Can’t tax ‘Essar model’ reward to Ruia household belief: ITAT

Can’t tax ‘Essar brand’ gift to Ruia family trust: ITAT

Mumbai: The Mumbai bench of the Earnings Tax Appellate Tribunal (ITAT) has held that the voluntary reward of the ‘Essar model’ (comprising the model identify, logos and copyrights) by Essar Investments Restricted to Balaji Belief, arrange for the only and unique advantage of the Ruia members of the family, just isn’t taxable within the palms of the belief. The revenue tax (I-T) officer, in the middle of evaluation for the monetary yr 2012-13, had held this reward to be a taxable transaction and had raised a requirement of Rs 719 crore.
Balaji Belief, a non-public discretionary belief, was settled (arrange) on March 29, 2012 by Shashikant Ruia, with an preliminary sum of Rs 10,000. On the identical date, Essar Investments, that was holding the Essar model, contributed the model, logos and copyrights to the corpus of the belief as a voluntary reward. The belief turned the registered proprietor of the Essar model.
Subsequently, the belief entered into brand-licensing agreements with Essar Group entities and earned a licence charge to be used of the mental property. This revenue was accounted for within the years of receipt underneath the money system of accounting.
Nonetheless, the I-T officer held that the worth of the Essar model could be taxable within the palms of the belief within the monetary yr 2012-13 (the yr wherein it was gifted to the belief). He was of the view that the definition of revenue underneath the I-T Act could be very vast. Thus, the receipt of the model, logos and copyrights by the belief was an revenue, taxable underneath part 56 (1) as ‘Earnings from different sources’.
The I-T officer proceeded to use the discounted money movement methodology and valued the Essar model at Rs 1,668 crore. He raised a tax demand of Rs 719 crore on Balaji Belief. The belief succeeded in its first stage of enchantment earlier than the commissioner (appeals) who held that the receipt of the Essar model was on capital account and couldn’t be characterised as a taxable revenue. It must be famous that the revenue, which subsequently arose underneath the licensing agreements, was reported by the belief as its revenue.
The appellate commissioner additionally disagreed that any tax incidence arose underneath part 28(iv). This part supplies that the worth of any profit arising from a enterprise could be taxable as enterprise revenue. He acknowledged that receipt of the trademark just isn’t arising throughout the course of carrying on any enterprise.
Taking the litigation ahead, the tax division submitted extra grounds of enchantment to the ITAT. In enchantment, the I-T official sought to query whether or not Essar Investments was the real proprietor of the model and whether or not settlement in favour of the belief was a bona fide transaction. The ITAT bench, composed of judicial member Ravish Sood and accountant member S Rifaur Rahman, dismissed this because it was a “full volte face” achieved by the tax division. Additionally they dismissed the cost that the Essar model was not obtained by the belief however represented its undisclosed revenue. The request for recent computation of its worth was additionally dismissed.

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