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In the assessment year , The assessee has entered into an agreement dated 1/8/1997 for sale of its trademarks, know-how, product information, goodwill, et cetera to Henkel Spic India Limited at a total consideration of Rs. 4.5 crores.In the return of income filed by the assessee, the consideration of Rs. 1.5 crore received towards noncompetition fee was offered for taxation. But the remaining consideration of Rs. 3 crores was claimed as exempt as capital receipt, Learned assessing officer rejected the explanation of the assessee and held that sum of Rs. 3 crores received by assessee on sale of trademark, know-how, et cetera is chargeable to tax under the head capital gains as assessee has sold ‘ Right to manufacture products’ cost of acquisition of which is nil. Accordingly, the learned assessing officer included the sale consideration of Rs. 3 crores chargeable to tax as a long-term capital gain in the hands of the assessee. The learned commissioner appeals vide order dated 21/3/2002 has held that the Rs. 1.75 crores received by the assessee toward sale of trademarks is not chargeable to tax being a capital receipt. He further held that Rs. 25 lakhs received on account of transfer on sale of knowhow and Rs. 75 lakhs on account of product information is no towards the right to manufacture a product and also not chargeable to tax under the head capital gains. However he held that Rs. 25 lakhs received by the assessee for sale of goodwill related to trademark is chargeable to tax under the head capital gain. Assessee did not prefer any appeal before us as it may not be aggrieved with this order.

Shanti Prime Publication Pvt. Ltd.

Section 37, 45, 55 of Income Tax Act, 1961—In the instant case, revenue is challenging the order of the learned commissioner of income tax appeals, which deleted the addition of 1.75 crores on account of trademark, 25 lakh on account of sale of know-how, of 75 lakh on account of product information and deletion of the disallowance of 1.85 lakh being service charges paid to M/s Tri-Star Home products private limited.

The assessee has filed across objection stating that the consideration of 1.5 crores received by the assessee as non compete fee was capital receipt and not liable to tax.

Held that—In the present case assessee has parted with only some of the trademarks and has agreed to not to compete with the Henkel for only f 2 years by using its name. It has also agreed to sell its products to Henkel only exclusively. Therefore substantial business revenue stands transferred to Henkel but it cannot be said that appellant has ceased to exist after the execution of the said agreement. It might be possible that the turnover of the company has fallen substantially but because of the reason that for 2 years the assessee cannot compete with the products manufactured by Henkel. Therefore the consideration received on account of transfer of trademark is not chargeable to tax under the head capital gain as, though trademark is a capital asset, but the cost of acquisition of the same is not ascertainable.

Issue of chargeability of transfer of sale of know-how of 25 lakh on sale of product information of 75 lakh, whether that amounts to the transfer of right to manufacture—the contention of the assessee is that after the expiry of the 2 years the appellant can make use of its right to know how and the product information to manufacture or produce its own goods.
Held that—According to the assessee there is no transfer of any right to manufacture, produce or process. On careful consideration of this argument it is apparently clear that by transferring the know-how and the product information in respect of goods the appellant has not ceased its right to manufacture, produce or process the goods. Even otherwise, it is only for the 2 years that the assessee has entered into a non-compete agreement. Therefore we find ourselves in agreement with the finding of the learned CIT appeal that the said capital receipt is not liable to tax within the meaning of the provisions of section 55 (2) of the act. In view of this, the sale of knowhow and the sale of the product of 25 lakh and 75 lakh respectively is not chargeable to tax under the head capital gains.

Deletion of disallowance of 1.85 lakh on account of service charges paid to M/s TriStar Home products private limited—Held that—The claim of the assessee is that the super stockiest was only charging service charges for the appellant on monthly basis towards the salaries as well as the 2 expenses of the person employed. Commissioner appeals allowed the claim of the assessee stating that the services of the employees of the super stockiest were availed of by it for business purposes the appellant did not have its own staff in the region of Bihar and a sum the claim was allowed in the disallowance of the expenditure was deleted. DR could not point out what is the infirmity in the order of the learned commissioner of income tax appeals. - Revenue appeal dismissed.[ITO, WARD-5 (4) , NEW DELHI VERSUS M/S. MODERN HOME CARE PRODUCTS LTD.] [2018] [7] [ITCD Online] [34] [ITAT DELHI]

In the assessment year , The assessee has entered into an agreement dated 1/8/1997 for sale of its trademarks, know-how, product information, goodwill, et cetera to Henkel Spic India Limited at a total consideration of Rs. 4.5 crores.In the return of income filed by the assessee, the consideration of Rs. 1.5 crore received towards noncompetition fee was offered for taxation. But the remaining consideration of Rs. 3 crores was claimed as exempt as capital receipt, Learned assessing officer rejected the explanation of the assessee and held that sum of Rs. 3 crores received by assessee on sale of trademark, know-how, et cetera is chargeable to tax under the head capital gains as assessee has sold ‘ Right to manufacture products’ cost of acquisition of which is nil. Accordingly, the learned assessing officer included the sale consideration of Rs. 3 crores chargeable to tax as a long-term capital gain in the hands of the assessee. The learned commissioner appeals vide order dated 21/3/2002 has held that the Rs. 1.75 crores received by the assessee toward sale of trademarks is not chargeable to tax being a capital receipt. He further held that Rs. 25 lakhs received on account of transfer on sale of knowhow and Rs. 75 lakhs on account of product information is no towards the right to manufacture a product and also not chargeable to tax under the head capital gains. However he held that Rs. 25 lakhs received by the assessee for sale of goodwill related to trademark is chargeable to tax under the head capital gain. Assessee did not prefer any appeal before us as it may not be aggrieved with this order.

Shanti Prime Publication Pvt. Ltd.

The assessee has filed across objection stating that the consideration of 1.5 crores received by the assessee as non compete fee was capital receipt and not liable to tax.