Brand Name, Trademark, Know-How are Assets for the purpose of Computing Capital Gain: ITAT Read Order]

The Cochin bench of the Income Tax Appellate Tribunal (ITAT) has held that assets like brand name, know-how, trademark, etc, can be treated as assets for the purpose of computing the capital gain under the provisions of the Income Tax Act, 1961.

The assessee, during the relevant year, transferred its assets such as “brand name”, “package design”, “knowhow” etc. and also “product intangibles” and “marketing intangibles” another company. Since there was no cost of acquisition, the assessee offered the entire sale consideration as Long Term Capital Gain (LTCG) in the income tax return. However, during the assessment proceedings, the AO rejected the return and held that the above assets would not come under the purview of “financial assets” under section 2(42A) of the Income Tax Act.

On an appeal filed by the department, the Tribunal observed that the term “financial asset” has been described in Explanation 1(i)(d) to section 2(42A) of the Act to be a capital asset, being a share or any other security.

The Tribunal noted that as per Explanation (2) to section 2(42A) of the Act, the expression “security” shall have the meaning assigned to it in clause (4) of section 2 of the Securities Contract (Regulation) Act, 1956. As per section 2 of the Securities Contract (Regulation) Act, 1956, the term “security” includes “scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporates”.

“Therefore, the “financial asset” has been described in the Act as share or security and the assets transferred by the assessee does not fall in the category of “financial asset”. This view is further affirmed by section 2(11) of the Income Tax Act, which defines the term “block of asset” for the purpose of depreciation. The definition u/s 2(11) of the Act includes intangible assets. Since the intangible assets are covered in the definition of “block of asset” eligible for depreciation, the same cannot be again covered under the definition of “financial asset” as per Explanation (1) (i) (d) to section 2(42A) of the I.T.Act. Therefore, the assets transferred by the assessee, the period of holding cannot be determined as per Explanation 1(i)(e) to section 2(42A) of the I.T Act, as contended by the Assessing Officer,” the Tribunal said.

Concurring with the findings of the first appellate authority, the Tribunal further observed that the period of holding is much more than 36 months when the relinquishment/sale took place (on 18.05.2010) and therefore, directed the Assessing Officer to treat the same as Long-term capital gain.