Certain amendments made to Foreign Contribution (Regulation) Act, 2010 were made vide Foreign Contribution (Regulation) Amendment Act, 2020 and the same were given effect from 29.09.2020. The Government has proposed the said amendments after taking into the consideration the rampant misusage and abuse of the Foreign Contribution (Regulation) Act, 2010 (for brevity ‘FCRA’).

Read more: Validity of Amendments Proposed to FCRA – Supreme Court Upholds in Noel Harper

The recent Delhi Tribunal judgment in the matter of Young Indian[1] is the second in the series for Young Indian (for brevity ‘YI’). The first was the cancellation of registration under Section 12AA of Income Tax Act, 1961 (for brevity ‘ITA’). The article on that particular judgment is available at here. In this article, we deal with the recent judgment wherein the tax was levied on YI in terms of Section 28(iv) of ITA.

The judgment of tribunal is contained in 571 pages, wherein YI has challenged the Commissioner of Income Tax (Appeal)’s order on 16 counts. In this article, we are only dealing with the taxation of the income in the hands of YI and its corresponding valuation issues. We recommend the readers to read the entire judgment for a holistic understanding of the matter. The facts that are relevant to the current issue dealt in the article are narrated hereunder for the benefit of the reader.

Read more: Taxation of Benefits in Young Indian – Value of Assets of AJL – Delhi Tribunal in Young Indian

Introduction

Issue of notice under Section 148 of Income Tax Act, 1961 (for brevity ‘ITA’) after 31.03.2021 under old provisions has created lot of litigation at various High Courts and currently, the Supreme Court has reserved its judgment on such controversy. For detailed analysis of issue of notice under section 148, read our article here[1].

As the above controversy is settling down, a new issue has been come up for discussion at various High Courts. Earlier, assessments under section 143(3) or reassessments under section 147 are used to be completed in physical mode. However, after the introduction of Faceless Assessment Scheme (for brevity ‘FAS’), the concept of assessment procedure has been changed totally to digital mode. For details of faceless assessment scheme, we recommend reading our Article on FAS here[2].

Read more: Issues relating to ‘Issue of Notice’ through E-mail

The recent judgment of Honourable Mumbai Tribunal in the matter of Balaji Trust[1] is a quite interesting and special one. In this article, we shall deal with the pivotal issue of the entire matter, the taxation of transfer of brand ‘Essar’ by Essar Investments Limited (for brevity ‘EIL’) to the Balaji Trust (for brevity ‘trust’). The revenue tried to tax in different ways in different stages in the hands of the trust but ultimately failed, at least at this level. No doubt, considering the stakes involved, an appeal would be preferred by the Revenue before the High Court in due course of time. Though there are multiple issues in this appeal, this article is only about the taxation of the transfer of brand to the trust.

The facts of the matter are that, the trust is a private discretionary trust which was settled on 29^th March 2012 by the settlor, Shashikanth Ruia with an initial settlement of Rs 10,000. The trust was created for sole and exclusive benefit of the beneficiaries being the members of Ruia family. EIL was holding the brand ‘Essar’ including all the registered and unregistered trademarks, copyrights, service marks, certification marks, design, trade names relating to the logo and slogans used in relation thereto along with the getups incorporating the logo (for brevity ‘brand’) from 1996. On 29^th March 2012, EIL has contributed the brand ‘Essar’ to the corpus of the trust as voluntary gift and accordingly the ‘Essar’ brand was settled without consideration. Since no amounts were paid by the trust to EIL for obtaining the brand ‘Essar’, the trust has not shown the same in the financial statements. Post receipt of such brand, the trust has entered non-exclusive licensing agreements with operative Essar group entities. The said exploitation has resulted in earning of license fees by the trust. The said license fee was offered to tax by the trust by adopting the cash system of accounting in accordance with the provisions of Income Tax Act (for brevity ‘ITA’)

Read more: Taxation of Gift of Brand ‘Essar’ – Mumbai Tribunal in Balaji Trust