Sum received for restraining use of ceased trademark is non-taxable capital receipt
Facts of the Case
Assessed company is engaged in the business of publishing and trading of educational and academic books on its own as well as on behalf of other publishers for which the assessee earns commission.
For the financial year 2007-08 relevant to assessment year 2008-09, the assessee originally filed return of income under S.139(1) of the Act disclosing total income of Rs. 6,18,83,754 under the normal provisions of the Income Tax Act, 1961 and book profit of Rs.6,30,10,217 for the purposes of S.115JB of the Act
Subsequently, the assessee revised the said return declaring total income under the normal provisions of the Act of Rs. 80,56,646 only excluding Rs. 5,38,27,108 being first instalment of total Rs.16,14,81,323 in aggregate on the ground that it is a capital receipt not forming part of the total income, towards impugned settlement received as compensation in terms of settlement agreement dated 22.11.2007 from M/s. Longman Communications Limited, London(LCL) which was confirmed by the court. As per the said agreement present name was not to be used by either party. Assesse can use Orient and The other party can use word Longman
The case was reopened by issuance of a notice under S.148 of the Act on 1.12.2009 on the belief that income has escaped assessment due to revision of return.
The assessee and its associate entities were obliged to cancel or surrender the registration of exiting trade mark after the expiry of some time frame referred as ‘primary period ‘ and ‘secondary period’ as per settlement agreement.
Similarly, the Pearson Group on its part undertook that it shall not use the name ’Longman’ in combination with the name ‘Orient’ or any name confusingly similar to name ‘Orient’ in India or anywhere else in the world.
The Assessing Officer treated such receipt as business income in view of the recently inserted provisions of S.28(va) of the Act.
In reply, the assessee inter alia contended that the consideration was received as per the settlement agreement and vetted by Tomlin order of the Court of U.K. in consideration of restraining the assessee from the use of the name ‘Longman’ and as such, it is a capital receipt not liable to tax at all.
The AO took a view that after the insertion of clause (va) to section 28, the law has changed its course and such receipts are liable to be taxed as revenue receipts. The CIT(A) confirmed the action of the AO.
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