill of a business,tenancy rights, stage carriage permits and loom hours were included fortaxability of capital gains arising on sale thereof. Where the aforesaidcapital asset was acquired by the assessee by purchase from the previousOwner on payment of certain amount, the cost of acquisition was to be thesaid amount and in any other case, 1t was to be taken as nil. Clause (aa)covered capital gain arising from transfer of rights shares and rightsrenouncements. Under sub clause (i11a) to clause (a), bonus shares were alsoincluded by an amendment by Finance Act, 1995 effective from 1.4.1996.| 8Further, Finance Act, 1997 w.e.f 1.4.1998 inserted the words“right to manufacture, produce or process any article or thing” in Section 55(2) (a) of the Act. This amendment would be applicable to assessment year1998-99 onwards. QStill further, clause (a) of sub section (2) of Section 55 of the Act was amended by the Finance Act, 2001 which was made effective fromApril 1, 2002. The amended provision of clause (a) of sub section (2) ofSection 55 which is relevant for adjudicating the present appeal reads thus:- “55(2) For the purposes of sections 48 and 49, ‘cost ofacquisition’ -acquisition’ - (a) in relation to a capital asset, being goodwill of a business ora trade mark or brand name associated with a business or a rightto manufacture, produce or process any article or thing, or rightto carry on any business, tenancy rights, stage carriage permitsor loom hours,-a trade mark or brand name associated with a business or a rightto manufacture, produce or process any article or thing, or rightto carry on any business, tenancy rights, stage carriage permitsor loom hours,- (1)in the case of acquisition of such asset by the assessee bypurchase from a previous Owner, means the amount of thepurchase price; andpurchase from a previous Owner, means the amount of thepurchase price; and (11)In any other case not being a case falling under sub clauses(1) to (iv) of sub section (1) of section 49, shall be taken to benil.’(1) to (iv) of sub section (1) of section 49, shall be taken to benil.’ (1)in the case of acquisition of such asset by the assessee bypurchase from a previous Owner, means the amount of thepurchase price; andpurchase from a previous Owner, means the amount of thepurchase price; and (11)In any other case not being a case falling under sub clauses(1) to (iv) of sub section (1) of section 49, shall be taken to benil.’(1) to (iv) of sub section (1) of section 49, shall be taken to benil.’ 10.|The amended provision of clause (a) of sub section (2) ofsection 55 provided that for the purposes of sections 48 and 49 “cost ofacquisition” in relation to a capital asset, being goodwill of a business or atrade Mark or brand name associated with a business or a right tomanufacture, produce or process any article or thing or right to carry on anybusiness, tenancy rights, stage carriage permits or loom hours: (1) in the caseof acquisition of such asset by the assessee by purchase from a previousOwner, means the amount of the purchase price; and (11) in any other casenot being a case falling under sub clauses (1) to (iv) of sub section (1) ofsection 49 shall be taken to be nil. The expression ‘right to carry on anybusiness’ was inserted in clause (a) of sub section (2) of Section 55 byFinance Act, 2002 w.e.f 1.4.2003. ITA No.398 of 2005 (O&M) 11.The amendment by Finance Act, 2001 effective from 1|.4.2002is a substantive provision whereby trade mark or brand name associatedwith a business has also been brought within the net of chargeability tocapital gains tax. Once there was an amendment specifically incorporating!trade mark or brand name in the substantive provision, it could not be saidthat the goodwill included the same prior thereto. It may be noticed that nowords are incorporated by the legislature without any purpose or meaning 1na statute. It cannot be taken to be either clarificatory or procedural in natureand thus, would have its applicability prospectively. In other words, theamended provision would be applicable to assessment year 2002-03onwards. Similar view has been expressed by the Kerala High Court inVyasali Chemotherapeutics (P) Limited'scase (supra). Once that 1s so, it 1sconcluded that the Tribunal was right in holding the issue in favour of theassessee relating to assessment year 1997-98.12...Adverting to the judgments relied upon by learned counsel forthe revenue, 1nJogta Coal Co. Limited'scase (supra), the issue before theApex Court was whether right, title and interest in the leasehold property ina coal mine which was purchased by the assessee included an element ofgoodwill or not when there was no allocation of consideration towardsgoodwill in the sale deed, which is not the question in the present case,Similarly, 1inSeethalakshmit Ammal'case (supra), the Madras High Courtwas seized of the matter primarily relating to distinction betweennomination and assignment in case of Insurance policies and whether quotaholder of yarn manufactured by reputed mills had any element of goodwillattached to it. The factual matrix and the issue involved being totally ITA No.398 of 2005 (O&M) 7 different, no advantage can be derived by the revenue from thesepronouncements. 13,In view of the above, the substantial questions of law areanswered against the revenue and in favour of the assessee. Consequently,the appeal stands dismissed. (Ajay Kumar Mittal)Judge August 27, 2014 (Kateh Deep Singh)Judge ?1&?