Transfer of intangible assets with right to carry on business is taxable as capital gains and not as business income

Delhi High Court in the case of CIT Vs. M/s Mediworld Publications Pvt. Ltd (ITA No. 549 of 2011) held that transfer of intangible assets with right to carry on business was taxable as capital gains and not as business income.

Facts of the case

• The taxpayer was engaged in the business of health care print media and electronic communications. Business of print media communications comprises of publication of regular journals and customized publications for the industries and professional groups and business of electronic media communication includes production of customized audio video healthcare communications.
• Through a Specified Asset Transfer Agreement (the Agreement) the rights, titles and interest in Business of Healthcare Journals and Communications were transferred to CMP Medica India Private Limited (the Transferee Company). As part of the Agreement the taxpayer assigned the copyrights and trademarks pertaining to the business to the Transferee Company. Further the taxpayer entered into a non-compete for six years with respect to the publication business and continued with its clinical research business.
• The taxpayer treated the sale consideration as long term capital gain; however the Assessing Officer (AO) contended that the same should be assessed as business income.
• The Commissioner of Income-tax Appeal [CIT(A)] and the Income-tax Appellate Tribunal (the Tribunal) dismissed the appeal of the AO.
• The Tribunal observed that the Journals were a capital asset of the taxpayer which were registered with the Trademark Authorities. The taxpayer was the owner of the Trademark & Copyright in the journals, which were sold by the taxpayer to the Transferee. Therefore the provisions of Section 28(va) of the Income-tax Act, 196 1(the Act) were not applicable.

Taxpayer’s contentions