Case Note & Summary
The Revenue filed an appeal under Section 260-A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal (ITAT), Bangalore Bench, dated 6.2.2009 for the Assessment Year 1996-97. The Assessee, M/s Associated Electronics & Electrical Industries (Bangalore) Pvt. Ltd., was engaged in the manufacture and marketing of electrical appliances. A search was conducted at the premises of its Managing Director, during which it was discovered that a sum of Rs. 3,99,75,400/- had been paid by M/s. Sharp Corporation, Japan to the Assessee for the transfer of the trademark 'SHARP' along with common law rights and goodwill. For the block assessment period 1988-89 to 1998-99, the Assessing Officer brought the entire amount to tax under the head 'capital gains', holding that under the Settlement Agreement, the registered trademark 'SHARP' along with its goodwill and all other benefits had been transferred to M/s. Sharp Corporation, Japan. The ITAT confirmed the assessment. The Revenue appealed, arguing that the transfer was not of a capital asset but of a mere right to use the trademark. The court, after hearing the parties, dismissed the appeal, holding that the trademark is a capital asset and its transfer gives rise to capital gains. The court found no substantial question of law and upheld the ITAT's order.
Headnote
A) Income Tax - Capital Gains - Transfer of Trademark - The issue was whether the consideration received for transfer of registered trademark 'SHARP' along with goodwill and common law rights is taxable as capital gains. The court held that the trademark is a capital asset and its transfer gives rise to capital gains taxable under the Income Tax Act, 1961. (Paras 2-5)
B) Income Tax - Block Assessment - Settlement Agreement - The Assessing Officer brought the entire amount to tax under block assessment for the period 1988-89 to 1998-99. The court upheld the order of the ITAT confirming the assessment of capital gains. (Paras 2-5)
Issue of Consideration
Whether the amount of Rs. 3,99,75,400/- received by the Assessee from M/s. Sharp Corporation, Japan for transfer of trademark 'SHARP' and its goodwill is taxable as capital gains under the Income Tax Act, 1961.
Final Decision
The appeal is dismissed. The order of the ITAT is confirmed.
Law Points
- Capital gains
- Transfer of trademark
- Goodwill
- Capital asset
- Block assessment
- Settlement agreement
Case Details
2015 LawText (KAR) (12) 9
Income Tax Appeal No.358/2009
K V Aravind (for appellants), A Shankar and M Lava (for respondent)
The Commissioner of Income Tax and The Deputy Commissioner of Income Tax
M/s Associated Electronics & Electrical Industries (Bangalore) Pvt. Ltd.
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Nature of Litigation
Appeal by Revenue against order of ITAT confirming assessment of capital gains on transfer of trademark.
Remedy Sought
Revenue sought to set aside the ITAT order and confirm the order of the Deputy Commissioner of Income Tax.
Filing Reason
Revenue challenged the ITAT order upholding the assessment of capital gains on the transfer of trademark 'SHARP'.
Previous Decisions
ITAT Bangalore Bench [B] order dated 6.2.2009 in ITA No.242/Bang/2000 for Assessment Year 1996-97 confirmed the assessment of capital gains.
Issues
Whether the amount received for transfer of trademark 'SHARP' and its goodwill is taxable as capital gains under the Income Tax Act, 1961.
Submissions/Arguments
Revenue argued that the transfer was not of a capital asset but of a mere right to use the trademark.
Respondent/Assessee argued that the trademark is a capital asset and its transfer gives rise to capital gains.
Ratio Decidendi
The transfer of a registered trademark along with goodwill and common law rights constitutes a transfer of a capital asset, and the consideration received is taxable as capital gains under the Income Tax Act, 1961.
Judgment Excerpts
This appeal is filed by the Revenue under section 260-A of the Income Tax Act, 1961 challenging the Order passed by the Income Tax Appellate Tribunal, Bangalore Bench [B] dated 6.2.2009 for the Assessment Year 1996-97.
The facts in brief are that the Assessee was carrying on the business of manufacture and marketing of electrical appliances and the search was conducted in the premises of the Managing Director of the Company.
During the search and survey proceedings, it was noticed that ` 3,99,75,400/- had been paid by M/s. Sharp Corporation, Japan to the Assessee-Company for the transfer of trademark ‘SHARP’ and the common law rights and goodwill accompanying it.
Procedural History
The Assessing Officer brought the entire amount of Rs. 3,99,75,400/- to tax as capital gains for the block assessment period 1988-89 to 1998-99. The ITAT confirmed the assessment. The Revenue filed an appeal under Section 260-A of the Income Tax Act, 1961 before the High Court of Karnataka.
Acts & Sections
- Income Tax Act, 1961: 260-A
