(O&M) THE COMMISSIONER OF INCOME TAX-1 vs. M/S SWIFT FORMATION PVT. LTD.

ITA/398/2005HC Punjab & HaryanaPHHC01075678200527 August 2014Author: MR. JUSTICE R.C. KATHURIA (RETD.),MR. JUSTICE JITENDRA CHAUHAN7 pages
AI SummaryDismissed

What were the facts?

The Revenue is in appeal against the order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 1997-98. The assessee, M/s Swift Formation (P) Limited, declared an income of ₹3,26,920, which was later assessed at ₹10,76,920. The Assessing Officer noted that the assessee debited ₹7,50,000 for the sale of trade marks 'Amibex' and 'Elusin' to M/s Ind. Swift Limited. The AO disallowed this claim under Section 55(2)(a) of the Income Tax Act, 1961, treating the sale of trade marks as a sale of goodwill and adding the amount to the assessee's income. The CIT(A) deleted the addition, holding that the relevant amendment to Section 55(2)(a) including 'right to manufacture, produce or process any article or thing' was effective from AY 1998-99 onwards, and that sale of trademark was not sale of goodwill. The ITAT upheld the CIT(A)'s order.

What did the High Court hold?

The High Court held that the amendments to Section 55(2)(a) by the Finance Act, 1994, effective from April 1, 1995, included goodwill, tenancy rights, stage carriage permits, and loom hours. Subsequently, the Finance Act, 1997, effective from April 1, 1998, inserted "right to manufacture, produce or process any article or thing." Crucially, the Finance Act, 2001, effective from April 1, 2002, substantively amended Section 55(2)(a) to explicitly include "a trade mark or brand name associated with a business." The Court reasoned that the specific inclusion of trade mark or brand name by a substantive amendment in 2001 indicated it was not implicitly included in 'goodwill' prior to that date. Such amendments are prospective and not merely clarificatory. The Court found the judgments relied upon by the revenue distinguishable on facts. Therefore, for Assessment Year 1997-98, the sale of trade marks did not fall under the definition of capital asset as goodwill. The Tribunal was correct in its decision.

What were the issues?

1. Whether amendments in Section 55(2)(a) made by the Finance Act 1997 and Finance Act 2001 indicate that for the earlier period, the name or brand name associated with a business was included in the expression 'Goodwill' of a business? (Question of law) 2. Whether the ITAT erred in law by holding that the sale of trade marks 'AMIBEX' and 'ELUSIN' for ₹7,50,000 did not fall under the definition of capital asset or a sale of goodwill, without determining whether the amendments in Section 55(2)(a) indicated that for the earlier period, the name or brand name associated with a business was included in the expression 'goodwill' of a business? (Question of mixed law and fact) Assessee's contentions: The assessee argued, relying on CIT, Bangalore vs. B.C. Srinivasa Setty (1981) 128 ITR 294 and Vysali Chemotherapeutics (P) Limited vs. Commissioner of Income Tax (2004) 269 ITR 362, that goodwill relates to reputation and that the specific inclusion of trademark or brand name in Section 55(2)(a) by the Finance Act 2001 (effective from 1.4.2002) meant it was not included in goodwill prior to that date. Revenue's contentions: The revenue contended that goodwill included trade mark or brand name and therefore, after the amendment by the Finance Act 1994 (effective from 1.4.1995), the sale of brand names 'Amibex' and 'Elusin' for ₹7,50,000 was part of the goodwill of the business. It relied on Jogta Coal Co. Limited vs. CIT, West Bengal (1959) 36 ITR 521 and Seethalakshmi Ammal vs. Controller of Estate Duty, Madras (1966) 61 ITR 317.

Which sections of the Income-tax Act were involved?

Section 260A,Section 55(2)(a),Section 48,Section 49

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 398 of 2005 (O&M) Date of decision: 27.8.2014 The Commissioner of Income Tax I, Chandigarh ……Appellant Vs. M/s Swift Formation (P) Limited, 78, I.A.II, Chandigarh …..Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MR. JUSTICE FATEH DEEP SINGH Present: Ms. Urvashi Dhugga, Advocate for the appellant. Mr. S.K.Mukhi, Advocate for the respondent.

Ajay Kumar Mittal,J.

1.

This appeal has been preferred by the revenue under section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 31.3.2005, Annexure A.3 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'B' (in short, “the Tribunal”) in ITA No.51/Chandi/2002, for the assessment year 1997-98, claiming following substantial questions of law:- “i) Whether amendments in Section 55(2)(a) made by the Finance Act 1997 and Finance Act 2001 indicate that for the GURBAX SINGH 2014.10.28 11:54 I attest to the accuracy and integrity of this document High Court Chandigarh earlier period the name or brand name associated with a business was included in the exp

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