Sidmak Laboratories (I) Pvt. Ltd.,, Valsad v. The ACIT, Circle-1,, Valsad

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD C BENCH (BEFORE S/SHRI G.D. AGARWAL VICE-PRESIDENT AND T.K. SHARMA JUDICIAL MEMBER) ITA.NO.720/AHD/2006 ASSTT.YEAR : 2001-2002 SIDMAK LABORATORIES (I) P.LTD. NATIONAL HIGHWAY NO.8 ABRAMA VALSAD. VS. ACIT CIR.1 VALSAD. ITA.NO.2569/AHD/2007 WITH CO NO.229/AHD/2007 ASSTT.YEAR : 2001-2002 ACIT CIR.1 VALSAD. VS. SIDMAK LABORATORIES (I) P.LTD. NATIONAL HIGHWAY NO.8 ABRAMA VALSAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.K.PATEL REVENUE BY : SHRI SHELLY JINDAL O R D E R PER G.D. AGARWAL VICE-PRESIDENT: THESE ARE CROSS APPEALS BY THE ASSESSEE AND THE REVENUE. THE ASSESSEE HAS ALSO FI LED CROSS-OBJECTION IN THE REVENUES APPEAL. THE ASSESSEE IS AGGRIEVED BY THE ORDER OF THE COMMISSIONER OF INCOME-TAX VALSAD DATED 28-2-2006 WHILE THE REV ENUE IS AGGRIEVED BY THE ORDER OF THE CIT(A)XIV AHMEDABAD DATED 20-3-2007 A GAINST THE ORDER OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) R.W.S . 263 OF THE INCOME TAX ACT 1961. SINCE ISSUES RAISED IN THESE APPEALS AN D THE CO ARE INTER-RELATED FOR THE SAKE OF CONVENIENCE WE DISPOSE OF THE APPEALS A ND THE CO BY THIS CONSOLIDATED ORDER. 2. FIRST WE SHALL TAKE UP THE APPEAL OF THE ASSESSE E IN WHICH THE FOLLOWING GROUNDS ARE RAISED: I) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE CIT ERRED IN INVOKING THE PROVISIONS OF SECTION 263 AND CONSEQUE NTLY ERRED IN SETTING ASIDE THE ASSESSMENT ORDER FOR BEING MADE D E NOVO BY THE 720/AHD/2006 AND ITA.NO.2569/AHD/2007 WITH CO NO.229/AHD/2007 -2- ASSESSING OFFICER. II) WITHOUT PREJUDICE ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE THE CIT ERRED IN HOLDING THAT EXPENDITURE ON S CIENTIFIC RESEARCH CONSTITUTES COST OF TRADEMARKS/BRAND-NAMES ACQUIRED FOR THE PRODUCTS. III) WITHOUT PREJUDICE ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE THE CIT ERRED IN HOLDING THAT EXPENDITURE CLA IMED AND ALLOWED U/S.35 ON SCIENTIFIC RESEARCH SHOULD BE TRE ATED AS DEPRECIATION ALLOWABLE AND ALLOWED. IV) WITHOUT PREJUDICE ON THE FACTS AND IN THE CIRCUMST ANCES OF THE CASE THE CIT ERRED THAT THE PROVISIONS OF SECTION 50 OF THE IT ACT ARE APPLICABLE TO THE SALE OF TRADEMARKS/BRAND-NAME S. V) THE APPELLANT CRAVES LEAVE TO ADD ALTER AMEND AND /OR WITHDRAW ANY GROUND OR GROUNDS OF APPEAL EITHER BEFORE OR DU RING THE COURSE OF HEARING OF THE APPEAL. 3. THOUGH THE ASSESSEE HAS RAISED SEVERAL GROUNDS I N THE GROUNDS OF APPEAL THE ONLY EFFECTIVE ISSUE REVOLVES AROUND IS REGARDI NG VALIDITY OF ORDER PASSED BY THE CIT UNDER SECTION 263 OF THE INCOME TAX ACT. AT THE TIME OF HEARING BEFORE US IT IS STATED BY THE LEARNED COUNSEL THAT FOR THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD FILED RETURN DECLAR ING TOTAL INCOME OF RS.3 02 91 650/-. THE AO COMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT AT RS.3 05 61 487/-. THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS RECEIVED A TOTAL CONSIDERATION OF RS.1 8 84 647/- FROM ASSIGNING OF BRAND NAMES. IN THE COMPUTATION OF INCOME THE ASS ESSEE HAS GIVEN DETAILED NOTE EXPLAINING HOW THE CONSIDERATION RECEIVED FROM ASSIGNING OF BRAND NAMES IS NOT LIABLE TO BE TAXED. DURING THE ASSESSMENT P ROCEEDINGS THE AO RAISED QUERY IN THIS REGARD FOR WHICH A DETAILED EXPLANATI ON WAS FURNISHED. THE AO ACCEPTED THE ASSESSEES CLAIM AFTER PROPER EXAMINAT ION. THAT THE CIT(A) HAS SET ASIDE THE ASSESSMENT ON THE GROUND THAT CONSIDE RATION RECEIVED BY THE ASSESSEE FROM THE SALE OF BRAND NAMES AMOUNTING TO RS.18 84 647/- WAS LIABLE TO BE TAXED UNDER SECTION 50 OF THE INCOME TAX ACT. THAT IN THE ASSESEES OWN 720/AHD/2006 AND ITA.NO.2569/AHD/2007 WITH CO NO.229/AHD/2007 -3- CASE THIS ASPECT WAS EXAMINED IN THE ASSESSMENT YE AR 1998-99 AND THE ITAT HELD THAT IT IS NOT TAXABLE. THAT WHEN THE AO HAS TAKEN ONE OF THE POSSIBLE VIEWS WITH WHICH THE CIT DOES NOT AGREE IT CANNOT BE SAID THAT THE ASSESSMENT ORDER WAS ERRONEOUS AS WELL AS PREJUDICIAL TO THE I NTEREST OF THE REVENUE SO AS TO EMPOWER THE CIT TO INVOKE THE JURISDICTION UNDER SECTION 263. IN SUPPORT OF THIS CONTENTION HE RELIED UPON THE DECISION OF HON BLE APEX COURT IN THE CASE OF CIT VS. MAX INDIA LTD. 295 ITR 282 (SC). 4. THE LEARNED DR ON THE OTHER HAND RELIED UPON THE ORDER OF THE CIT PASSED UNDER SECTION 263 OF THE ACT AND HE STATED T HAT CONTENTIONS OF THE ASSESSEE THAT THE BRAND NAMES WERE ACQUIRED WITHOUT ANY CONSIDERATION ARE FACTUALLY INCORRECT. DURING THE COURSE OF CARRYING ON THE BUSINESS THE EXPENDITURE IS INCURRED WHICH RESULTED IN THE BUILD ING UP OF THE BRAND NAMES. THEREFORE THE ASSESSEE IS LIABLE TO PAY CAPITAL GA IN TAX ON THE TRANSFER OF BRAND NAMES. 5. WE HAVE CONSIDERED ARGUMENTS OF BOTH THE SIDES A ND PERUSED THE MATERIAL PLACED BEFORE US. THE ONLY GROUND ON WHIC H THE CIT HELD THE ASSESSMENT ORDER TO BE ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE IS THAT THE CONSIDERATION RECEIVED ON TRANSFER OF B RAND NAMES WAS LIABLE TO CAPITAL GAIN TAX. WE FIND THAT THE ISSUE CHARGEABI LITY OF THE CONSIDERATION RECEIVED ON TRANSFER OF BRAND NAMES WAS CONSIDERED BY THE ITAT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1998-99 VIDE ITA N O.2784/AHD/2000 AND OTHERS WHEREIN THE FOLLOWING HAS BEEN HELD: 25. AFTER HAVING CONSIDERED THE TOTALITY OF THE FA CTS AND CIRCUMSTANCES OF THE CASE AND AFORESAID DECISIONS WE ARE OF THE OPINION THAT THERE IS NO DISPUTE AS TO THE PROPOSITION OF L AW THAT IF THE COST OF ACQUISITION OF A CAPITAL ASSET WAS NOT ASCERTAINABL E ANY GAIN ON TRANSFER OF SUCH ASSET IS NOT LIABLE TO TAX EITHER UNDER THE HEAD CAPITAL GAIN OR UNDER THE HEAD INCOME FROM OTHER SOURCES. 26. SO FAR AS PRESENT CASE IS CONCERNED ADMITTEDLY COST OF 720/AHD/2006 AND ITA.NO.2569/AHD/2007 WITH CO NO.229/AHD/2007 -4- ACQUISITION OF TRADE-MARKS AND BRAND NAMES WAS NOT ASCERTAINABLE AND THEREFORE ANY GAIN ON TRANSFER OF THE SAME WAS NOT LIABLE TO TAX EITHER UNDER THE HEAD CAPITAL GAIN OR UNDER THE HEAD IN COME FROM OTHER SOURCES. 27. WE ARE FURTHER OF THE OPINION THAT THE ASSESS EES CASE BEING RELATING TO ASSTT.YEAR 1998-99 THE AMENDMENT BROUG HT IN SECTION 55(2)(A) BY THE FINANCE ACT 2001 AND APPLICABLE WI TH EFFECT FROM 01/04/2002 WHEREBY THE WORDS OR A TRADE-MARK OR A BRAND-NAME ASSOCIATED WITH A BUSINESS HAVE BEEN INSERTED BEIN G NOT RETROSPECTIVE IS NOT APPLICABLE TO THE ASSESSEES CASE AND THEREFOR E WE RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS UPHELD THE ASSES SEES CLAIM. ORDER OF THE CIT(APPEALS) ON THIS POINT IS CONFIRMED. THUS THE ITAT HELD THAT WHERE THE COST OF ACQUISIT ION OF TRADE MARK AND BRAND NAME WAS NOT ASCERTAINABLE THE GAIN ON THE TRANSFE R OF THE SAME WAS NOT LIABLE TO TAX EITHER UNDER THE HEAD CAPITAL GAIN OR UNDER THE HEAD OTHER SOURCES. THE ITAT FURTHER HELD THAT THE AMENDMENT BROUGHT IN SECTION 55(2)(A) BY THE FINANCE ACT 2001 IS APPLICABLE FROM 1-4-2002 I.E. FOR A.Y.2002-2003. THE ASSESSMENT YEAR UNDER APPEAL BEFORE US IS 2001-2002 IN WHICH THE ABOVE DECISION OF THE ITAT IN ASSESSEES OWN CASE WOULD B E SQUARELY APPLICABLE. IT IS NOT IN DISPUTE THAT DURING THE YEAR UNDER CONSIDERA TION THE ASSESSEE RECEIVED A SUM OF RS.18 84 647/- FROM THE TRANSFER OF FOLLOWIN G BRAND NAMES: SR.NO. NAME OF BRAND NAME PRODUCT NAME CONSIDERATION (RS.) 1. ECOSPRIN ECOSPRIN 769263 2. TRINERGIC TRINERGIC 480769 3. RIDAGE RIDAGE 14423 4. FEBEC-Z FEBEC-Z 14423 5. ULTIRON ULTIRON 96154 6. CONVIRON CONVIRON 432692 7. ELCION ELCION 19231 8. THEOSTAN THEOSTAN 57692 TOTAL 1884647 720/AHD/2006 AND ITA.NO.2569/AHD/2007 WITH CO NO.229/AHD/2007 -5- IT IS NOT DISPUTED THAT ALL THE ABOVE BRAND NAMES W ERE SELF-GENERATED ASSETS AND THEREFORE THERE WAS NO COST OF ACQUISITION. THE EX PENDITURE INCURRED BY THE ASSESSEE IN THE CASE OF CARRYING ON OF ITS BUSINESS IS THE REVENUE EXPENDITURE OF THE RESPECTIVE YEARS AND THAT CANNOT BE SAID TO HAV E BEEN INCURRED FOR THE ACQUISITION OF THE BRAND NAMES. THEREFORE THE ABO VE FINDINGS OF THE ITAT IN ASSESSEES OWN CASE WOULD BE SQUARELY APPLICABLE TO THE BRAND NAMES SOLD DURING THE YEAR UNDER CONSIDERATION. THE APEX COUR T IN THE CASE OF MAX INDIA LTD. (SUPRA) HELD AS UNDER: THE PHRASE PREJUDICIAL TO THE INTEREST OF THE REV ENUE IN SECTION 263 OF THE INCOME-TAX ACT 1961 HAS TO BE READ IN CONJU NCTION WITH THE EXPRESSION ERRONEOUS ORDER PASSED BY THE ASSESSIN G OFFICER. EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF THE ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS O F THE REVENUE. FOR EXAMPLE WHEN THE ASSESSING OFFICER ADOPTS ONE TWO COURTS PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE OR W HERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFICER HAS TAKEN ONE VI EW WITH WHICH THE COMMISSIONER DOES NOT AGREE IT CANNOT BE TREATED A S AN ERRONEOUS ORDER PREJUDICIAL TO THE REVENUE UNLESS THE VIEW T AKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. THUS FROM THE ABOVE IT IS EVIDENT THAT WHERE TWO V IEWS ARE POSSIBLE AND THE AO HAS TAKEN ONE VIEW WHICH CANNOT BE SAID TO BE E RRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE MERELY BECAUSE THE COMM ISSIONER DOES NOT AGREE WITH THAT VIEW. IN THIS CASE VIEW TAKEN BY THE AO IS SIMILAR TO THE VIEW TAKEN BY THE ITAT IN ASSESSEES OWN CASE FOR A.Y.1998-99. THEREFORE IT CANNOT BE SAID THAT THE VIEW TAKEN BY THE AO WAS NOT ONE OF T HE POSSIBLE VIEWS. SINCE THE AO HAS EXAMINED THE ISSUE DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND HAS TAKEN ONE OF THE POSSIBLE VIEWS IN OUR OPI NION THE CIT WAS NOT JUSTIFIED IN SETTING ASIDE THE ASSESSMENT ORDER BY INVOKING HIS POWERS UNDER 720/AHD/2006 AND ITA.NO.2569/AHD/2007 WITH CO NO.229/AHD/2007 -6- SECTION 263. WE THEREFORE RESPECTFULLY FOLLOWING T HE DECISION OF THE HONBLE APEX COURT IN THE CASE OF MAX INDIA LTD. (SUPRA) Q UASH THE ORDER OF THE CIT PASSED UNDER SECTION 263 AND RESTORE THE ORDER PASS ED BY THE AO UNDER SECTION 143(3) OF THE ACT. ITA NO.2569/AHD/2007 OF THE REVENUE AND CO229/AHD/2 007 BY THE ASSESSEE. THIS APPEAL OF THE REVENUE AND THE CO OF THE ASSESS EE HAVE ORIGINATED FROM THE ASSESSMENT ORDER DATED 31-10-2006 WHICH WAS PAS SED BY THE AO IN PURSUANCE TO THE ORDER OF THE CIT UNDER SECTION 263 DATED 28-2-2006. IN THE ASSESSEES APPEAL VIDE ITA NO.720AHD/2006 FILED AGA INST THE ORDER PASSED UNDER SECTION 263 WE HAVE QUASHED AND SET ASIDE TH E IMPUGNED ORDER. ONCE THE ORDER PASSED UNDER SECTION 263 HAS BEEN QUASHED THE ASSESSMENT ORDER PASSED IN PURSUANCE TO THE ORDER U/S.263 CANNOT SUR VIVE. THEREFORE THE SAME IS ALSO QUASHED AND THE ORIGINAL ASSESSMENT ORDER DATE D 31-3-2004 PASSED UNDER SECTION 143(3) IS RESTORED. SINCE THE ASSESSMENT O RDER DATED 31-10-2006 HAS BEEN QUASHED THE APPEAL OF THE REVENUE IN ITA NO.2 569/AHD/2007 AND ALSO CO FILED BY THE ASSESSEE VIDE CO NO.229/AHD/2007 HA VE BECOME INFRUCTUOUS ACCORDINGLY DISMISSED. 8. IN THE RESULT THE ASSESSEES APPEAL IS ALLOWED AND THE REVENUES APPEAL AND THE ASSESSEES CO ARE DEEMED TO BE DISMISSED BE ING INFRUCTUOUS ORDER PRONOUNCED IN OPEN COURT ON 9 TH APRIL 2010. SD/- SD/- (T.K. SHARMA) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 09-04-2010 720/AHD/2006 AND ITA.NO.2569/AHD/2007 WITH CO NO.229/AHD/2007 -7- VK* COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR ITAT. BY ORDER AR ITAT AHMEDABAD