Madras H.C : Whether on the facts and in the circumstances of the case, and having regard to the terms of the agreement dt. 15th Dec., 1961, the Tribunal was right in holding that the receipt of Rs. 50,000 by the assessee-company for the use of the licence and trade mark ‘Miller’ by the Indian company was a capital receipt, and therefore, not taxable in the assessee’s hands ?

High Court Of Madras

CIT vs. I. Miller & Co. Ltd.

Section 4

Asst. Year 1962-63

R. Jayasimha Babu & Mrs. A. Subbulakshmy, JJ.

Tax Case No. 686 of 1982

1st July, 1998

Counsel Appeared

Mrs. Chitra Venkataraman, for the Applicant : None, for the Respondent

ORDER

R. JAYASIMHA BABU, J. :

The question raised at the instance of the Revenue which question arises out of the assessment of the income of the respondent-assessee for the asst. yr. 1962-63 is as to whether on the facts and in the circumstances of the case, and having regard to the terms of the agreement dt. 15th Dec., 1961, the Tribunal was right in holding that the receipt of Rs. 50,000 by the assessee-company for the use of the licence and trade mark ‘Miller’ by the Indian company was a capital receipt, and therefore, not taxable in the assessee’s hands ?

2. The assessee is a foreign company which entered into agreements with Tube Investments Ltd. and later with T.I. Miller Ltd., Madras. These agreements were entered into in the year 1961. Under the agreement between the assessee and Tube Investment Ltd., it was provided that the assessee would receive a sum of Rs. 50,000 from the company to be incorporated in the form of equity shares of that company as consideration for allowing that company as exclusive licence to use the trade mark ‘Miller’ over its products. The agreement also provided that the new company was not to use any mark other than the mark Miller. The new company was to register itself with the Trade mark registry as the registered user of the Mark ‘Miller’ in India. The agreement was to be for a period of 25 years unless terminated earlier in the circumstances provided for in the agreement. The ITO took the view that the lump sum payment of Rs. 50,000 paid to the assessee for the use of the assessee’s trade mark was in the nature of receipt of revenue character in the hands of the assessee and taxable as such. That order of the ITO has been upheld by the Asstt. CIT but has been reversed by the Tribunal which accepted the assessee’s claim that the receipt was a capital receipt and, therefore, could not be treated as revenue receipt for the purpose of taxation. The Tribunal held that since the payment made for the use of the trade mark was not on the basis of number of items on which the trade marks was utilised the amount paid was a lum sum, and the assessee had the right of exclusive use of the mark for a long period of time in respect of the territories mentioned in the agreement, the payment made to the assessee was required to be regarded as capital receipt. The Tribunal also held that the assessee was completely deprived of the asset as it could not use the trade mark in the area for which licence has been granted.

The character of the payment made by the payer need not be identical with the character of that amount when received in the hands of the payee. Even assuming that the amount paid by T.I. Miller Ltd. the newly established company, to the assessee was a payment of capital character, so far as the payer was concerned, it could still be regarded as revenue receipt in the hands of the assessee. The Supreme Court in the case of Empire Jute Co. Ltd. vs. CIT (1980) 17 CTR (SC) 113 : (1980) 124 ITR 1 (SC) : TC 16R.953 held that it is not a universally true proposition that what may be a capital receipt in the hands of the payee must necessarily be capital expenditure in relation to the payer. While the payer in this case may have acquired advantage of enduring benefits for the period covered by the agreement, so far as the assessee is concerned, it did not part with the trade mark but merely permitted its user by the Indian company and granted to that company the exclusive right to use that mark in India and other territories mentioned in the agreement. The Trade and Merchandise Marks Act, 1958, makes a distinction between ‘assignment,’ and ‘user’. Assignment and transmission are dealt with in Chapter V of the Trade Marks Act in ss. 26 to 44. The user of the trade mark and the registered user is the subject-matter of a different chapter and are dealt with in Chapter VI in ss. 45 to 55 of the Act. The assessee in this case did not assign its trade mark to the Indian company but merely allowed the Indian company to registered itself as the registered user of the trade mark. This conduct of the assessee makes it abundantly clear that the ownership of the mark at all times vested in the assessee and the mark has not been assigned to the Indian company. The Tribunal was in error in regarding the permission granted to the Indian company to register itself as the exclusive registered user of the mark as amounting to an assignment.

The assessee thus having retained all its rights of ownership over the trade mark, it cannot be said that theassessee had transferred any part of its asset under this agreement. All that is had done was to permit the Indian company to use that mark in certain territories, for a consideration. That consideration was no doubt not directly linked with the number of units sold under that mark but was determined as a lump sum payable in advance by the user to the assessee. The fact that payment so made is a lump sum by itself cannot be determinative of the character of the receipt in the hands of the assessee. Had the assessee not licenced its mark but had itself exploited the mark in the territories for which it had granted licence, the monies realised by it would certainly have been of revenue character. By agreeing to receive a lump sum for the exploitation of that mark in the limited areas over a specified period and receiving that amount in advance would not be sufficient to convert what is otherwise revenue receipt into a capital receipt. The mark (sic-mode) of exploitation of the mark owned by the assessee does not make any difference to the character of the amount realised by the assessee by reason of the exploitation of that mark so long as it continues to remain the owner of the trade mark. The Tribunal was, therefore, in error in holding that the sum of Rs. 50,000 paid by T.I. Miller Ltd. to the assessee was a capital receipt in the hands of the assessee and not a revenue receipt. The question referred to us is, therefore, answered in favour of the Revenue and against the assessee. The parties are directed to bear their respective costs.

[Citation : 246 ITR 316]

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