Income Tax Appellate Tribunal - Ahmedabad
Ambalal Sarabhai Enterprises ... vs The Dy.Cit.,Circle-1,, Vadodara on 11 January, 2023
IN THE INCOME TAX APPELLATE TRIBUNAL
"A" BENCH, AHMEDABAD
BEFORE MS. SUCHITRA KAMBLE, JUDICIAL MEMBER&
SHRI WASEEM AHMED, ACCOUNTANT MEMBER
M.A. No.72/Ahd/2022
(In ITA No. 1771/Ahd/2015)
(Assessment Year: 2001-02)
Ambalal Sarabhai Enterprises Ltd. Vs. DCIT
Wadiwadi, Vadodara-390023 Circle-1,
Vadodara
[PAN No.AABCA6893K]
(Appellant) .. (Respondent)
Appellant by : Shri S. N. Soparkar, Sr. Adv.
Respondent by: Shri Urjit Shah, Sr. D.R.
Date of Hearing 14.10.2022
Date of Pronouncement 11.01.2023
ORDER
PER SUCHITRA KAMBLE - JM:
This Miscellaneous Applicationsis filed by the assessee in respect of the order both dated 25.05.2022.
2. The Ld. AR submitted that the Tribunal in para 26 of the order while deciding Ground No. 7.1, 7.2 and 7.3 has inadvertently mixed up the two separate transactions of assignment of trademark and assignment of marketing rights in as much as the ground is decided in uniformity without independent examination of both the transactions. The Ld. AR submitted that there were two independent controversies, firstly that of taxability of Rs. 25 crores on transfer of trademarks which is Ground No. 7.1 and secondly taxability of Rs. 20 crores + 2 crores on transfer of marketing /distribution rights which is Ground No. 7.2. The Ld. AR submitted that both the lower authorities have given separate reasoning for taxing the M.A No.72/Ahd/2022 (in ITA No.1771/Ahd/2015) Ambalal Sarabhai Enterprise Ltd. vs. DCIT Asst.Years-2001-02 -2- receipt against both the transactions. The Ld. AR submitted that both the sides that of assessee and department also submitted the separate sets of reasoning for each transactions. The Ld. AR submitted that the Tribunal erroneously mixed the two transactions and in the process not considered the distinct facts and law in correct perspective. Especially in relation to the assignment of trademark the grounds on which the CIT(A) upheld the same is not even considered by the Bench and on completely unconnected grounds, the bench has dismissed the appeal of the assessee. The grounds on which the CIT(A) has decided both the issues and the counter of the assessee as was submitted to the Bench are as under:
CIT(A)'s finding as to Arguments of the Assessee before ITAT consideration received against as to why CIT(A) has erred assignment of trademarks
1. There is nothing to show that Factually incorrect: The agreement itself 40 trademarks are pending shows that date application of registration. registration and the application number of 40 trademarks pending registration.
In any case the Trademarks Act itself recognises the transfer of unregistered trademark (Section 39). Also, even the user of unregistered trademark gets the right in the trademark and can file suit for passing off.
2. The agreement does not show The appellant has assigned all of their 46 separate values for each trademarks in a lumpsum manner for trademark. Assessee had also not total consideration of 25 crores. These shown these trademarks in its being self-generated and not purchased balance sheet trademarks, there is no question of showing them in balance sheet.
3. Agreement is a 1. The Assessee has not relinquished compositeagreement for not only right to manufacture. In fact, the assessee assignment of trademark but has continued to manufacture for JV also for relinquishment of right (naturally because once the trademarks to manufacture as well transfer are transferred, the assessee cannot sell of goodwill. And therefore, even the products and only the JV can). What if transfer of trademark is not is lost for the assessee is right to market M.A No.72/Ahd/2022 (in ITA No.1771/Ahd/2015) Ambalal Sarabhai Enterprise Ltd. vs. DCIT Asst.Years-2001-02 -3- taxable u/s 55(2), the transfer of and not right to manufacture. (Para 15.5) goodwill and relinquishment of right to manufacture are taxable. 2.Section 38 of the Trademarks act Out of 25 crores of envisages only two kinds of assignment. consideration, 7 crores is Assignment of trademark with the estimated as consideration goodwill of the business concerned or against trademark. Remainingis without the goodwill of the business for the relinquishment of right to concerned.
manufacture and transfer of The agreement between the assessee and
goodwill. JV is to the effect that JV can market, sell
and distribute the said
trademarkedpharmaceutical
preparations. Therefore, very assignment of trademarks would necessarily have to take place "with the goodwill of the business concerned" only.
If the assignment of the trademarks is made without the goodwill of the business, then the JV would own the trademarks but could not market sell and distribute the said trademarked pharmaceuticals preparation and the very purpose of the agreement would be futile.
3. The agreement between assessee and JV is therefore correctly termed "along with the goodwill of the business concerned in the goods for which the said trademarks are registered". Such narration in the agreement does not give rise to transfer of goodwill in the business of the assessee taxable u/s 55(2) of the Act as explained in the various decisions.
a. What is transferred is only trademark and not goodwill of the business as such as held in decision of Associated Electronics & Electrical Industries ITAT (case law PB Pg 7 Para 7) and HC (PB Pg 18 Para 14 to 27) b.Goodwill of the business cannot be independently transferred without the M.A No.72/Ahd/2022 (in ITA No.1771/Ahd/2015) Ambalal Sarabhai Enterprise Ltd. vs. DCIT Asst.Years-2001-02 -4- transfer of the business undertaking.
Associated Electronics & Electrical Industries (PB Pg 7 Para 7) and HC (PB Pg 20 Para 27) Facts of the assessee are identical- there is no transfer of the business undertaking to the JV what is transferred is only trademarks.
c.If the transfer of such trademark was transfer of goodwill, then there was no need to legislate S. 55(2)(a) with effect from 01.04.2002 to include transfer of trademark too. HC (PB Pg 20 Para 27) CIT(A)'s finding as to consideration Arguments of the Assessee before received against assignment of ITAT as to why CIT(A) has erred marketing rights
1. There is no destruction of income This is wrong reasoning. Assessee earning apparatus because the and JV are separate legal entities assessee has 50% share in JV where JV has 50% share owned by a third party. So far as the assessee is concerned, its income earning apparatus is destroyed. Only because the assessee has 50% share in JV that would mean that the assessee has retained its income earning apparatus. After the transfer of marketing rights, the assessee would not earn income out of such business.
2. There was not significant Not correct. Although what is reduction in the income of the material is the destruction of the assessee even after the assignment of income earning apparatus and not its marketing rights. impact, the assessee has nonetheless suffered significant loss of revenue after the transfer. Numbers are explained on Page 72 of 106 of CIT(A) order.
3. The case of Blue Star 13 SOT 25 1.The facts of blue star are applies to the facts of the assessee. completely different than that of the assessee. In the case of blue star.
Blue Star was exclusive agent of HP's products in India. Blue Star and HP later formed a JV for manufacture and marketing of the products and M.A No.72/Ahd/2022 (in ITA No.1771/Ahd/2015) Ambalal Sarabhai Enterprise Ltd. vs. DCIT Asst.Years-2001-02 -5- HP paid bluestar to avoid competition with JV.
In the facts of the case the Assessee has not with the foreign principles.
Instead, JV is formed with a third party Cadila and there is a simplicitor transfer of marketing rights of products of foreign principles. The case of Blue Star is distinguishable on facts in as much as there is not compensation received by the assessee on termination of agency by the principles which was in the case of the BlueStar.
2. The facts of the assessee are identical to the case laws submitted in the Paper book.
The Ld. AR further submitted that these two issues are dealt with by the Tribunal in paragraphs 23 to 26 and the finding was given in para 26, but the tribunal made an error as the trademarks are indeed self generated and therefore the same is not being shown in the balance sheet with any cost of purchase. The assessee claims that in as much as the trademarks that are assigned are self generated of the same is not taxable. The Ld. AR relied upon the decision of Kwaliti Biscuits 135 ITD 35 (Bang)/TM. The Ld. AR submitted that at no point of time the assessee submitted that the trademarks of the products of which marketing rights are owned by the assessee are self generated. The arguments for claiming the receipt against the assignment of marketing rights are fundamentally different. The Ld. AR further submitted that nowhere it is stated in the agreement of assignment of trademark that the assessee would retain the right to manufacture the products. In fact the agreements unequivocally state that the assessee would not infringe or use M.A No.72/Ahd/2022 (in ITA No.1771/Ahd/2015) Ambalal Sarabhai Enterprise Ltd. vs. DCIT Asst.Years-2001-02 -6- marks identical with trademarks being assigned. It is the agreement of assignment of marketing rights that the assessee has exclusive right of manufacture. The Ld. AR submitted that under the agreement, the Joint Venture has received the rights to market the products which the assessee held earlier. For relinquishment of these "marketing rights" consideration is paid to the assessee. Hence, the fact that the assessee continues to manufacture is irrelevant. Earlier the assessee was engaged in the activity of manufacturing as well as marketing but after the assignment the assessee can only manufacture and can no longer market. It is for this loss of right that the assessee is compensated. The Ld. AR further submitted that the argument of loss of income earning apparatus and loss of revenue is limited to the assignment of marketing rights. The Ld. AR submitted that the finding of the Bench is contrary to the records. The Ld. AR further submitted that the assessee demonstrated before the lower authorities as well as before the Bench that the reduction in revenue after the assignment of trademarks and marketing rights. The Ld. AR pointed out page 72 of 106 of order of the CIT(A). The Ld. AR submitted that the reliance on decision of Blue Star by the CIT(A) is limited to the assignment of marketing rights. The Ld. AR submitted that the assessee and Cadila Healthcare Limited are unconnected parties without any commonality in ownership or management. Both companies have entered into a Joint Venture at Arm's Length purely in commercial considerations. It is not a case of any lower authorities that the two parties are otherwise associated with each other. The Ld. AR submitted that the Joint Venture being a separate legal entity owned by both parties equally, it is an independent entity functioning under commercial principles. In the facts of Blue Star, the company had prior leadership with M.A No.72/Ahd/2022 (in ITA No.1771/Ahd/2015) Ambalal Sarabhai Enterprise Ltd. vs. DCIT Asst.Years-2001-02 -7- Hewlett Packard and the change in the relationship resulted into payment for compensation for non-compete. This was decided to be taxable. The Ld. AR submitted that the facts of the assessee are fundamentally different, and the case of Blue Star indeed does not apply. The Ld. AR submitted that the argument of loss of income earning apparatus and loss of revenue is limited to the assignment of marketing rights. The Ld. AR submitted that the assessee has demonstrated before the lower authorities as well the Bench the reduction in revenue after the assignment of trademarks and marketing rights from page 72 of 106 of CIT(A). The Ld. AR further submitted that the agreement of assignment of trademarks unequivocally state that the assessee would not infringe or use marks identical with trademarks being assigned. Unlike the agreement of marketing rights, there is no clause which states that the assessee would have the exclusive right to manufacture. In relation to the agreement of assignment of marketing rights as well it is clear from the agreement that the same stands assigned to the Joint Venture completely. It is not the case of any of the lower authorities that the assessee has continued to market the products for which the trademarks stand transferred or the marketing rights stand transferred. The Ld. AR submitted that the Bench has mixed up manufacturing with marketing. The Ld. AR submitted that the assessee has lost its right to market the products the trademarks of which are assigned as well as marketing rights of which are assigned. The assessee is compensated for loss of such marketing rights. It has nothing to do with manufacturing. The very fact that the assessee could not manufacture would not change the nature and implication of the assignments of trademarks and marketing rights. The Ld. AR further submitted that the case laws relied upon by the assessee separately for both M.A No.72/Ahd/2022 (in ITA No.1771/Ahd/2015) Ambalal Sarabhai Enterprise Ltd. vs. DCIT Asst.Years-2001-02 -8- the transactions of assignment of trademarks and assignment of marketing rights apply directly to the facts of the assessee. The Bench has erroneously not considered the same in correct perspective. Therefore, the Ld. AR submitted that the Bench has committed error in deciding the ground against the assessee. The Ld. AR prayed that in the larger interest of justice the Tribunal be pleased to rectify / recall and modify the order as per the submissions made herein after appreciating correct facts by passing appropriate orders.
3. The Ld. D.R. objects the Miscellaneous Application as the same are filed for review of the order dated 25.05.2022 and not the rectification as such.
4. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the Ld. AR at the time of hearing of the appeal submitted that transactions of assignment of trademarks and assignment of marketing rights are two different transactions. The argument was based on the receipt whether it's a capital or revenue receipt.
5. The A.R.'s contention before us that the Tribunal made an error as trademarks are indeed self-generated and therefore, the same is not being shown in the balance sheet with any cost of purchase and therefore, the same are not taxable. From the finding given in order dated 25.05.2022 by the Tribunal it is seen that the same is not self-generated in actual way after looking into the documents and therefore, the finding given by the Tribunal is self-explanatory. Though, it appears that the order dated 25.05.2022 in M.A No.72/Ahd/2022 (in ITA No.1771/Ahd/2015) Ambalal Sarabhai Enterprise Ltd. vs. DCIT Asst.Years-2001-02 -9- Para 26 has mixed both the assignment of trademark and assignment of marketing rights together, the same has been done by the Tribunal because the documents shows the inter-connectivity between these two aspects. The argument before us at the time of hearing of the appeal as well as at the time of this present Miscellaneous Application is related that the CIT(A) has differentiated these two transactions but the Tribunal has given the findings that these are inter-connected But this contention of Ld. A.R. is calling for review of the order dated 25.05.2022 without pointing out any mistake apparent on record. The review of the Tribunal's order is not permissible. Hence, present Miscellaneous Application is dismissed. Hence, the present Miscellaneous Application is dismissed.
6. In the result, the Miscellaneous Application filed by the Assessee is dismissed.
This Order pronounced in Open Court on 11/01/2023
Sd/- Sd/-
(WASEEM AHMED) (SUCHITRA KAMBLE)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Ahmedabad; Dated 11/01/2023
TANMAY, Sr. PS TRUE COPY
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं धत आयकर आय
ु त / Concerned CIT
4. आयकर आयु त(अपील) / The CIT(A)-
5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड' फाईल / Guard file.
आदे शानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad