Showing posts with label Capital Gain. Show all posts
Showing posts with label Capital Gain. Show all posts

Saturday, September 3, 2011

When assessee transfers brand, trademark and other interests in a

Whether when assessee transfers brand, trademark and other interests in a health periodical, held as intangible assets, profits arising out of such transactions are to be treated as capital gains or business income - capital gains, says HC

THE issue before the HC is - Whether when assessee transfers brands, trademark and interests in a health periodical, held as intangible assets, the profit arising out of such transaction is to be treated as capital gains or business income. The HC's answer is capital gains.

Facts of the case

Assessee is a private limited company engaged in the business of Healthcare, print media & electronic media communications – it entered into an 'Specified Assets Transfer Agreement' with one `CMPIPL' for the sale of all its rights, titles and interest in specified assets of its Healthcare Journals & Communications business for a consideration of Rs. 3.80 crores – these assets were (a) the periodicals (b) the products (c) the business intellectual property rights along with the goodwill and all rights (d) the customer database (e) the records (f) the editorial materials & (g) the contracts – pursuant to the agreement, two separate deeds namely 'Deed of Assignment of Copyrights' & 'Deed of Assignment of Trademarks' were executed on the same date and the assessee also assigned the copyrights and trademarks pertaining to its Healthcare Journals & Communication business – it also relinquished its right to carry on any business involving, relating to or competing with the transferred specified assets – however, it retained a limited & non exclusive right to use the pharmaceuticals companies solely for the purpose of its clinical trials business and for no other purpose – assessee offered the said amount as long term capital gain – In assessment proceedings, the assessee submitted that all the journals were initiated by the company itself and were not in existence earlier, these journals were registered with the Registrar of Newspapers of India - thus, the assessee was the owner of brand name of these journals which were also registered/indexed with Indian National Scientific Documentation Centre, Govt. of India and was the exclusive holder of copyrights and trademarks of all the journals – these were intangible assets u/s 55(2)(a), the cost of acquisition of which was `Nil' and the consideration received should be considered as long term capital gain.

AO observed as per the terms of the agreement that the assessee had not sold whole of its business but only surrendered it right regarding publications of journals and the `CMPIPL' granted the assessee a royalty free, non-exclusive license to use the data comprised of the advertisers and pharmaceutical companies which the assessee would use in respect of its clinical trials business. The agreement also contained a non compete clause. Thus, the AO considered that the income received would be treated as business income as per the provisions of Section 28 (va).

CIT (A) as well as ITAT allowed the appeal of the assessee and treated it as capital gain. ITAT held that the assessee company had wholly given up its right to carry on Healthcare Journals and Communications business for a specified period and there was no connection between the two businesses i.e. Business of Healthcare Journals & Communications was clearly a distinct and separate business as before sale of intangible like trademarks, brands, copyrights and goodwill. The assessee had lost the source of income and section 28(va) did not apply.

After hearing both the parties, the ITAT held that,

++ it is to be borne in mind that vide agreement entered into by the assessee in favour of M/s CMP Medica Pvt. Ltd, the assessee had sold/transferred the rights of trade mark, brands, copyrights etc. in the journals and publications which the assessee had. All the journals were registered with RNI. These publications were indexed by the INSDC and were also published as property of the assessee. The assessee also had copyrights therein. It cannot be disputed that trademarks/brands, copyright and good will constitute assets of the business and are profit earning apparatus. The 'right to carry on any business' has been recognized by the legislature as capital asset for the purposes of assessing and computing the capital gains as per Section 55 (2) (a). Once it is accepted that the brand names, trademark, copyright and goodwill in the aforesaid journals was sold/transfered by the assessee to the transferee, it would be a case of sale of capital asset and the gain therefrom would be computed as capital gain;

++ the assessee had sold and transferred permanently and forever all its existing assets and contracts of the Healthcare journals and Communication business in terms of the agreement. The consideration was not received only for giving up the right to carry on the Healthcare Journals & Communications business but was mainly for the transfer of all intangible assets being trademarks, brands, copyrights and the associated goodwill of the Healthcare journals & communications business. In respect of journals etc. published, the assessee had Statutory Title Clearance from the office of the Registrar of Newspapers for India, all the publications were registered with RNI, appellant had also filed "from B' declaration before the DCP (Licensing), Delhi, the publications were indexed by INSDOC and all these publications had a copyright declaration which proves the authenticity of the appellant's claim of the assets being in the nature of intangible capital assets of business;

++ the clinical trial business which the assessee continues to carry on was distinct and separate from the business of Healthcare Journals and Communication. As far as Healthcare Journal and Communication business is concerned, it had been given up in entirety in favour of the transferee. Therefore, it could not be said that the assessee had given up only one of the activities in relation to its business. Thus, the proviso to Section 28(va) becomes applicable which stipulates that Section 28 (va) was not applied to any sum received on account of transfer of right to carry on any business which is chargeable under the head "capital gains";

++ further the agreement was captioned as "Specified Asset Transfer Agreement" which defines "Business" to mean the business of publishing, distributing and selling the periodical and products as carried on by the seller. All these publications were termed as "Business Intellectual Property Rights" which were treated as "Specified assets". So much so, the "Customer Data Base" held by the assessee was also shared with the transferee. Thus, there was a clear transfer of the exclusive assets and on transfer it is the transferee who had become the sole and undisputed owner of these assets which were the business assets of the assessee.

Tuesday, August 30, 2011

Where assessee invested its own funds in shares which were held by it for a

 
IT : Where assessee invested its own funds in shares which were held by it for an average period of 300 days and, moreover, those shares were shown as investment in books of account, it was to be held that transactions in shares were made by assessee as an investor and, thus, profit earned from sale of shares was to be treated as capital gain

[2011] 12 taxmann.com 321 (Mum. - ITAT)

IN THE ITAT MUMBAI BENCH 'E'

Deputy Commissioner of Income-tax, 8(3), Mumbai

v.

Securities Capital Investment India Ltd.*

P.M. JAGTAP, ACCOUNTANT MEMBER
AND VIJAY PAL RAO, JUDICIAL MEMBER
IT APPEAL NO. 211 (MUM.) OF 2010
[ASSESSMENT YEAR 2006-07]

Sunday, August 21, 2011

Vodafone questions I-T Dept's ambit to levy capital gains tax

Vodafone questions I-T Dept's ambit to levy capital gains tax British telecom giant Vodafone has questioned the jurisdiction of the Income Tax Department in slapping the Rs 11,000-crore capital gains tax over its buy out of Hutchison's 67 per cent stake in Essar-Hutchison joint venture, the final hearing on which began in the Supreme Court today.


Appearing before a three-judge Bench headed by the Chief Justice, Mr S. H. Kapadia, senior advocate Mr Harish Salve contended that as the transaction between two foreign companies — Vodafone International Holding BV and Hutchison Communication International Ltd — had happened outside India, the I-T Department could not impose capital gain tax. "Transfer of control of downstream companies (in this case, Hutchison's Indian telecom assets) by two foreign companies cannot be a basis for (the I-T Department) asserting tax jurisdiction. This is the heart of the matter," Mr Salve said. Mr Salve submitted that Vodafone was not liable to pay capital gains tax on the 2007 deal because all the parties involved were foreign companies and also the transaction was not carried out in India.

Therefore, there was no income that could be subjected to tax in India. Mr Salve said the complex structure of the deal had not been created to evade any tax, as claimed by the I-T Department. The structure was instead a result of several players entering and exiting the telecom business before Vodafone acquired Hutchison's Indian telecom assets. Therefore, it was not a device to perpetrate a tax fraud and did not amount to a dishonest scheme or money laundering, he claimed.

The Bombay High Court's order on the matter, which is being challenged by Vodafone before the apex court, notes that between 1992 and 2006 Hutchison had acquired interests in 23 mobile telecommunication circles in India. The Bombay High Court had said the I-T Department has the jurisdiction to claim the tax in this case. The Supreme Court sought to know from Mr Salve the nature of the transaction, the reason for routing the deal through a company based in a tax haven (Cayman Islands), and whether the I-T Department could demand tax as the underlying assets were in India. Mr Salve said though a tax haven was involved, the transaction was genuine and honest as it was transparent.

The case involves the Netherlands-based Vodafone International Holdings BV (VIH), a subsidiary of the UK-based Vodafone Group, acquiring a 67 per cent controlling stake in the Cayman Islands-based CGP Investments Ltd that held the Indian telecom assets (Hutchison Essar) of the Hong Kong-based Hutchison Whampoa. The shares in Hutchison Essar were held through companies based in Mauritius and India. The I-T Department says Vodafone failed to deduct tax at source while acquiring the controlling stake. The high-profile case is keenly watched by many across the globe as the apex court order is expected to have ramifications on India-related acquisitions and foreign investments into the country. - www.thehindubusinessline.co

Monday, August 8, 2011

Income accruing or arising in India to a non-resident (US company) on t

IT/ILT : Income accruing or arising in India to a non-resident (US company) on transfer of a capital asset situate in India to an Indian company would be income deemed to accrue or arise in India to said non-resident and can be assessed in hands of the non-resident or in hands of Indian company as agent of that non-resident under section 163 [Section 9 of the Income-tax Act, 1961 - Income - Deemed to accrue or arise in India]

l Transfer of Indian company's share constitutes transfer of a capital asset situate in India and income from such transfer of capital asset even if accrues or is received in India within the meaning of section 5 such income being specifically enumerated under section 9 would be income deemed to accrue or arise in India

l The capital gains accruing or arising to a non-resident on transfer of a capital asset situate in India apart from being taxed in hands of non-resident, can be taxed in hands of agent of non-resident under section 163 read with section 9 because the income accruing to the non-resident falls within the category of deemed income specified in section 9

l The CBDT circulars No. 682 & 789 explaining the DTAA between India & Mauritius would not apply where the investments are made in India by entities other than the entities incorporated in Mauritius - [2011] 12 taxmann.com 141 (Bom.)

Wednesday, July 6, 2011

Capital gain on sale of property is assessable in that assessment year only

Capital gain on sale of property is assessable in that assessment year only when sale deed is executed and possession of property is handed over to buyer - [2011] 10 taxmann.com 92 (Mum. - ITAT)

Saturday, July 2, 2011

Flats which are acquired on 22-11-2001 and sold on 28-1-2003 are not long-t

Flats which are acquired on 22-11-2001 and sold on 28-1-2003 are not long-term capital asset, not liable for indexation - [2011] 10 taxmann.com 96 (Mum. - ITAT)

Wednesday, June 29, 2011

Shares PMS transaction gains are STCG and not business profits

ARA Trading ; Investments Pvt Ltd vs. DCIT (ITAT Pune)

Shares PMS transaction gains are STCG and not business profits

The assessee, engaged in investment in financial instruments, offered short-term capital gains (“STCG”) of Rs. 1.04 crores and LTCG of Rs. 12.57 lakhs. The bulk of the gains arose from a Portfolio Management Scheme (PMS) with ENAM AMC. The AO & CIT (A) assessed the entire gain as business income on the ground that (a) there were a large number of transactions, (b) the assessee had dealt with 5 brokers with 95% of the transactions being with ENAM AMC, (c) there was large volume of purchase and sales in 96 scrips, (d) the only receipts were from share transactions and expenses on bank charges, etc were charged there from. On appeal to the Tribunal, HELD allowing the appeal:

(i) Given the definitions of the term “business” and “capital asset” in s. 2(13) & 2(14), shares, if held for more than 12 months, will be a long-term capital asset, inspite of continued and systematic dealings;

(ii) On facts, as the assessee had engaged a portfolio manager to look after its’ investments and all decisions to buy and sell were taken by the portfolio manager and not by the asessee, the assessee cannot be called a “dealer”;

(iii) The object of the PMS was to maximize the value of the portfolio. It was “wealth maximization” and not “profit maximization”;

(iv) In the balance sheet, the shares were valued at cost and not at lower of cost or market value;

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Dear Friends : The emails are schedule to be posted in the blog and will sent to the group on carious dates and time fixed. Instead of sending it on one day it is spread on various dates. 
regards. R R Makwana
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Monday, June 6, 2011

STCG loss, attributable to a genuine business transaction, can be set off

Short term capital loss, attributable to a genuine business transaction, can be set-off against long-term capital gains

Income-tax : It is not within the province of Assessing Officer to ignore an otherwise genuine transaction and to brand it as a colourable one on ground that it was duty of the company to invest further amount or it should have waited for a reasonable period [Section 74 of the Income-tax Act, 1961 - Losses under the head `Capital gains'] - [2011] 10 taxmann.com 119 (Cal.)