1 itxa2218-09 agk IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.2218 OF 2009 The Commissioner of Income Tax, Central – III, 109, 1st Floor, Aayakar Bhavan, Mumbai – 20 ..Appellant. Versus M/s.Bombay Oil Industries Limited, 411, Shah & Nahar Industrial Estate, Worli Naka, Mumbai – 400 018 ..Respondent. Mr.B.M. Chatterjee with Ms.Anamika Malhotra for the appellant. Mr.P.J. Pardiwala with Mr.Atul K. Jasani i/by Ashok Boghani & Co. for the respondent. CORAM : J.P. Devadhar & Smt.R.S. Dalvi, JJ. DATE : 22nd March, 2011. P.C. : 1. The question of law raised in this appeal is : whether the Income Tax Appellate Tribunal was justified in setting aside the order of the Commissioner of Income Tax passed under Section 263 of the Income Tax Act, 1961 on the ground that the assessment order passed by the Assessing Officer cannot be said to be prejudicial to the interests of the Revenue. 2. The assessment year involved herein is A.Y. 2001-2002. 3. The respondent – company is engaged in the business of 2 itxa2218-09 manufacture of chemicals, leasing, investments and financing. 4. In the assessment year in question, the assessee had transferred its trade mark / brand name in respect of parachute and saffola oil to the Marico Industries Limited for Rs.28.60 crores. In the return of income, it was stated that the said sum of Rs.28.60 crores was not taxable. However, in its revised return of income, the assessee offered to tax the said amounts as long term capital gains by taking fair market value of trademark / brand name as on 1-4-1981 as its cost of acquisition under Section 55(2)(b) of the Income Tax Act, 1961. The Assessing Officer on the basis of the valuation report submitted by M/s.C.G. Chokshi & Company, Chartered Accountants accepted the cost of acquisition of the trademark / brand name at Rs.3,75,00,000/-. The indexed cost was further worked out to Rs.15,22,50,000/- and the long term capital gain was worked out at Rs.13,37,50,000/-. 5. Thereafter, the Commissioner of Income Tax invoked jurisdiction under Section 263 of the Income Tax Act and by his order dated 30-3-2006 held that the assessment was completed without making proper enquiries and as such it was erroneous and prejudicial to the interest of the Revenue. 6. On appeal filed by the assessee, the Income Tax Appellate Tribunal by its order dated 16-09-2008 set aside the order of the Commissioner of Income Tax passed under Section 263 of the Income Tax Act, 1961 by holding that even if it is held that the assessment was 3 itxa2218-09 erroneous, it cannot be said to be prejudicial to the interests of the Revenue and, therefore, invoking jurisdiction under Section 263 of the Act cannot be sustained. Challenging the aforesaid order, present appeal is filed. 7. According to Mr.Chatterjee, learned Counsel for the Revenue, the Tribunal was wrong in setting aside the order of the Commissioner of Income Tax; because, firstly, once it is accepted that the Assessing Officer had not made proper enquiries as to the exact nature of the assets transferred by the agreements dated 4-4-2000, it must be held that the assessment is prejudicial to the interests of the Revenue. Secondly, if the transfer of assets included transfer of goodwill, then different considerations would arise and computation of capital gains would be materially different than it is assessed. Thirdly, the valuation report of the Chartered Accountant has been accepted without verification and since the said report is found to be erroneous, the assessment is also erroneous and prejudicial to the interests of the Revenue. Fourthly, it is contended that the cost of the asset ought to have been determined under Section 55(2)(a) and not as per Section 55(2)(b) of the Act. 8. We see no merit in the above contentions. As rightly contended by Mr.Pardiwala, learned Senior Advocate appearing on behalf of the assessee, the capital asset transferred in the present case, had been generated much prior to 1-4-1981 and, therefore, the assessee had an option to adopt the fair market value as on 1-4-1981. There is no dispute that the assessee 4 itxa2218-09 had received Rs.28.60- crores on transfer of trademark and brand name in respect of parachute and saffola oil. There is no dispute that since 1990 Marico Industries Limited had been marketing the said two products under the registered user agreement dated 26-09-1990. Assuming that the said amount of Rs.28.60 crores includes the value of the goodwill, then as per Section 55(2)(a) of the Income Tax Act, 1961 cost of acquisition of the goodwill would have to be taken as nil. However, the cost of acquisition of trademark / brand name cannot be taken as nil because the provision to that effect introduced by the Finance Act, 2001 with effect from 1-4-2002 does not apply to the assessment year in question. In other words, the cost of acquisition of the trademark / brand name had to be deducted in full from the total consideration received by the assessee. 9. The Tribunal in para 12 of its judgment has held that bifurcation of the sale consideration amount of Rs.28.60 crores into goodwill and trade mark / copyright would not have any revenue impact, because, so long as the sale consideration and cost of acquisition of trade mark / copyright are not in dispute, then whatever be the sale consideration of goodwill would not affect the computation of capital gains. To illustrate, suppose Rs.100/- is the sale consideration received on transfer of good will and trade mark / copyright and cost of acquisition of trademark / copyright is Rs.20/-, then if out of Rs. 100/-, Rs.40/- is considered to be the sale consideration received on account of goodwill and Rs.60/- is the sale consideration on account of trade mark / 5 itxa2218-09 copyright, then the computation of capital gains would be as follows : Sale consideration on account of goodwill Rs.40 less cost of acquisition of goodwill Rs.nil. ------- capital gains on account of goodwill Rs.40 Sale consideration received on account of trade mark / copyright Rs.60 less Cost of acquisition of trademark / copyright Rs.20 -------- Capital gains on account of trademark / copyright Rs.40 --------- Total capital gains - - - - - - Rs.80 ==== Assuming that out of Rs.100/-, the sale consideration received on account of goodwill is held to be Rs.20/-, then the computation of capital gains would be as follows : Sale consideration on account of goodwill Rs.20 less cost of acquisition of goodwill Rs.nil. ------- capital gains on account of goodwill Rs.20 Sale consideration received on account of trade mark / copyright Rs.80 less Cost of acquisition of trademark / copyright Rs.20 -------- Capital gains on account of trademark / copyright Rs.60 ---------- Total capital gains - - - - - - Rs.80 ==== Thus, so long as the total sale consideration received as also the cost of acquisition of trademark / copyright are not in dispute, any variation in the value of the sale consideration received on account of goodwill would make no difference in the total computation of capital gains. 6 itxa2218-09 10. In the present case, the Commissioner has not recorded any finding to the effect that the 'economic use method' adopted by the Chartered Accountants is not a recognized method in determining the cost of acquisition of brand products or that there is any error in computing the cost of brand products even by adopting economic user method. If there are several methods permissible for estimating the value of brand products and the Chartered Accountants have followed one of the method which is more suitable to the facts of the present case, it would not be open to the Commissioner to invoke jurisdiction under Section 263 of the Act on the ground that another method should have been adopted, unless it is demonstrated that the value determined by the method adopted by the valuer is not a recognized method or such method gives absurd results. In the present case, no such finding is recorded by the Commissioner while finding fault with the order of the assessing officer. 11. The Apex Court in the case of Malabar Industrial Co. Limited V/s. Commissioner of Income Tax reported in (2000) 243 ITR 83, as also this Court in the case of Commissioner of Income Tax v/s. Gabriel India Limited reported in (1993) 203 ITR 108 have held that merely because the Commissioner of Income Tax has a different view than the view taken by the Assessing Officer, that cannot be a ground to invoke jurisdiction under Section 263 of the Income Tax Act, 1961. 7 itxa2218-09 12. The Commissioner in the present case has held that the valuer while determining value of trademark / brand products as on 1-4-1981 has not taken into account the past performance of the Company. As rightly pointed out by the Counsel for the assessee, on the date of determining the value of brand products as on 1-4-1981, the performance of the Company subsequent to 1-4-1981 was available to the valuer and, therefore, there was no need to refer to the past performances of the Company. Similarly, the fact that the assessing officer had not taken into consideration the valuation report of M/s.Deloitte Haskins and Sells does not affect the computation of capital gains, because, the said report relates to valuing the brand products as on the date of transfer, wherein, obviously only the past performance has to be taken for determining the quantum of sale consideration. 13. For all the aforesaid reasons, in our opinion no fault can be found with the decision of the Tribunal in holding that the assessment order is not prejudicial to the interests of the Revenue and accordingly setting aside the order of the Commissioner of Income Tax passed under Section 263 of the Income Tax Act, 1961. 14. In the result, the appeal is dismissed with no order as to costs. (Smt.R.S. Dalvi, J.) (J.P. Devadhar, J.)