Please Help: Taxation Issue
Posted Date : 28-Mar-2014 , 11:56:53 am | Posted By: Deesha
Category :
VAT | Answers :
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Does brand comes under Intangible Assets Category? Does vat apply on sale of Intangible Assets? |
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| Posted By : |
01-Apr-2014, 01:01:43 |
| Here two questions are involved.
First- whether brand can be classified as an Intangible Asset?
Ans. Essentially, Brand is a kind of goodwill which makes a company or its product differentiable from other companies or their products. Now, Brand can come into existence on acquisition/merger or through internal development (like capitalization of advertising and promotional expenses for which benefits accrue for more than one accounting period). For it to qualify as asset it must satisfy the definition of "asset" as contained in paragraph 49 of "Framework for Preparation and Presentation of Financial Statements" issued by ICAI, which defines it as "An asset is a resource controlled by an enterprise as a result of past events from which future economic benefits are expected to flow to the enterprise". Thus, only brand/goodwill arising from acquisition/merger satisfy this criteria for the simple reason that in case of internally generated brand, no resource controlled by enterprise ever comes to existence. Further paragraph 35, 36, 50, 51 and 56 of AS-26 issued by ICAI makes it amply clear that internally generated brands/goodwill can not be classified as "Intangible Assets".
Thus, in conclusion, one acquired brands can be classified as Intangible Assets.
Second- Whether VAT applies to Intangible Assets?
Ans- The exigibility of any transaction to a Sate VAT depends upon the provisions contained in the respective State VAT laws. Further, in certain State VAT laws, transfer of right to use any goods for any purpose is liable to VAT. For understanding the concept of levy of VAT on Intangible Assets,it is pertinent to note Section 2(7) of Sale of Goods Act, 1930 which defines goods as "every kind of movable property other than actionable claim and money and includes stock and shares, growing crops, grass and things attached to and forming part of land, which are agreed to be severed before sale or under the contract of sale". It is also pertinent here to understand what constitute movable property. Section 3(26) of General Clauses Act, 1897 which defines movable property makes it clear that the term "movable property" occuring u/s 2(7) of Sales of Goods Act must mean property of every description except immovable property. Thus, on combined reading of both the provisions, it emerges that Goods can be tangible or intangible (incorporeal) but can not be immovable. Therefore, Intangible Assets like brand name, trademark, patents and copyrights are also goods. The same view was taken by the Supreme Court in its ruling H. Anraj etc v/s Government of Tamil Nadu, etc (SC) dated Oct 4, 1985 wherein the SC held that even intangible assets are exigible to State VAT if the VAT Act provides for such a levy.
Thus, taking above into consideration, Intangible Assets are goods and VAT can be levied their sale/purchase provided the State VAT contains a specific provision for levy in this regard.
Hope this clarifies.. |
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| Posted By : |
31-Mar-2014, 08:58:53 |
| yes the Brand comes under Intangible assets. & probably VAT also applies in case of sale of Intangible assets. |
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