Gujarat High Court
The Commissioner Of Income … vs Zydus Lifesciences Limited(Amendment … on 12 March, 2026
Author: A. S. Supehia
Bench: A.S. Supehia
NEUTRAL CITATION
C/TAXAP/1234/2007 CAV JUDGMENT DATED: 12/03/2026
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Reserved On : 18/02/2026
Pronounced On : 12/03/2026
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/TAX APPEAL NO.1234 of 2007
With
R/TAX APPEAL NO.1235 of 2007
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE A.S. SUPEHIA Sd/-
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI Sd/-
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Approved for Reporting Yes No
a
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THE COMMISSIONER OF INCOME TAXAHMEDABAD – I
Versus
ZYDUS LIFESCIENCES LIMITED
(Amendment carried out as per order dated 04.02.2026)
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Appearance:
MR.VARUN K.PATEL(3802) for the Appellant
MR R.K. PATEL, SENIOR ADVOCATE with DARSHAN R PATEL,
ADVOCATE (8486) for the Opponent
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CORAM:HONOURABLE MR. JUSTICE A.S. SUPEHIA
and
HONOURABLE MR. JUSTICE PRANAV TRIVEDI
COMMON CAV JUDGMENT
(PER : HONOURABLE MR. JUSTICE A.S. SUPEHIA)(1) The captioned appeals emanates from the
judgement and order dated 20.10.2006 passed by
the Income Tax Appellate Tribunal, Ahmedabad (for
short “the Tribunal”) in ITA No.642/AHD/2005 for
Assessment Year (AY), 2001-2002, and ITA
No.1302/AHD/2005 for AY 2001-02, wherein the
Tribunal has allowed the cross-appeals filed by
the respondent-assessee and revenue, partly. BothPage 1 of 39
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the assessee and revenue had challenged the
orders passed by Commissioner of Income Tax,
Appeals (CITA).
(2) In Tax Appeal No.1234 of 2007, the following
substantial law was formulated vide order dated
25.03.2008:
“Whether the Appellate Tribunal is right
in law and on facts in reversing the
order of CIT(A) wherein it was held that
the consideration of Rs.29.10 crores
received by the assessee for assignment
of trademark / brand name was liable to
tax as capital gain?”
(3) In Tax Appeal No.1235 of 2007, this Court
framed the following substantial questions of law
vide order dated 25.03.2008:
A) Whether the Appellate Tribunal is right in
law and on facts in confirming the order
passed by the CIT(A) directing to allow
short term capital loss of Rs.2,50,45,545 as
claimed by the assessee?
B) Whether the Appellate Tribunal is right in
law and on fact confirming the order passed
by the CIT(A) directing to treat the trade
receipt on account of sale of trademark of
Rs.29.10 Crore as capital gain?”
Thus, one of the substantial questions of law
relating to the consideration of Rs.29.10 croresPage 2 of 39
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to be liable to tax as capital gain is common in
the captioned Tax Appeals.
BRIEF FACTS
(4) The respondent-M/s.Cadila Health Care along
with Ambalal Sarabhai Enterprise Ltd., had formed
50:50 Joint Venture Company called ‘Sarabhai
Zydus Animal Health Ltd.’. vide Deed of
Assignment dated 15.06.2000, by selling /
transferring 22 veterinary trademarks / brand
names ‘along with goodwill of the business’ for
the consideration of Rs.29.10 crores. By this
deed, the assessee had transferred its
veterinary/ animal health business to the JV
Company.
(5) Upon undertaking necessary valuation of the
trade marks from KPMG India Pvt. Ltd., the
assessee under its letter dated 02.03.2004,
represented that the sale consideration of
Rs.29.10 crores was a capital receipt not
chargeable to income tax for Assessment Year (for
short “the AY”) 2001-02. It was presented by the
assessee that its capital asset Trade marks is a
self-generated asset, and it does not fall within
the purview of section 45 read with section 48 of
the Income Tax Act, 1961 (for short “the Act”).
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While placing reliance on the provisions of
section 55(2)(a) of the Act, it is contended that
the same applies retrospectively w.e.f 1st April,
2002. The Assessing Officer (for short “the AO”)
passed the assessment order dated 31.03.2004
under section 143(3) of the Act by taking support
from the assignment deed that the “Trade marks
have been sold along with goodwill”, and the
generation of brand name, it cannot be said that
no cost has been incurred. The Assessing Officer
has also invoked the provisions of section 55(2)
(a) of the Act will apply to the assessee, and
the trademark or brand name developed during the
course of business will be taxable under the head
of “capital gains”, by taking cost as ‘Nil’. It
is held that the amendment introduced vide
Finance Act, 2001 is only clarificatory, and the
money realised by the assessee is taxable under
section 28(iv) of the Act as business income, and
was not a capital receipt.
(6) Thus, the entire controversy rests on the
Deed of Assignment dated 15.06.2000, vide which
the assessee has sold the Trade Marks along with
business for consideration of Rs.29.10 crores.
The Assessing Officer has held that the same is
taxable, however, ultimately the Tribunal has
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held in the favour of the assessee. Primarily,
for arriving at the conclusion, the Tribunal has
primarily placed reliance on the judgment of the
Supreme Court in the case of Commissioner of
Income-tax vs. B.C.Srinivasa Shetty, [1981] 128
ITR 294 (SC).
SUBMISSIONS ON BEHALF OF THE REVENUE:
(7) The following submissions are advanced by
the learned senior standing counsel Mr.Varun K
Patel.
i) Regarding the substantial question of law
relating to taxability of consideration of
Rs.29.10 crores for assignment trademarks along
with the goodwill of business, learned senior
standing counsels Mr.Varun K Patel has submitted
that in the present case, the assessee along with
Ambalal Sarabhai Enterprise Ltd., had formed
50:50 Joint Venture Company called ‘Sarabhai
Zydus Animal Health Ltd.’ (hereinafter referred
to as ‘JV Company’). While referring to the Deed
of Assignment dated 15.06.2000, it is contended
that the assessee had agreed to assign and
transfer about 22 veterinary trademarks ‘along
with goodwill of the business’ concerned in the
goods for which the said trademarks arePage 5 of 39
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registered and/or being used, to the JV Company
for the consideration of Rs.29.10 crores. By this
deed, the assessee had transferred its
veterinary/ animal health business to the JV
Company.
ii) That the said consideration of Rs.29.10
crores received by the assessee for transfer of
Trademark along with goodwill to its JV company
is taxable as ‘income from the business and
profession’ under section 28(iv) and/or under
section 41(1) of the Act; and alternatively, the
said consideration is taxable as capital gain.
iii) Regarding taxability of said consideration
received by the assessee as income from business
and profession, learned advocate for the
appellant-Revenue submitted that the aforesaid
consideration received on transfer of
Trademark/brand name along with goodwill is the
benefit accruing from business activities carried
out by it over the years, which is converted into
money and therefore, the same is taxable as
benefit accruing/ arising from business under
section 28(iv) of the Act. Further, the assessee
had incurred expenses relating to the Trademark/Page 6 of 39
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brand name and had already claimed the same as
deduction and, therefore, the benefit which
accrued to the assessee on transfer of said
trademark / brand name is also liable to be taxed
under section 41(1) of the Act. It is contended
that the decision of this Court in the case of
Pr. Commissioner of Income Tax-4 Ahmedabad vs.
Zydus Wellness Ltd. (order dated 14.03.2017 in
Tax Appeal No.139 of 2017) cited by the assessee
rather supports the contention of the appellant-
Revenue that the said consideration is taxable
under Section 41(1) of the Act as expenses
related to trademark were already claimed as
deduction/ revenue expenses.
iv) Reference is made to the Assessment Order,
and the valuation report reproduced in Paragraph
No.3.1.3 of the Assessment Order, and it is
contended that the methodology adopted by KPMG
for valuing the said Trademark / brand name is
the similar to ‘valuation of goodwill’. It is
therefore submitted by the learned advocate for
the appellant-Revenue that the entire amount of
Rs.29.10 crores received by the assessee is
essentially towards transfer of goodwill of
business only. It is relevant to submit that the
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assessee had transferred its veterinary/ animal
health business to the JV Company. The words
‘concerned in the goods for which the said
trademarks are registered and/or being used’
after the words ‘goodwill of the business’
mentioned in the deeds of assignment defines the
business for which the goodwill is transferred to
the JV Company i.e. veterinary / animal health
business.
v) That no bifurcation was provided in the said
valuation report dividing consideration towards
Trademark and / or goodwill separately. In
absence of any specific valuation assigned to
trademark, it is not open for the assessee to
contend that the entire amount of Rs.29.10 crores
is received for transfer of trademark only.
Rather, it is clear from the said valuation
report that the entire consideration of Rs.29.10
crores is received by the assessee only towards
transfer of goodwill as the said value of
consideration is derived applying methodology for
valuation of goodwill.
vi) That the burden is on the assessee to provide
and prove such bifurcation of consideration
towards Trademarks and / or goodwill separately.
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However, the assessee has failed to discharge
said burden.
vii) It is also relevant to submit that subsequent
to the decision of the Supreme Court in the case
of B.C.Srinivasa Setty (supra), there is an
amendment in Section 55(2) of the Act by the
Finance Act, 1987, and it is not in dispute that
by virtue of the said amendment, the transfer of
self-generated goodwill is now taxable as capital
gain by taking cost of acquisition of such self-
generated asset as nil.
viii) It is contended that without prejudice
to the aforesaid contentions, even if it is
assumed without admitting that the said
consideration of Rs.29.10 crore was received by
the assessee towards transfer of trademark only
and not towards goodwill, then also the same is
taxable as capital gain in view of the amendment
in Section 55(2) of the Act by the Finance Act,
2001, whereby it is clarified that the cost of
acquisition relating to self-generated
Trademark / brand name shall be NIL. It is
submitted that the said amendment is
clarificatory / declaratory nature and by virtue
of the said amendment in Section 55(2) of the Act
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by the Finance Act, 2001, the legislature has
merely clarified / declared that the cost of
acquisition in relation to self-generated
trademark is ‘Nil’. It is therefore submitted
that applying the said amendment retrospectively,
even if the entire amount of consideration of
Rs.29.10 crores is treated as received towards
the transfer of Trademarks only, the same is
taxable as capital gain. Reliance is placed on
the following two decisions of Apex Court in
support of the aforesaid contention regarding
retrospective operation of the said amendment in
Section 55(2) of the Act by the Finance Act, 2001
: (I) CIT vs. Podar Cement Pvt. Ltd., (1997) 226
ITR 625 (SC) – (Paragraph Nos.2, 21, 22, 42 to
52) ; (ii) ITO vs. Vikram Sujitkumar Bhatiya,
(2023) 453 ITR 417 (SC)-Paragraph Nos.10.6 to 11.
ix) Further, regarding the reliance of the
respondent assessee on the decision of Bombay
High Court in the case of CIT vs. Fernhill
Laboratories and Industrial Establishment 348
ITR-1 (Bom.), it is submitted by the learned
advocate for the appellant-Revenue that the said
decision is distinguishable on facts and in law
on following grounds:
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(a) As per Paragraph No.5 of the said decision,
there is clear bifurcation of the sale
consideration received towards the each of the
assets transferred viz. trademark, goodwill and
design. Whereas, in the present case, no such
bifurcation is provided. Rather, in the present
case from the record it is clearly establish
that the entire amount of consideration is
received by the assessee towards transfer of
goodwill only;
(b) The issue of retrospective effect of the
amendment in Section 55(2) of the Act by the
Finance Act, 2001 regarding cost of acquisition
of self-generated Trademark as nil was not
considered by the Bombay High Court.
x) It is therefore submitted by the learned
advocate that in view of the above, the impugned
order of the Tribunal is erroneous and
unsustainable in law. The Tribunal ought to have
upheld the Assessment Order treating the said
consideration of Rs.29.10 crores received by the
assessee as business income; or in alternative,
the Tribunal ought to have directed to tax the
said consideration as capital gain.
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(8) Regarding admitted substantial question of
law – A in Tax Appeal No.1235 of 2007 – with
respect to short term capital loss of
Rs.2,50,45,545/-, learned advocate for the
appellant-Revenue has fairly admitted that the
appellant-Revenue is not in a position to
controvert the applicability of decision of
Supreme Court in the case of CIT vs. Walfort
Share and Stock Brockers Pvt. Ltd., 326 ITR 1
(SC).
SUBMISSIONS ON BEHALF OF THE ASSESSEE :
(9) Responding to the foregoing submissions, per
contra learned Senior Advocate Mr.R.K.Patel has
submitted that the judgement and order passed by
the Tribunal does not call for any interference
since the same is appropriately passed after
considering the assignment deed and the legal
precedent.
a) It is submitted that the respondent-assessee
has transferred by way of sale 22 self-generated
trade marks for Rs.29.10 crores, as appearing at
Schedule to the Deed of “Assignment of
Trademarks” dated 15.06.2000, as per basis of
valuation by competent valuer KPMG. ThePage 12 of 39
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respondent – assessee is a manufacturing
pharmaceutical company and proprietor under the
Trade and Merchandise Marks Act, 1958. The said
trademarks are transferred along with goodwill of
the business concerned in the goods for which the
said trademarks are registered and / or being
used by the assignor assessee. (Page No.36 of the
Paper Book at the Tribunal). Hence, it is seen
that “intrinsic value” of registered trademark is
transferred by way of sale along with all its
right, title and interest embedded therein. In
other words, no goodwill of the pharmaceutical
business of the respondent – assessee Company is
transferred on transfer of the said trademarks,
and the transferred trademarks are “Registered
Trademarks” whereas goodwill of the overall
business of the assessee company is not
registered and is not transferred.
b) While referring to the valuation report, it
is urged that selected valuation approach is
“Discounted Cash Flow” (DCF) approach which is a
standard accepted valuation procedure and has no
nexus with overall goodwill of the business of
the assessee.
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c) That out of 22 brands / trademarks, five
large brands which constitute 60% of the turnover
are defined as select brands for valuation and
rest of the brands are categorized so as to
obtain a consolidated valuation results as
reflected at Rs.29.90 crores on estimated basis,
and at no point of time the overall goodwill of
the business of the assessee is made a basis for
valuation of 22 trademarks which are transferred
without any restrictive covenants.
d) Reliance is placed on the High Court of
Bombay decision in the case of Fernhill
Laboratories and Industries (supra) dated
12.06.2012, against which SLP is rejected vide CC
No.4126/2013, dated 22.02.2013. It is contended
that Bombay High Court has considered the CBDT
Circular No.14 of 2001 explaining the prospective
effect of Section 55(2) of the Act from
01.04.2002 and to apply in relation to AY 2002 03
and subsequent years. In this regard reliance is
also placed on the decision in case of
Commissioner Of Income Tax (Central)-I, New Delhi
Vs. Vatika Township Private Limited, (2014) 367
ITR 466 (SC), wherein the Larger Bench of the
Supreme Court has held by way of a ratio that
understanding of CBDT Circular itself regarding
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the applicability of provision vide explanatory
notes on provision by way of a circular is
prospective in nature as can be seen more
particularly at Paragraph No.39(e) of the
decision.
e) That the Respondent assessee has never
incurred any cost of acquisition for the 22
trademarks that are transferred during the AY
2001-02. Even after setting aside of the
proceedings by the CIT (Appeals) and directing
the AO to determine the cost of acquisition of
trademarks transferred by the assessee, the AO
has taken NIL as cost of acquisition of trademark
by the order dated 07.03.2005 filed before this
Court.
f) It is submitted that the meaning of
“Adjusted”, “Cost of Improvement” and “Cost of
Acquisition”, as envisaged under Section 55 of
the Act is amended from time to time with special
reference to amendment under Section 55(2)(a) of
the Act, wherein it is clearly visible that
legislature has intended to rope into tax net
different intangible assets at different point of
time like goodwill of the business w.e.f.
01.04.1995, trademark or brand name associated
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with the business w.e.f. 01.04.2002. Legislature
has consciously made the scope and ambit of both
these amendments prospectively applicable and no
Court till date has taken a view that the said
amendments are retrospective in nature. In other
words, views expressed by the explanatory
circulars issued by CBDT in the realm of
interpretation of amendment remains intact since
CBDT is the ultimate authority entitled to
execute and implement the provisions of the
Income Tax Act, 1961. The contention of the
assessee is fully supported with the ratio of
Supreme Court of India decision of Vatika
Township (supra).
g) Reliance is placed on decision of High Court
of Karnataka in the case of Commissioner of
Income-tax, Bangalore vs. Associated Electronics
and Electrical Industries, [2016] 65 taxmann.com
253 (Karnataka) dated 18.12.2015.
h) It is contended that the expenses incurred
for registration and transfer of trademarks can
never be equated with cost of acquisition of
trademarks. In this regard reliance is placed on
the decision in Tax Appeal No.139 of 2017, dated
14.03.2017, in the case of PCIT vs. Zydus
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Wellness Ltd. (Guj.). Hence, such expenses cannot
be correlated and equated at par with cost of
acquisition of self-generated trade marks, whose
cost is indeterminable in arithmetical terms.
i) Apropos Question A for short term capital
loss of Rs.2,50,45,545/ is concerned it is
contended that it is directly concluded in favor
of assessee by decision of Apex Court of India in
the case of Walfort Share and Stock Brokers
(supra), Paragraph No.20 onwards and Commissioner
of Income Tax vs. Globe Capital Market Ltd.
[2015] 120 DTR (SC) 311 following Walfort Share
and Stock Brokers decision, compiled at Serial
Nos.5 and 6 of the judgments filed before the
Court.
ANALYSIS AND CONCLUSION
(10) We shall now deal with the primary common
substantial question of law formulated in
captioned tax appeals, which is as below:
“Whether the Appellate Tribunal is right in law and
on facts in reversing the order of CIT(A) wherein it
was held that the consideration of Rs.29.10 crores
received by the assessee for assignment of trademark
/ brand name was liable to tax as capital gain ?”
(11) It is not in dispute that the Respondent-M/s
Cadila Health Care along with Ambalal Sarabhai
Enterprise Ltd., had formed 50:50 Joint Venture
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Company called ‘Sarabhai Zydus Animal Health
Ltd.’. vide Deed of Assignment dated 15.06.2000,
by selling / transferring 22 veterinary
trademarks/brand names ‘along with goodwill of
the business’ for the consideration of Rs.29.10
crores. By this deed, the assessee had
transferred its veterinary/ animal health
business to the JV Company.
(12) The Assessing Officer passed the assessment
order dated 31.03.2004 under section 143(3) of
the Act by taking support from the assignment
deed that the “Trade marks have been sold along
with goodwill”, and from the generation of brand
name, it cannot be said that no cost has been
incurred. The Assessing Officer has also invoked
the provisions of section 55(2)(a) of the Act
will apply to the assessee, and the trademark or
brand name developed during the course of
business will be taxable under the head of
“capital gains”, by taking cost as ‘Nil’. It is
held that the amendment introduced vide Finance
Act,2001 is only clarificatory, and the money
realized by the assessee is taxable under section
28(iv) of the Act as business income, and was not
a capital receipt.
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(13) Thus, the entire controversy rests on the
Deed of Assignment dated 15.06.2000, vide which
the assesee has sold the Trade Marks along with
goodwill of business for consideration of
Rs.29.10 crores. The AO has held that the same is
taxable, however, ultimately the Tribunal has
held in the favour of the assessee. Primarily,
for arriving at the conclusion, the Tribunal has
primarily placed reliance on the judgment of the
Supreme Court in the case of B.C.Srinivasa Shetty
(supra).
(14) We may at this stage refer to the legal
precedent governing the issue. The Supreme Court
in the case of B.C.Srinivasa Shetty. (supra),
while dealing with the sections 45, 48 and 55(2)
of the Act in context of capital gain arising
from the sale of goodwill has held thus:
“09 The point to consider then is whether if
the expression “asset” in sec. 45 in construed
as including the goodwill of a new business, it
is possible to apply the computation sections
for quantifying the profits and gains on its
transfer.
10 The mode of computation and deductions set
forth in Section 48 provides the principal
basis for quantifying the income chargeable
under the head “Capital gains”. The section
provides that the income chargeable under that
head shall be computed by deducting from the
full value of the consideration received orPage 19 of 39
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accruing as a result of the transfer of the
capital asset :
“(ii) the cost of acquisition of the capital
asset … ”
11 What is contemplated is an asset in the
acquisition of which it is possible to envisage
a cost. The intent goes to the nature and
character of the asset, that it is an asset
which possesses the inherent quality of being
available on the expenditure of money to a
person seeking to acquire it. It is immaterial
that although the asset belongs to such a class
it may, on the facts of a certain case, be
acquired without the payment of money. That
kind of case is covered by Section 49 and its
cost, for the purpose of Section 48 is
determined in accordance with those provisions.
There are other provisions which indicate that
Section 48 is concerned with an asset capable
of acquisition at a cost. sec. 50 is one such
provision. So also is sub-sec. (2) of Section
55. None of the provisions pertaining to the
head “Capital gains” suggests that they include
an asset in the acquisition of which no cost at
all can be conceived. Yet there are assets
which are acquired by way of production in
which no cost element can be identified or
envisaged. From what has gone before, it is
apparent that the goodwill generated in a new
business has been so regarded. The elements
which create it have already been detailed. In
such a case, when the asset is sold and the
consideration is brought to tax, what is
charged is the capital value of the asset and
not any profit or gain.
12 In the case of goodwill generated in a new
business there is the further circumstance that
it is not possible to determine the date when
it comes into existence. The date of
acquisition of the asset is a material factor
in applying the computation provisions
pertaining to capital gains. It is possible to
say that the “cost of acquisition” mentioned in
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sec. 48 implies a date of acquisition, and that
inference is strengthened by the provisions of
Ss. 49 and 50 as well as sub-sec. (2) of
Section 55.
13 It may also be noted that if goodwill
generated in a new business in regarded as
acquired at a cost and subsequently passes to
an assessee in any of the modes specified in
sub-sec. (1) of Section 49, it will become
necessary to determine the cost of acquisition
to the previous owner. Having regard to the
nature of the asset, it will be impossible to
determine such cost of acquisition. Nor can
sub-sec. (3) of sec. 55 be invoked, because the
date of acquisition by the previous owner will
remain unknown.
14 We are of opinion that the goodwill
generated in a newly commenced business cannot
be described as an “asset” within the terms of
sec. 45 and therefore its transfer is not
subject to income-tax under the head “capital
gains”.”
(15) The aforesaid judgement has been followed by
the High Court of Bombay in the case of Fernhill
Laboratories and Industrial Establishment
(supra). The Bombay High Court has also
considered the amendment to section 55(2)(a) of
the Act introduced w.e.f 01.04.2002, and it is
held that the same applies prospectively. It is
held thus:
“8. We have considered the rival submissions.
Section 45 of the Act is a charging section for
the purpose of levying capital gains. However
to impose the charge, parliament has enacted
provision to compute profits or gains under
that head. Section 48 of the said Act provides
the manner in which the income chargeable underPage 21 of 39
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the head capital gains is to be computed i.e.
by deducting costs of acquisition of the
capital asset from the full consideration
received on the transfer of the capital asset.
The Supreme Court in the matter of B. C.
Srinivasa Shetty (supra) was dealing with the
issue whether the transfer of the goodwill by
partnership firm can give rise to a capital
gain tax under Section 45 of the said Act. The
Apex Court held that where the cost of
acquisition of the capital asset is nil then
the computation provision fails and the
transfer of goodwill not give rise to capital
gains tax. Prior to the amendment made to
Section 55(2) by the Finance Act, 2001
effective from 1/4/2002 by adding the words
“trade mark or brand name associated with the
business” self generated assets such as
trademark did not have any cost of acquisition.
Therefore, for the period under consideration
the computation provision under Section 48 of
the said Act fails resulting in such transfer
of trade marks not being chargeable to capital
gains tax. Consequent to amendment made to
Section 55(2) with effect from 1/4/2002 by
which the words trade mark or brand name
associated with the business was introduced
into it, the computation provision becomes
workable and the consideration received for the
sale of trade mark would be subject to capital
gains tax. However, for the period prior to
1/4/2002 the sale of self generated trademark
is not liable to capital gains tax. In fact,
when the amendment was made to Section 55 by
Finance Act, 2001 the Central Board of Excise
and Customs had issued a circular bearing
No.14/2001 explaining the provision of the
Finance Act, 2011 relating to direct taxes
provided as under:
“42- Providing for cost of acquisition of
certain intangible capital asserts under
section 55Page 22 of 39
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42.1 Under the existing provisions of
sub- section (2) of section 55 of the
Income tax Act, the cost of acquisition
of an intangible capital asset, being
goodwill of a business or a right to
manufacture, produce or process any
article or thing, tenancy rights, stage
carriage permits or loom hours, is the
purchase price in case the asset is
purchased by the assessee from a
previous owner, and nil in any other
case. It was pointed out that certain
similar self generated intangible assets
like brand name or a trademark may not
be considered to form part of the
goodwill of a business and consequently
it may not be possible to compute
capital gains arising from the transfer
of such assets.
42.2- The Act has therefore amended
clause (a) of sub-section (2) to provide
that the cost of acquisition in relation
to trademark or brand name associated
with a business shall also be taken to
be the purchase price in case the asset
is purchased from a previous owner and
nil in any other case.
42.3- This amendment will take effect
from 1st April, 2002, and will,
accordingly, apply in relation to the
assessment year 2002-2003 and subsequent
years.”
(9) From the above circular, it would be clear
that the amendment bringing self generated
intangible assets such as trademark to capital
gains tax only with effect from Assessments
Year 2002-03 onwards. In this case, we are
concerned with Assessment Year 1999-2000 and
therefore, the amendment would not have any
effect. Further as held by the Supreme Court in
the matter of Dy. CIT v/s. Core Health Care
ltd. reported in 298 ITR 194 that a provision
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introduced with effect from a particular date
would not have retrospective effect unless it
is expressly stated to be so. Consequently, the
sale of self generated trade marks during the
Assessment year 1999-2000 are not chargeable to
capital gains tax. So far as the sale of self
generated designs (i.e. not acquired) the same
is also not chargeable to capital gains tax not
only for the reasons applicable to trade marks
but for the fact that even till this date, no
amendment has been made to Section 55(2) of the
said Act defining cost of acquisition of design
as in the case of trademark goodwill etc.”
(16) Similarly, the Karnataka High Court in the
case of Associated Electronics & Electrical
Industries (Banglore) (P) Ltd. (supra), wherein
the High Court while considering the Deed of
Assignment assigning the trademarks along with
the goodwill of the Assignor’s business in
context of the aforesaid provisions has held
thus:
“14. A reading of these provisions would make
it clear that any profits or gains arising from
the transfer of a capital asset effected in the
previous year shall be chargeable to income tax
under the head ‘capital gains’. The income
chargeable under the head ‘capital gains’ shall
be computed as per the provisions of Section 48
of the Act. In the present case, the said
computation shall be, deducting the cost of
acquisition of the asset from the full value of
consideration. The cost of acquisition in
relation to a ‘capital asset’ in case of
goodwill of a business, shall be taken to be
‘Nil’, as the question involved is relating to
the transfer of goodwill of a business.
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15. Section 55(2) of the Act is amended by
Finance Act, 2001 inserting the words ‘or a
trademark or brand name associated with a
business’. Thus, it is clear that the cost of
acquisition in relation to a trademark or
brand name associated with the business comes
within the tax net subsequent to 1.4.2002.
Admittedly, the said amendment is not
applicable to the present case. Hence, the
assessment to capital gains can be sustained
only if the capital asset transferred was the
‘goodwill of the business’ of the company.
16. The expression ‘goodwill’ has been
considered and explained by the Apex Court
in ‘S.C. Cambatta & Co. (P.) Ltd.‘s case
(supra), wherein their Lordships having
considered the Judgments of various Courts,
have held as under:
“6. It will thus be seen that the
goodwill of a business depends upon a
variety of circumstances or a combination
of them. The location, the service, the
standing of the business, the honesty of
those who run it, and the lack of
competition and many other factors go
individually or together to make up the
goodwill, though many other factors go
individually or together to make up the
goodwill, though locality always plays a
considerable part. Shift the locality,
and the goodwill may be lost. At the same
time, locality is not everything. The
power to attract custom depends on one or
more of the other factors as well. In the
case of a theatre or restaurant, what is
catered, how the service is run and what
the competition is, contribute also to
the goodwill.”
17. The Hon’ble Apex Court in Guzdar Kajora
Coal Mines Ltd.‘s case (supra), was dealing
with the case of the purchases made by the
Assessee therein by Deed of Conveyance
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executed by the liquidators of Guzdar Kajora
Colliery Co., Ltd., all the colliery lands,
hereditaments and premises, mines, minerals,
powers and privileges and all other
hereditaments together with the machinery
thereon belonging to the latter company. It
is held that even if it is not expressly
mentioned that goodwill has been sold, it can
be shown and ascertained by evidence whether
the same has been purchased or not by the
Assessee.
18. In the case of R.C. Cooper v. Union Of
India (AIR 1970 SC 564), the Apex Court has
held that goodwill of a business is an
intangible asset representing the whole
advantage of reputation and connection formed
with the customers together with the
circumstances making the connection durable.
19. In Corpus Juris Secondum, it has been
observed that “goodwill” has no existence
except in connection with the continuing
business.
20. In the case in IRC v Muller & Co.’S
Margarine Ltd. 1901 AC 217 Lord Machnaghten
has observed thus:
“What is goodwill? It is a thing very
easy to describe, very difficult to
define. It is the benefit and advantage
of the good name, reputation, and
connection of a business. It is the
attractive force which brings in
custom. It is the one thing which
distinguishes an old established
business from a new business at its
first start….. if there is one
attribute common to all cases of
goodwill it is the attribute of
locality. For goodwill has no
independent existence. It cannot
subsist by itself. It must be attached
to a business. Destroy the business,
and the goodwill perishes with it,Page 26 of 39
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though elements remain which may
perhaps be gathered up and be revived
again”.
21. Section 37 of the Trade and Merchandise
Marks Act, 1958 provides for assignability
and transmissibility of registered trademarks
which is as under:
“Notwithstanding anything in any other
law to the contrary, a registered
trade mark shall subject to the
provisions of this chapter, be
assignable and transmissible, whether
with or without the goodwill of the
business concerned and in respect
either of all the goods in respect of
which the trade mark is registered or
of only some of those goods”.
22. The meaning of the expression “goodwill”
as explained in these judgments referred to
above vis-à-vis the provision of Trade and
Merchandise Marks Act, 1958 makes it clear
that the ‘trade mark’ and ‘goodwill’ are two
distinct separate concepts. Section 55(2)(b)
of the Act prior to the amendment provided
for the levy of tax on capital gains in
relation to a capital asset, being goodwill
of a business. Insertion of the words,
“registered trademarks or brand name
associated with the business” by the Finance
Act, 2001 depicts the intention of the
Legislature to levy tax in relation to
capital asset, being a trade mark or brand
name associated with the business, which was
not exigible to tax during the relevant
assessment year.
xxxxxx
27. We have perused the relevant clauses of
the settlement deed entered into between the
parties extracted supra, which clearly
indicates, the assignment made by the
assessee company to M/s Sharp Corporation,
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is only transfer of trademarks and the
goodwill associated with the trade marks. It
cannot be misconstrued to that of goodwill
of a business. It is observed in the
judgment of the ITAT, “it is common ground
before us that the assessee did not sell its
entire business undertaking to Sharp
Corporation”. This admitted fact itself
proves that the assessee has transferred
only the trademarks and not the goodwill of
a business. Even assuming the goodwill
related to the trade mark is transferred, it
cannot be construed as the goodwill of a
business. If the arguments of the revenue
that the transfer of trade mark itself is
goodwill of a business is accepted, then
there was no necessity for the Legislature
to amend Section 55(2)(a) of the Act
inserting the words “trade mark” or “brand
name” associated with the business by
Finance Act, 2001.”
(17) A holistic reading of the foregoing
observations dealing with the assignment of trade
mark along with goodwill of business prior to
amendment in section 55(2)(a) of the Act w.e.f.
01.04.2002 read with section 45 and 48 of the
Act, establishes that the consideration received
on “transfer of trademark along with goodwill”,
is not chargeable to taxable and will not be an
“asset” to attract the charging provisions of
section 45 (1) of the Act, and its assignment/
transfer is not subject to income tax under the
head of “capital gains”. In the instant case, we
agree with the findings of the Tribunal that in
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fact the assessee has transferred the trademark,
but not the good will. From the assignment deed,
it is evident that what is transferred are 22
self-generated trade marks for Rs.29.10 crores,
as appearing at Schedule to the Deed of
“Assignment of Trademarks” dated 15.06.2000, as
per basis of valuation by competent valuer KPMG.
The assessee is a pharmaceutical manufacturing
company and the 22 trademarks are transferred
along with goodwill of the business concerned in
the goods for which these trademarks are
registered and/or being used by the assignor
assessee. The pharmaceutical business of the
assessee is not entirely transferred, and it
retains substantial business with it. Thus, no
goodwill of the pharmaceutical business of the
respondent-assessee Company is transferred on
transfer of the 22 registered trademarks. It is
settled legal precedent that goodwill has no
independent existence, and it cannot subsist by
itself, and is attached to a business, and if the
business is destroyed the goodwill also perishes
with it, though some elements remain which may
perhaps be gathered up and be revived again. In
the present case, thus, the Tribunal has
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precisely held that there has been transfer of
trademarks and not the goodwill of the business.
(18) Section 2(47) of the Act classifies transfer
in relation to categories of capital gains.
Section 2(24)(vi) of the Act mentions that income
includes any capital gains chargeable under
Section 45 of the Act. Section 45 of the Act
stipulates that any profits and gains arising
from the transfer of capital assets shall be
chargeable to income tax under the head of
capital gain. Capital asset has been defined
under section 2(14) of the Act. Thus, there has
to be transfer of capital asset for satisfied
capital gains. Section 48 of the Act provides the
Mode of Computation on the income chargeable
under the head “Capital gains” by deducting from
the full value of the consideration received or
accruing as a result of the transfer of the
capital asset on – (i) expenditure incurred
wholly and exclusively in connection with such
transfer; and, ii) the cost of acquisition of the
asset and the cost of any improvement thereto.
Section 2(22B) of the Act defines fair market
value in relation to an of the asset which means
– (i) the price that the capital asset would
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ordinarily fetch on sale in open market, and (ii)
where the price referred is not ascertainable,
such price as may be determinable as per rules
made under the Act. At this stage in order to
answer the situation arising from the
interpretation and applicability of the statute
on the consideration received on a capital asset
liable to tax, the law declared by the Supreme
Court in case of B.C.Srinivasa Shetty (supra)
comes into play. The Apex court has observed the
nature of the acquisition of asset of which it is
possible to envisage cost under Section 48 of the
Act and that there are other provisions which
indicate that Section 48 of the Act is concerned
with an asset capable of acquisition at a cost
and Section 50 of the Act is one such provision.
So also is Sub-section (2) of Section 55 of the
Act. Section 55(2) of the Act stipulates the
Meaning of ‘adjusted’, ‘cost of improvement’ and
‘cost of acquisition. The case of the respective
parties hinges on the provisions of Section 55(2)
(a) of the Act, which read thus:
“(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 anyPage 31 of 39
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article or thing] [or right to carry on any
business or profession], 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;”
(19) Thus, none of the provisions pertaining to
the head “Capital gains” suggests that they
include an asset in the acquisition of which no
cost at all can be conceived. Section 55(2) of
the Act is amended by Finance Act, 2001 inserting
the words ‘or a trademark or brand name
associated with a business’, which has
prospective effect from 01.04.2002. Thus, it is
apparent that that the cost of acquisition in
relation to a trademark or brand name associated
with the business comes within the purview of
taxability subsequent to 01.04.2002. In the
instant case, the amendment is not applicable
since the entire transaction is prior to the cut-
off date.
(20) On the facts and in the circumstances of the
assessee’s case, the AO was not justified in
taxing the consideration of Rs 29.10 crores
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received for assignment of Trade Marks as
business income of the assessee. For justifying
his reasoning for taxing the said receipt as
business income, the Assessing Officer has
attempted to invoke the provisions of Section
28(iv) and Section 41(1) of the Act. In our view,
none of the provisions under either of these
sections can be applied on the facts of the case,
since the Section 28(iv) of the Act provides that
“the value of any benefit or perquisite, whether
convertible into money or not, arising from the
exercise of a business or a profession” shall be
chargeable to Income tax under the head “profits
and gains of business or profession.” The sale
consideration for assignment of trade marks as a
benefit or perquisite arising from the exercise
of a business cannot be treated as the value of
any benefit or perquisite arising from the
business or a profession, more particularly the
same being intangible assets and the cost of
acquisition cannot be ascertained.
(21) Section 41(1) of the Act provides that
“where an allowance or deduction has been made in
the assessment for any year in respect of loss,
expenditure on trading liability incurred by the
assessee and subsequently during any previous
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year, the person has obtained any amount or
benefit, whether in cash or in any other manner
whatsoever, the amount obtained by such person or
the value of benefit accruing to him shall be
deemed to be profits or gains of business or
profession.” In our view the AO has not made out
any case for taxing the sale consideration of
trademarks as profit chargeable to tax under
Section 41(1) of the Act.
(22) We may at this stage incorporate the
relevant findings of the Tribunal.
“14… … …
(b) We have no hesitation in holding that the
trade marks/brand names under consideration are
required to be treated as “capital assets”. The
Assessee is right in contending that section
2(14) which defines a “capital asset”, covers
within its scope “property of any kind held by
an assessee whether or not connected with
business or profession” In fact, even the
Hon’ble Supreme Court has rightly held in the
case of CIT v/s Express Newspapers Ltd. 53 ITR
250 (SC), “the fact that capital gains are
connected with the capital assets of the
business will not make that profits of
business” Under the circumstances, the
conclusion sought to be drawn by the Assessing
Officer in the assessment order that the sale
consideration of Rs.29.10 crores for assignment
of trade marks/ brand names should be treated
as business income is required to be rejected
in toto.
(c) Once it is held that the trade marks/brand
names assigned by the appellant are capitalPage 34 of 39
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assets under section 2(14) of the Income tax
Act, the only logical conclusion that can
follow is that the resultant gains from the
transfer or assignment of the same are in the
nature of capital gains. However, as held by
the Hon’ble Supreme Court in the case of CIT
v/s B.C. Srinivasa Setty, 128 ITR 294(SC),
“none of the provisions pertaining to the head
“capital gains” suggest that they include an
asset in the acquisition of which no cost at
all can be conceived. “If the asset under
consideration is a self generated asset, it
does not fall within the purview of section 45
r.w.s. 48 of the Income tax Act. The issue for
consideration, therefore, is whether the trade
marks/brand names under consideration can be
classified as “self generated assets” it has
not been disputed even by the Assessing Officer
that the trade marks/brand names were in any
manner purchased or acquired by the appellant
for any consideration. The Assessee has rightly
contended that in respect of the trade
marks/brand names of its Veterinary Division,
which came to be assigned to Sarabhai Zydus
Animal Health Ltd., no cost of acquisition was
incurred by it and they were generated or
evolved in the business over the years. The
Assessing Officer has tried to take the view
that for building brand name, systematic
efforts in terms of man, maternal and money are
needed and, therefore, in his view, it was not
proper to say that for generating trade
marks/brand names, no cost has been incurred.
However, the finer aspect of the evaluation of
the intangible assets such as trade marks has
been lucidly explained in the land mark
judgement of the Apex Court in B.C. Srinivasa
Setty(Supra). The following ratio of the said
judgment in regard to the evaluation of
“Goodwill” would squarely apply in the case of
the evaluation of intangible assets such as
trade mark/brand name:
“In a progressing business goodwill tends
to show progressive increase and in aPage 35 of 39
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failing business it may begin to wane. Its
value may fluctuate from one moment to
another depending on changes in the
reputation of the business. It is affected
by everything relating to the business,
the personality and business rectitude of
the owners, the nature and character of
the business, its name and reputation, its
location, its impact on the contemporary
market, the prevailing socio-economic
ecology, introduction to old customers and
agreed absence of competition. There can
be no account in value of the factors
producing it. It is also impossible to
predict the moment of its birth. It comes
silently into the world unheralded and
unproclaimed and its impact may not be
visibly felt for an undefined period.
Imperceptible at birth it exists enwrapped
in a concept, growing or fluctuating with
the numerous imponderables pouring into,
and affecting the business”
In our view, therefore, the trade
marks/brand names in the case of the
Assessee are clearly required to be held
as “self generated”
(d) We also find merit in the submissions
made by the learned AR by way of rejoinder
to the issues raised by the learned CIT
(Appeals). We are in full agreement with
the view taken by the IT AT Mumbai Bench in
‘Voltas Ltd. v/s DCIT (supra) that the
amount paid for registration of Trade Mark
cannot be said to be the cost of the Trade
Mark. Since it has not been disputed that
no other direct cost was incurred by the
Assessee for acquisition of these Trade
Marks/Brand Names, we have no hesitation in
holding that since they were self generated
and did not have any cost of acquisition,
the ratio laid down in the case of B.C.
Srinivasa Setty would squarely apply on the
facts of the present case.
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(e) We are also inclined to uphold the
submission of the learned A.R., which is
clearly supported by the Deed of Assignment
and the Valuation Report of KPMG, that the
subject matter of assignment for which the
consideration of Rs 29.10 crores was
received by the Assessee was Trade Marks”
and not “Goodwill” as held by the CIT
(Appeals).”
(23) Thus, we do not find that the Tribunal has
committed any patent illegality in applying the
legal precedent in light of the nature of the
Deed of Assignment entered into between the
assessee and its joint venture. Thus, the common
substantial question(s) of law formulated in both
Tax Appeals relating to the treating the sale /
assignment of Trademark / Brand name as capital
gain is answered in favour of the assessee.
(24) The revenue has also attempted to build up
its case on the method of valuation adopted by
the valuer in arriving at the valuation of the
Trademark. The valuer-KPMG has adopted the
methodology of “Discounted Cash Flow” (DCF),
which is a standard accepted valuation procedure.
The adoption of particular methodology will have
no impact on the nature of assignment/transfer of
goodwill of the business of the assessee.
Adoption of valuation cannot alter the nature of
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transfer or the intent of the assignment deed.
Hence, we cannot set aside the order of the
Tribunal only on a particular methodology adopted
by the valuer.
(25) Thus, on an overall analysis, the common
substantial question of law is answered in favour
of the assessee and against the Revenue.
(26) With regard to the substantial question of
law at (A) in Tax Appeal No.1235 of 2007 with
respect to short term capital loss of
Rs.2,50,45,545/-, the appellant-Revenue has
fairly admitted that the appellant-Revenue is not
in a position to controvert the applicability of
decision of the Apex Court in the case of Walfort
Share and Stock Brockers Pvt. Ltd. (supra).
Hence, the same is answered in favour of the
assessee.
(27) On the substratum of the foregoing
observations, we do not find any infirmity or
illegality in the judgement and order of the
Tribunal. Hence, the Appeals stand dismissed.
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NEUTRAL CITATION
C/TAXAP/1234/2007 CAV JUDGMENT DATED: 12/03/2026
undefined
(28) Registry to place a copy of this judgment in
the connected Tax Appeal.
Sd/- .
(A. S. SUPEHIA, J)
Sd/- .
(PRANAV TRIVEDI,J)
***
Bhavesh-[PPS]*
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