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The learned CIT(A) has erred both in law and on the facts of the case in treating the amount of Rs. 50 lacs received by. the assessee on assignment/sale of trademark from M/s Rhone Poulene (India) Ltd. and declared by the assessee as capital gain in its return of income.

The learned CIT(A) has erred both in law and on the facts of the case in allowing the project development expenses amounting to Rs. 29,25,019 which were carried forward as deferred revenue expenditure. The assessee is following mercantile system of accounting and these expenses were required to be claimed in the relevant year.

50. As per ground No. 5, the learned CIT(A) has erred in treating the amount of Rs. 50 lacs received by the assessee on assignment/sale of trademark from M/s Rhone Poulenc (India) Ltd. and declared by the assessee as a capital gain in its return of income. The facts in this regard are that in its return of income, the assessee had offered capital gains of Rs. 50 lacs on the sale of self-generated trademarks, taking the cost of acquisition thereof as 'nil'. On the basis of the amount offered by the assessee, the AO added the same in the assessment. Before the learned CIT(A), the assessee contended that the business of the pharmaceutical formulations constituted a source of income for the assessee; that the brands were self-generated assets of the assessee; that, therefore, the consideration received without assignment of such trademarks/brand names constituted a capital receipt in the hands of the assessee, not liable to tax; that since the cost of the trademarks/brand names, being self-generated assets of the assessee, could not be determined, the computation provisions failed and so, the amount could not be taxed, as held by the Hon'ble Supreme Court in the case of CIT v. B.C. Srinivasa Setty ; that the amendment in Section 55(2)(a) of the Act w.e.f. 1st April, 2002, providing that the cost of acquisition of trademarks or brand names associated with a business shall be 'nil', is prospective, being applicable only from the asst. yr. 2002-03, and, as such, it was not applicable to the case of the assessee; and that in ICI India Ltd. v. Dy. CIT (2002) 75 TTJ (Cal) 932 : (2002) 81 ITD 348 (Cal), it has been held that right to use a trademark "cannot be treated at par with goodwill" and, as such, the provisions relating to computation of cost of acquisition and cost of improvement in case of self-generated goodwill" will not apply in the case of trademarks. The learned CIT(A) agreed with the contentions of the assessee and held the amount of Rs. 50 lacs to be not liable to tax.