Case Note & Summary
The case involves an appeal by the Commissioner of Income Tax against the order of the Income Tax Appellate Tribunal allowing the appeal of the assessee, late David Lopes Menezes and his legal heir. The assessee was a member of the Menezes family which held 58.88% equity shares in Colfax Laboratories India Limited (Colfax). Colfax had a right to use the trade mark 'Old Spice' under an agreement with Shulton (GB) Ltd., which was later acquired by Procter and Gamble. Procter and Gamble India Ltd. (PGI) wanted to use the trade mark itself and negotiated with the Menezes family to get a resolution passed in Colfax's general meeting to give up the right to use the trade mark. The assessee received a sum of Rs. 15,00,000 for facilitating the resolution and for resigning as director. The Income Tax Officer treated this amount as revenue income, but the Tribunal held it to be a capital receipt. The High Court framed the substantial question of law whether the amount received is revenue income under Section 2(24) and taxable under Section 4 of the IT Act. The court analyzed the facts and held that the amount was received for loss of agency and loss of source of income, which is a capital receipt. The court dismissed the appeal, affirming the Tribunal's order.
Headnote
A) Income Tax - Capital Receipt vs Revenue Receipt - Compensation for Loss of Agency - Section 2(24), Section 4, Income Tax Act, 1961 - The assessee received compensation for giving up the right to use the trade mark 'Old Spice' and resigning as director, which resulted in extinguishment of a source of income. The court held that such compensation is a capital receipt and not taxable as revenue income, as it was for loss of an enduring asset and not for loss of profits. (Paras 1-10) B) Income Tax - Trade Mark - Right to Use - Compensation for Surrender - Section 2(24), Section 4, Income Tax Act, 1961 - The assessee, a shareholder and director, received payment for facilitating the surrender of the company's right to use a trade mark and for resigning as director. The court held that the amount was received for loss of agency and loss of source of income, constituting a capital receipt. (Paras 3-10)
Issue of Consideration
Whether the amount received by the assessee for giving up the right to use the trade mark 'Old Spice' and resigning as director is revenue income within the meaning of Section 2(24) and taxable under Section 4 of the Income Tax Act, 1961.
Final Decision
The appeal is dismissed. The order of the Income Tax Appellate Tribunal is affirmed. The amount received by the assessee is held to be a capital receipt and not taxable as revenue income.
Law Points
- Capital receipt vs revenue receipt
- compensation for loss of agency
- extinguishment of source of income
- Section 2(24) Income Tax Act
- 1961
- Section 4 Income Tax Act
