PCIT-2 Vs Smithkline Beecham Consumer Healthcare Ltd. (Punjab and Haryana High Court)
The appeal was filed under Section 260A of the Income Tax Act, 1961 challenging the order dated 05.04.2016 passed by the Income Tax Appellate Tribunal (ITAT), Chandigarh. The Revenue raised multiple questions relating to tax treatment of compensation, depreciation, deduction under Section 80-I, valuation of closing stock, change in method of accounting, and disallowance of excise duty.
At the outset, it was recorded that questions No. 3, 4, 5, 6, 7, and 8 stood answered either by the High Court or the Supreme Court. Questions No. 4 and 8 were answered against the Revenue, while questions No. 5, 6, and 7 were to be answered in terms of an earlier order dated 27.11.2025 passed by the Court in ITR No. 62 to 65 of 1995.
The principal controversy concerned Question No. 1, relating to the taxability of ₹4.5 crore received as compensation on termination of the right to use the trademarks ‘ENO’ and ‘Fruit Salt’. The Revenue contended that the amount should be treated as revenue receipt, particularly since the assessee was not the owner of the trademarks but merely a user under an agreement.
The assessee, an Indian subsidiary of M/s Smithkline Beecham Private Limited, had entered into a Trademark Agreement dated 28.06.1979 with its holding company, which owned various trademarks including ‘ENO’ and ‘Fruit Salt’. Under the agreement, the assessee was entitled to manufacture and sell goods bearing those trademarks. The holding company later decided to repudiate the agreement with effect from 22.09.1996 and permit another subsidiary, M/s Smithkline Beecham Asia (P) Ltd., to use the trademarks. The second subsidiary agreed to pay ₹4.5 crore to the assessee as compensation for the investment made in promoting the trademarks and for the goodwill created. The amount was paid as a lump sum, described as fair and reasonable compensation.
