FOR APPROVAL AND SIGNATURE:

HONOURABLE MR. JUSTICE A.S. SUPEHIA Sd/-

and

HONOURABLE MR. JUSTICE PRANAV TRIVEDI Sd/-

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====Approved for Reporting Yes No a ==========================================================

COMMON CAV JUDGMENT

(PER : HONOURABLE MR. JUSTICE A.S. SUPEHIA)

(1) The captioned appeals emanates from the judgement and order dated 20.10.2006 passed by the Income Tax Appellate Tribunal, Ahmedabad (for short “the Tribunal”) in ITA No.642/AHD/2005 for Assessment Year (AY), 2001-2002, and ITA No.1302/AHD/2005 for AY 2001-02, wherein the Tribunal has allowed the cross-appeals filed by the respondent-assessee and revenue, partly. Both the assessee and revenue had challenged the orders passed by Commissioner of Income Tax, Appeals (CITA).

(2) In Tax Appeal No.1234 of 2007, the following substantial law was formulated vide order dated 25.03.2008: “Whether the Appellate Tribunal is right in law and on facts in reversing the order of CIT(A) wherein it was held that the consideration of Rs.29.10 crores received by the assessee for assignment of trademark / brand name was liable to tax as capital gain?”

(3) In Tax Appeal No.1235 of 2007, this Court framed the following substantial questions of law vide order dated 25.03.2008:

A) Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT(A) directing to allow short term capital loss of Rs.2,50,45,545 as claimed by the assessee?

B) Whether the Appellate Tribunal is right in law and on fact confirming the order passed by the CIT(A) directing to treat the trade receipt on account of sale of trademark of Rs.29.10 Crore as capital gain?”

Thus, one of the substantial questions of law relating to the consideration of Rs.29.10 crores to be liable to tax as capital gain is common in the captioned Tax Appeals.

BRIEF FACTS

(4) The respondent-M/s.Cadila Health Care along with Ambalal Sarabhai Enterprise Ltd., had formed 50:50 Joint Venture Company called ‘Sarabhai Zydus Animal Health Ltd.’. vide Deed of Assignment dated 15.06.2000, by selling / transferring 22 veterinary trademarks / brand names ‘along with goodwill of the business’ for the consideration of Rs.29.10 crores. By this deed, the assessee had transferred its veterinary/ animal health business to the JV Company.

(5) Upon undertaking necessary valuation of the trade marks from KPMG India Pvt. Ltd., the assessee under its letter dated 02.03.2004, represented that the sale consideration of Rs.29.10 crores was a capital receipt not chargeable to income tax for Assessment Year (for short “the AY”) 2001-02. It was presented by the assessee that its capital asset Trade marks is a self-generated asset, and it does not fall within the purview of section 45 read with section 48 of the Income Tax Act, 1961 (for short “the Act”).

While placing reliance on the provisions of section 55(2)(a) of the Act, it is contended that the same applies retrospectively w.e.f 1st April, 2002. The Assessing Officer (for short “the AO”) passed the assessment order dated 31.03.2004 under section 143(3) of the Act by taking support from the assignment deed that the “Trade marks have been sold along with goodwill”, and the generation of brand name, it cannot be said that no cost has been incurred. The Assessing Officer has also invoked the provisions of section 55(2) (a) of the Act will apply to the assessee, and the trademark or brand name developed during the course of business will be taxable under the head of “capital gains”, by taking cost as ‘Nil’. It is held that the amendment introduced vide Finance Act, 2001 is only clarificatory, and the money realised by the assessee is taxable under section 28(iv) of the Act as business income, and was not a capital receipt.

(6) Thus, the entire controversy rests on the Deed of Assignment dated 15.06.2000, vide which the assessee has sold the Trade Marks along with busine