1. These appeals by the assessee arise out of wealth-tax proceedings and relate to the assessment years 1974-75 and 1977-78.
2. The assessee is an individual. Relevant valuation date is 31st March preceding the relevant assessment year. The assessee was a partner in a firm which carried on business under the style of Triveni Nut Powder Manufacturing Co. Prior to becoming a partner of the firm, the assessee was carrying on business in the manufacture of betelnut powder right from 1948. With effect from 15-6-1955, he registered the trade mark'Triveni' under the Trade Marks Act, 1940, and a certificate of registration in this regard was given by the Registrar of Trade Marks on 2-8-1957.
3. An instrument of partnership was executed on 12-3-1966 which stated that from 2-4-1965 a partnership firm had come into existence for the carrying on of the business of manufacture and sale of betelnut powder with 'Triveni Nut Powder' trade mark which was held by the assessee.
The assessee, who was 35 at that time was one of the partners and the other two partners were K. Pullaiah, aged 38 at that time, and M.Veeranjaneyulu, aged 40 at that time. The assessee had a 70 per cent share and each of the other partners had a share of 15 per cent.
4. On 11-9-1974, a further partnership deed was executed by which a new partner, D. Babu Rao, was admitted into the partnership. He was the son of the assessee. The deed contained the following recital: "And whereas the said parties agreed to admit a new partner Shri Desu Babu Rao on and with effect from 1-4-1974 and the first party Desu Venkata Subba Rao agreed to part with half in his 70 paise share, reserving his rights in the Triveni Trade Mark." By this partnership deed, the assessee's share was reduced to 35 per cent. Pullaiah and Veeranjaneyulu had 15 per cent share each and Babu Rao had 35 per cent share. It was mentioned that the other clauses of the deed of 12-3-1966 would have effect.
5. Yet another partnership deed came to be drawn up on 29-9-1976 by which Pullaiah retired from the firm. It was mentioned again that the assessee would retain his rights in the trade mark 'Triveni'. This deed mentioned that the conditions in the earlier partnership deeds would form part of the present partnership deed.
6. For the assessment year 1974-75, the deed which was in operation was the deed of 12-3-1966, the other two partnership deeds having been executed only subsequent to the valuation date. In making the assessment originally for the assessment year 1974-75, the WTO did not include any value on account of the trade mark 'Triveni'. Subsequently, he reopened the proceedings under section 17 because, according to him, the assessee, being the owner of the registered trade mark, should be assessed on the value thereof. The contention of the assessee was that the trade mark as such had no vaue which was to be included in his net wealth, but the WTO did not accept this contention. He set out the profits of the firm for the five years preceding and computed the value of the trade mark at Rs. 1,66,544 as under: This he added to the net wealth and completed the assessment. For the assessment year 1977-78, in making the original assessment itself, the WTO included the value of the trade mark computed on a similar basis as in 1974-75 at Rs. 2,91,764.
7. The assessee appealed and it was contended before the AAC that the nature of a trade mark was somewhat similar to that of goodwill and there was no particular procedure prescribed for valuing a trade mark and, therefore, there was no justification for considering the same to be an asset and valuing the trade mark. It was also urged that the trade mark could not be sold in the open market like any other property. The AAC, however, was of the view that the nature of the trade mark was something similar to that of an actionable claim and, according to him, the value of the trade mark was correctly included and the valuation also did not merit any interference. He, therefore, confirmed the inclusion of the values estimated of the trade mark.
8. For the assessment year 1974-75, apart from the other grounds raised in the appeal it was contended before us that the reopening of the assessment was without jurisdiction. Such a point was not agitated before the authorities below, but on merits also, we come to the conclusion that the assessee's plea cannot succeed. The trade mark did not stand exhibited in the balance sheets of the firm and the WTO could have had reason to believe that consequent to this there was omission or failure on the part of the assessee to disclose all material facts.
Merely because the partnership deed mentioned that the firm was using the trade mark, it cannot be said that there was specific disclosure by the assessee. At the stage of initiation of proceedings, all that we can consider is whether there was reason to believe on the part of the WTO. The adequacy of the reasons cannot be gone into by us and we, therefore, uphold the validity of the reopening.
9. Coming to the merits, the learned counsel for the assessee submitted that the WTO had made a global valuation of the interest of the assessee in the firm. He stated that where such a global valuation was being made, the net value of assets of the business as a whole was being determined and Rule 2A of the Wealth-tax Rules, 1957 ('the Rules') provided that in making such valuation, the adjustments to the balance sheet were to be made as specified in rules 2B, 2C, 2D, 2E, 2F and 2G. He, therefore, stated that these were the only adjustments which could be made to the disclosed figures in the balance sheet. The learned counsel then went on to submit that there was the authority of the decision of the Supreme Court in the case of CIT v. Finlay Mills Ltd.  20 1TR. 475 for the proposition that fees paid for securing registration of a trade mark was revenue expenditure. This being so, he submitted that the question of exhibiting any value for trade mark in the balance sheet of the firm did not arise. According to him, therefore, it was not an asset which was required to be disclosed in the balance sheet. He proceeded to elaborate upon his argument by relying on the decision of the Delhi Bench of the Tribunal in WTO v.Narendra Kumar Gupta  4 ITD 694 (SB) and stated that where an asset was not required to be disclosed in a balance sheet then the question of adopting the market value of such an asset on the valuation date would not arise because it would not be an asset which fell within the scope of Rule 2C(d) which provides : "in the case of any other asset, its market value on the valuation date". According to the learned counsel, the 'other asset' referred to in Rule 2C(f/) could only be an asset which was required to be exhibited in the balance sheet and, hence, he submitted that in making a global valuation, no adjustment for the value of trade mark was permissible.
10. The second limb of the argument was based with reference to the contention that a trade mark was only one of the components of 'goodwill'. According to the learned counsel, unless a price was paid for goodwill, where goodwill was not exhibited in the balance sheet, the question of making an adjustment for the same did not arise because Rule 2C(b) permitted adjustment only in cases where goodwill was purchased by the assessee for a price and then the value to be taken was the market value of the goodwill or the price actually paid by the assessee whichever was less. He submitted that where nothing was paid for the trade mark which was a component of goodwill, the question of including any value for the trade mark would not arise.
11. Finally, he submitted that even if the trade mark was to be valued, the value could not be anywhere near the value of goodwill and the WTO had only taken the average profit and had not computed super profits for the purpose of capitalisation, and in any view of the matter, therefore, on merits also, the value to be taken for the trade mark would be very negligible even if such value had to be determined.
12. The learned departmental representative, in reply, submitted that in Circular No. 3 (WT), dated 28-9-1957 (Taxmann's Direct Taxes Circulars, Vol. 1, 1980 edn., p. 1033] the Board had stated that patents were to be valued based on the profit attributable to the use of the patents and trade marks and patents stood on a similar footing and the value of trade marks on the same basis as patents would be in order. It was submitted that the circular provided that it was to be assumed that for the unexpired period of the life of the patent, income would continue to be derived as on the valuation date and the present value of the future average income was to be evaluated which was in effect what was done by the WTO in the present case.
13. We have considered the rival submissions. 'Trade Mark' is a mark "used or proposed to be used in relation to goods for the purpose of indicating or so as to indicate a connection in the course of trade between the goods and some persons having the right, either as proprietor or as registered user, to use the mark whether with or without any indication of the identity of that person''. Such was the definition in Section 2(1)(i) of the Indian Trade Marks Act, 1940, which is also the substance of the definition in Section 2(1)(v) of the Trade and Merchandise Marks Act, 1958 also. The Supreme Court, in the case of Finlay Mills Ltd. (supra), had pointed out that though before the Trade Marks Act, 1940, there was no trade marks Act in India, it was recognised that action lay for infringement of a trade mark independently of an action for passing off goods. Eventually, the Court held in that case that payment for registering a trade mark which already existed was a revenue payment. In the present case, the trade mark 'Triveni' came to be used by the assessee right from 15-6-1955 and the certificate of registration was given to him on 2-8-1957. The expenses for registration were paid by the assessee in his individual capacity and not by the firm. A trade mark under the Trade Marks Act, 1958, can be assigned under the provisions of sections 36 to 44 of the said Act whether in connection with goodwill of a business or even separately. A trade mark is, therefore, property and is an asset within the meaning of Section 2(e) of the Wealth-tax Act, 1957 ('the Act').
What has happened in the present case is that the trade mark which the assessee had was brought in by him as property on the formation of the partnership on 2-4-1965 evidenced by the deed of 12-3-1966. This property which he brought in at the time of inception of the firm, therefore, became property of the firm by virtue of Section 14 of the Partnership Act. There was no question of the firm having paid for this property which was brought in by the partner at the inception of the firm. Hence, the mere fact that the payment made by the assessee may have been revenue expenditure in his hands at the time of registration of the trade mark would have no bearing on the treatment to be accorded in the firm's books. The asset became really the property of the firm, but it was not exhibited in the balance sheet of the firm because no price was paid for it. Rule 2C, which provides for adjustments to be made in respect of assets not disclosed in the balance sheet, reads as under : 2C. The value of an asset not disclosed in the balance sheet shall be taken to be (a) in the case of a debt due to the assessee, the amount due to the assessee under that debt, and where such amount or part thereof has been allowed as a deduction under clause (vii) of sub-section (1) of section 36 of the Income-tax Act, 1961, in computing the total income of the assessee for the relevant year for the purposes of assessment under that Act, the amount of the debt as reduced by the deduction to be allowed ; (b) in the case of goodwill purchased by the assessee for a price, its market value or the price acutally paid by him, whichever is less ; (c) in the case of managing agency rights purchased by the assessee for a price, its market value or the price actually paid by him, whichever is less ; (d) in the case of any other asset, its market value on the valuation date.
We are unable to agree with the learned counsel for the assessee that in the present case the trade mark will not fall within the terms of Rule 2C(d) on the ground that it was not an asset which was required to be exhibited in the balance sheet. Therefore, the decision of the Delhi Bench of the Tribunal relied on by the learned counsel would not help his case.
14. However, the learned counsel had, in the course of his arguments, elaborated upon the concept of goodwill with reference to accountancy principles. In the Text book on Accountancy by William Pickles, 4th edition (brought out by the English Language Book Society and Pitman), the following appears in relation to 'goodwill' : The goodwill is an intangible, but not necessarily a fictitious, asset representing the valuehowever difficult its appraisement may beto its owner of benefits arising from the business in question, such as the sole right to enjoy the profits of the business, and, where goodwill has been acquired, the sole right of succession to the advantages of the business which have been built up in the past.
Goodwill arises mainly (a) by personal reputation of the owners, (b) by reputation of the goods dealt in, (c) by site monopoly or advantage, (d) by access to sources of supply, e.g., large quotas, (e) for patent and trade mark protection, (f) effectiveness of publicity, (g) reputation of the firm's goods and methods, (A) relationship between firm and personnel, and (?) growth element. The purchaser of goodwill acquires the trade marks, patents, copyrights, etc., of the business as well as the benefits of contracts and all the benefits accruing from the location, reputation, connection, organization and other exceptional features of the business. The purchaser will seek to express the sum payable in terms of the compounded or capitalized value of an annuity of future differential or 'super' profits, that is those profits in excess of the marginal return normally arising.
It is clear from the above that trade marks are a component of goodwill. This position also stands established from the observations of the Supreme Court in S.C. Cambatta & Co. (P.) Ltd. v. CEPT  41 ITR 500 at p. 505. This is why even the Trade and Merchandise Act, 1958, specifically provided for assigning of trade marks even without relation to goodwil. Rule 2C(b) permits an adjustment in respect of goodwill purchased by an assessee only where a price has been paid.
Even where a price has been paid, what has to be taken is the market value or the price paid whichever is less. When for goodwill itself no adjustment is to be made in the balance sheet where no value is exhibited unless a price has been paid, then, certainly, for a component of goodwill also no adjustment should be made within the terms of Rule2C(b) since the component, viz., trade mark, is a part of the whole, viz., goodwill. Therefore, this is a case where no adjustment for the value of the trade mark is to be made in terms of Rule 2C(b). The question whether adjustment is to be made or not for trade mark value is to be determined in terms of Rule 2C(b) which is the specific provision applicable. This being the case, a trade mark would not be any other asset which would fall for evaluation under the residuary Rule 2C(d). On this ground, the question of evaluating a trade mark under Rule 2C(d) would not arise.
15. At this stage, it may be relevant to state that under the provisions of section 4(1)(b) of the Act where the assessee is a partner in a firm, the value of his interest in the firm is to be determined in the prescribed manner. Rule 2 provides for the valuation of interest in partnership, and the starting point is the computation of the net wealth of the firm. For the interpretation to be given to the terms of Rule 2 there is the pronouncement of the Andhra Pradesh High Court in CWT v. Narendra Ranjalker  129 ITR 203, where their Lordships have observed as under : . . .It is, therefore, clear from this Rule that the net wealth of the firm has to be ascertained. The expression 'net wealth' has not been defined in the Rules, but Rule 1A(m) provides that all other words and expressions used but not defined in the Rules and defined in the Act, shall have the meanings respectively assigned to them in the Act. It is, therefore, clear that the expression 'net wealth' in the Rules must have the same meaning as 'net wealth' used in the Act. Under Section 2(m) 'net wealth' is defined as the amount by which the aggregate value computed in accordance with the provisions of this Act of all the assets of the assessee on the valuation date is in excess of the aggregate value of the debts owed by the assessee. It is no doubt true that the expression 'net wealth' is used only with reference to the assets of an assessee and a firm is not an assessee under the Act, but when the same expression is used in the rules and the net wealth of a firm has to be ascertained, there cannot be any doubt that the net wealth of the firm has to be ascertained as if the firm is an assessee. In the leading case of East End Dwellings Co. Ltd. v. Einsbury Borough Council  AC 109 at p. 130, it has been observed that a deeming provision has to be carried to its logical conclusion. It was observed in that case : If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidence which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs : it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.' The expression 'net wealth' has been deliberately used inRule2 in connection with the assets of a firm. That expression must be understood in the light of the definition in Section 2(m) of the Act, as if the firm is an asses-see though the firm is not an assessee under the Act.
Otherwise there was no purpose in the Legislature using the expression 'net wealth' in the Rules____ The Andhra Pradesh High Court, while approving the decision of the Madras High Court in CWT V. Vasantha  87 ITR 17, has no doubt dissented from the decisions of the Orissa High Court in CWT v. I.Butchi Krishna  119 ITR 8 and of the Allahabad High Court in CWT v. Padampat Singhania  90 ITR 418. Following the ratio of the decision of the Andhra Pradesh High Court, which is binding on us, it is clear that the net wealth of the firm has to be computed, and if the net wealth of the firm is to be computed in terms of the statute, all the provisions of the Act apply and Section 7(2) of the Act gets attracted and the WTO has to make the computation where he has recourse to provisions of Section 7(2)(a) by making only such adjustment to the balance sheet as may be prescribed and at this stage the provisions ofRule2A, which enumerates the rules which deal with adjustments, comes into play and of these, the one which is relevant isRule2C. We have held with reference to the provisions ofRule2C that no adjustments for the value of trade mark would be permissible to the value of other assets disclosed in the balance sheet for the reasons which we have set out.
16. The position in regard to the assessment year 1977-78 would be no different though the relevant partnership deed for that year was that dated 29-9-1976. The statement that the assessee retained rights in the trade mark 'Triveni' in the deed of partnership of which we have set out the relevant extract, can only be construed as meaning that in the event of dissolution of the firm or retirement of the assessee from the firm, the rights in the trade mark would revert to him. During the subsistence of the firm, when the assessee is continuing as a partner, the trade mark continues to be property of the firm as was the position under the earlier partnership deed applicable to the assessment year 1974-75.
17. In these circumstances, the action of the WTO, when he has proceeded on the global basis, in including the value of trade mark in either of the assessments cannot be sustained and we would exclude from the assessments in question the value computed by him of Rs. 1,66,544 for the assessment year 1974-75 and Rs. 2,91,764 for the assessment year 1977-78.
18. If the net wealth of the firm in terms ofRule2 was not to be computed in accordance with the statutory provisions of the Act relating to computation of net wealth but on the basis of commercial principles alone, then the question may survive whether any adjustments for the value of trade mark are to be made. The trade mark is certainly an asset within the meaning of Section 2(e) and a proper evaluation of the same has to be made. It is interesting to note that trade marks along with patents and copyrights have of late come to be considered as 'intellectual property'. The concept of 'intellectual property' has acquired a degree of international acceptance as in the title of the United Nations Organisation, World Intellectual Property Organisation (WIPO) [See Intellectual Property : Patents, Copyrights, Trade Marks and Allied Rights by W.R. Cornish, Professor of English Law at London School of Economics and Political Science (Sweet & Maxwell Publication, 1981)]. As to what should be the value to be adopted for trade marks would depend on various facts and circumstances. Being a component of goodwill, certainly, the value of trade mark cannot be equal to that of goodwill itself except in very rare or exceptional cases, because there are several other factors which go to make up goodwill. In the view that we have taken, we consider that it would not be necessary for us to embark on a dissertation of the valuation to be made of the trade mark. Regarding the historical development of it, there are the following observations in the book by Cornish : As modern capitalism has grown, the drive to sell products and services by means of some mark, brand or name has invaded more and more fields. Some foods and a few other staples are still frequently sold to the consumer without branding. But even these much less than formerly (sic). Before industrialisation, there were, of course, instances of traders or trader-groups who deployed marks of various kinds to distinguish their products. The hallmarks of goldsmiths and silversmiths and the marks of Sheffield cutlers, are English examples which have survived as distinct systems. But the demand for general legal protection against unfair imitation of marks and names is a product of the commercial revolution that followed upon factory production and the growth of canals and railways. That demand has swelled immensely with the development of modern advertising and large scale retailing. Most advertising teaches the consumer to buy bye-product mark or house name and it keeps reiterating its message in the hope of stopping buyers from defecting to rivals. Trade marks and names have become nothing more nor less than the fundament of most market place competition.