1. The short question that arises for consideration in this appeal is as to whether the brand name in respect of eight items of medicines sold by the assessee for a consideration of Rs. 4 lakhs to M/s Vysali Pharmaceuticals (P) Ltd. is exigible to capital gains tax under the IT Act, 1961 (for short the Act).
2. Assessee is the appellant. The assessment year is 1992-93, the relevant accounting period ended 31st March, 1992. During the accounting period relevant to the assessment year, the assessee sold the 'brand name' in respect of eight items of medicines to a sister-concern by name M/s Vysali Pharmaceuticals (P) Ltd. for a consideration of Rs. 4 lakhs. The AO wanted to assess the said amount to tax by resorting to the provisions of Section 55(2) of the Act. The said provision, as it stood at the relevant time, provided that for the purpose of Sections 48 and 49 'cost of acquisition' in relation to a capital asset, being goodwill of a business, in the case of such acquisition by the assessee by purchase from a previous owner means the amount of the purchase price and in any other case, shall be taken to be nil. The case of the assessee was that the brand name cannot be equated to or treated as part of goodwill of the business of the assessee. The AO and the two appellate authorities have taken the view that the brand name is definitely a part of the goodwill of the business of the assessee and, therefore, it is liable to be assessed to capital gains under Section 48 of the Act.
3. Sri P. Balakrishnan, learned counsel appearing for the assessee submits that 'brand name' cannot be treated as part of the 'goodwill', for, according to him goodwill has got a definite meaning which cannot be ascribed to a brand name. Counsel also relied on the amendment made to Sub-section (2) of Section 55 by the Finance Act, 2001, w.e.f. 1st April, 2002, and submitted that this amendment also is indicative of the fact that goodwill did not take in trade-mark or brand name associated with a business. Counsel further pointed out that factually also the purchaser of the brand name has suffered loss only by dealing with the brand name purchased from the assessee.
4. Sri Geroge K. George, learned Standing Counsel for the Revenue, submits that all the three authorities have clearly considered the question whether brand name sold by the assessee will fall within the ambit of goodwill occurring in Clause (a) of Sub-section (2) of Section 55 of the Act and found as a fact that it does. The Standing Counsel further submitted that none of the authorities including the Tribunal had occasion to consider the effect of the amendment made by the Finance Act, 2001, w.e.f. 1st April, 2002, since all the three orders impugned in this appeal were passed long before such amendment.
5. We have considered the rival submissions and also perused the three orders. It is true that the authorities and the Tribunal did not have occasion to consider the effect of the amendment to Clause (a) of Sub-section (2) of Section 55 of the Act, since it was effected only by the Finance Act, 2001, long after the said orders. The amended provisions of Clause (a) of Sub-section (2) of Section 55 read as follows :
'55(2) For the purposes of Sections 48 and 49 'cost of acquisition' :
(a) in relation to a capital asset, being goodwill of a business or a trade mark or brand name associated with a business or a right to manufacture, produce or process any article or thing or right to carry on any business, tenancy rights, stage carriage permits or loom hours :
(i) in the case of acquisition of such asset by the assessee by purchase from a previous owner, means the amount of the purchase price; and
(ii) in any other case not being a case falling under Sub-clauses (i) to (iv) of Sub-section (1) of Section 49, shall be taken to be nil'
Admittedly this amendment is having only prospective effect from 1st April, 2002. However, the effect of the amendment in relation to the earlier period is necessarily a matter to be considered by the Tribunal while determining the question as to whether brand name associated with a business was taken in within the expression goodwill. To put it differently, does the amendment indicate that for the earlier period the name or brand name associated with a business was included in the expression goodwill of a business or not This is a matter, according to us, which requires consideration. For the said purpose we set aside the order of the Tribunal and remit the matter to the Tribunal for passing fresh orders in accordance with law and in the light of the observations made hereinabove. Needless to say the parties have to be heard before taking a decision in the matter as directed and orders will be passed as far as possible within three months from the date of receipt of a copy of this judgment.
The IT Appeal is disposed of as above.