The high court of Bombay at Goa recently held that an amount of 3.5 crore received by some shareholders of Colfax Laboratories India Limited (CLIL) to give up marketing right of the ‘Old Spice’ range of products to Procter and Gamble (India) Limited (PGIL) is not taxable.

In this case, the commissioner of income tax (CIT) had approached the high court claiming that the consideration paid to some members of the Menezes family, holding shares in CLIL, for voting in favour of a resolution passed by the company in 1994 to give up the marketing, selling and distribution rights of the products, was chargeable for income tax.

In 1993, PGIL had negotiated the deal with the family members after its parent company in USA acquired Shulton (GB) Ltd, which was the registered owner of the trade mark Old Spice.

Earlier in 1967, Shulton (GB) had granted CLIL the right to use and market products under the brand name Old Spice.

Dismissing the appeal filed by CIT against the order of income tax appellate tribunal, a division bench comprising justices D G Karnik and F M Reis, observed thus: “The money which was received by them was not a business receipt, but received as bounty or windfall for voting affirmatively and supporting the resolution. Money was not to be paid to them at any time in part and never intended to be paid in future. Thus it was a receipt which was by way of a windfall and not an income within the meaning of Section 2(14) of the I-T Act.”

“We are of the view that the receipt was a casual receipt in the nature of windfall arising out of one time event of affirmative voting on a resolution. It was not of repetitive character and was not likely to happen again,” the bench observed.

The court also referred to the finding of the tribunal, which held that the voting on the resolutions in a particular manner was not a business of the members of the Menezes family.

The court noted that PGI desired to have a resolution to be passed during the general body meeting of CLIL in order to avoid any possibility of litigation and any interruption in the use of the brand. CLIL had not only used the trade mark Old Spice in India, but had also developed the market for that brand.

During the hearing of the case, the CIT lawyer argued that the marketing agreement, which entitled CLIL to use the trademark Old Spice, had come to an end on December 31, 1993. Therefore, by passing the resolution, CLIL did not lose any right and there was no erosion or sterilization of the profit making apparatus, the lawyer pointed out.

The respondent’s lawyer submitted that the amount received was a lucky chance payment that was paid to the members of Menezes family for voting in favour of the resolution and, therefore, this did not amount to an income.

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