The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) comprising Ms. Suchitra Kamble, (Judicial Member) and Shri Waseem Ahmed (Accountant Member) has observed that the consideration received for transfer of marketing/distribution rights for veterinary products as revenue receipt.
The assessee, Ambalal Sarabhai Enterprises Ltd., assigned their own trademarks of veterinary products vide Deed of Assignment of Trademarks made on 15.06.2000 to Sarabhai Zydus Animal Health Limited which is a joint venture of the assessee and Cadila Healthcare Ltd. The said assignment of trademark was for a total consideration of Rs.25 Crores.
During the course of assessment, the assessing officer treated the amount as revenue receipt and held that the same is taxable.
The assessee submitted that the joint venture has given the trademark as per the agreement and there was no transfer of trademark relating to goodwill of the business. The agreement itself shows that date of application of registration and the application of 40 trademarks were pending for registration. According to the assessee, since these are capital receipts and, therefore, are not coming under the purview of taxation.
The Tribunal bench observed that though the assessee is not involved in sale and purchase of trademarks, the assessee in certain trademark as well as marketing rights has taken the same from M/s ABIC, Israel, M/s. Bomac Laboratories Limited, New Zealand as well as Brand owned by Bristol-Myers Squibb Inc., USA.
“Thus, the contentions of the assessee that the trademarks were self established and there is no expenses incurred by the assessee, appears to be not correct in totality. From the perusal of the assignment agreement related to trademarks and marketing rights as well as the understanding between the joint venture and the assessee, it can be seen that though as per the agreement, the consideration was paid to the assessee, the assessee retains the right of manufacturing the products. The assessee is not having any right over the trademark as well as marketing the product. But the joint venture has not clearly set out that the assessee will totally bequeath its right relating to marketing operations as well as relating to trademarks. In the taxation parlance capital receipts are the income generated from investments, financial activities and business and it decreases or increases the value of liability. The assessee’s source of income was not solely depended upon the trademarks or the marketing rights but overall the generation of revenue from the operation of veterinary and human pharmaceutical products effectively establishing in the market in its own name and identity as well as manufacturing the same and marketing in its own name. The assessee fails to establish that the element of revenue generation does not come in the picture as contemplated by the Tax Authorities,” the Tribunal observed.
Upholding the order of the lower authorities, the Tribunal held that “In fact, there are clauses in those assignment agreements which established that the assessee has made business arrangement for the benefit of its manufacturing activities and for the generation of revenue to the joint venture entered between the assessee and Cadila Healthcare Limited. The observation of the CIT(A) appears to be correct and thus there is no need to interfere with the same. As relates to the case laws submitted by the assessee, the same are harping factual centric transfer of trade mark/assignment of trademark and in many of the cases there was no peculiarity of joint venture coming in the picture wherein the assessee and the other parties are involved. The joint venture though shown as separate legal entity has not defined the separate operations from the activities of the assessee and it has participated in the activities of the assessee which was carried out earlier.”
The assessee was represented by Shri Bandish Soparkar, A.R. & Shri Parin Shah, A.R.
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