Income from Assignment of patent for exploiting it commercially is Capital Gain

In absence of tax free income claim, no disallowance can be made U/s.14A

The pre-requisite to invoke the provisions of section 14A read with rule 8D of the Rules is that the assessee should have claimed some expenditure against exempt income. In the case under consideration, no exempt income was shown by the assessee in its return, so, there was no justification for making disallowance of any kind.

Income from Assignment of patent for exploiting it commercially is Capital Gain

The patent was for the purpose to have right to manufacture/produce/process some article/thing. The patent was registered for commercial exploitation of the same in India as well as in the international market. It was transferred to the assignee for exploiting it commercially. Section 55(2)(a) talks of right to manufacture, produce or process any article or thing. Therefore, as per the amended provisions, the right to manufacture/produce/process would be taxable under the head capital gains and cost has to be taken at Rs. Nil. In these circumstances, in our opinion the FAA has rightly invoked the provisions of section 55 and taxed the disputed amount under the head capital gain.

Full Text of the ITAT Order is as follows:-

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