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.
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.
