Gifting of “Brand” to corpus of Private Trust is not taxable: ITAT Mumbai

Gifting of "Brand" to corpus of Private Trust is not taxable: ITAT Mumbai

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Gifting of “Brand” to corpus of Private Trust is not taxable: ITAT Mumbai

Balaji Trust [TS-1092-ITAT-2021(Mum)]
Here is an interesting judgment on the taxation and capital receipt. The short overview of the case is as under: 
1. Essar Investments Limited (EIL) voluntarily gifted the ‘Essar’ brand to the corpus of the Assessee (Balaji Trust) on Mar 29, 2012 without any consideration, thus, it was not recognized in the financials of the Assessee.
2. The Assessee was subjected to scrutiny assessment whereby the Revenue held the definition of ‘income’ u/s 2(24) is wide enough to include the receipt of trademark and copyright and held it taxable as under the head ‘Income from Other Sources’ u/s 56.
3. The AO claimed that as the Brand was registered by EIL as an ‘artistic work’ under the Copyrights Act, 1957, it would fall within under ‘property’ contemplated under Explanation (d) to Section 56(2)(vii)(c), thus, chargeable to tax.
ITAT Mumbai held as below:
1. ‘Artistic work’ used under the Copyright Act is meant to protect the rights of an artist which is different from the purpose with which ‘any work of art’ is used u/s 56(2)(vii).
2. Brand is neither an artistic innovation nor possesses any artistic quality for being brought within the meaning of “any work of art” under the definition of ‘property’ in Explanation (d) to Section 56(2)(vii).
3. Rule 11UA(1)(b) does not prescribe DCF for valuation of ‘a work of art’, thus, holds the valuation to be devoid of legal mandate.
4. The formation of trust and gifting of the Brand took place on the same day, thus, it cannot be held that the Brand was generated out of the business carried on by the Assessee. Therefore, section 28(iv) that taxes the value of any benefit or perquisite arising from business or exercise of a profession would not apply.
5. The receipt of the Brand by the Assessee from EIL is a transaction on capital account and not taxable.

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