GST Helpdesk   Subscription   Demo   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2016 (7) TMI 1094 - DELHI HIGH COURT

2016 (7) TMI 1094 - DELHI HIGH COURT - [2016] 388 ITR 617 - Taxability in India - intellectual property rights in trademarks, brands, logos etc. - AAR - whether the receipt arising to the applicant, from the transfer of its right, title and interest in and to the trademarks, Foster's Brand Intellectual Property and grant of exclusive perpetual licence of Foster Brewing Intellectual Property is taxable in India, having regard to the provisions of the Income Tax Act, 1961 and the Double Taxation A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

- Therefore, it does not exist in a physical form at any particular location. The legislature could have, through a deeming fiction, provided for the location of an intangible capital asset, such as intellectual property rights, but, it has not done so insofar as India is concerned. With regard to a share or interest in a company registered/incorporated outside India, Explanation. - There is no such provision with regard to intangible assets, such as trademarks, brands, logos, i.e., intel .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

l property rights, which were assigned pursuant to the ISPA, would not be in India. This is so because the owner thereof was not located in India at the time of the transaction. - As a consequence of the foregoing discussion, the view taken by the AAR on question (1), which was placed before the AAR, cannot be accepted and the answer to the said question would be that the income accruing to the petitioner from the transfer of its right, title or interest in and to the trademarks in Fosterís .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to the situs or location of intellectual property rights such as logos, brands, trademarks, which are capital assets, but intangible in nature. In terms of Section 9(1)(i) of the Income Tax Act, 1961, all income accruing or arising, directly or indirectly, inter alia, through the transfer of a capital asset situate in India, shall be deemed to have accrued or arisen in India. The petitioner had sought an advance ruling from the Authority for Advance Ruling (Income Tax), New Delhi (hereinafter re .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ustralia? 2. By virtue of its order dated 14.05.2008, the AAR has answered the said question by holding that the income accrued to the applicant, from the transfer of its right, title and interest in and to the trademarks and Foster's Brand Intellectual Property is taxable in India under the Income Tax Act, 1961. Insofar as the income attributable to the grant of perpetual and irrevocable licence in relation to Brewing Intellectual Property rights is concerned, the same is not liable to be t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

te in India. The plea of the petitioner is that in the case of intangible capital assets the situs thereof has to be determined by the situs of the owner. This is so because the assets, being intangible, do not exist in any physical form and, therefore, cannot be said to be located at any physical place, unlike a tangible capital asset which exists in physical form and has a specific physical location. It is the case of the petitioner that because of the nature of an intangible capital asset, th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ore, the transfer of those assets would not result in any income deemed to have accrued in India and would not be exigible to tax in India. 4. On the other hand, the AAR was of the view that since the intellectual property rights, which are the subject matter of the present petition, pertain to India, in the sense that they were used in India, nurtured in India and some of them were registered in India, the same had taken roots in India and, therefore, were completely situate in India. In coming .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

decision of the AAR and contended that the transaction in question, which involved the transfer of intellectual property rights, had a clear relation to the use of such rights in India and, therefore, they were clearly assets which were located in India. FACTS: 5. It would be necessary to set down the factual backdrop in which the question has arisen for our consideration. The petitioner (CUB Pty. Limited, formerly known as Foster s Australia Limited) had a 100% subsidiary - Dismin India Privat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

iii) FORSTER s (iv) Kangaroo Device In consideration of this licence, the petitioner received royalty and was subjected to withholding tax in India. It is pertinent to note that the BLA permitted Foster s India Limited to use the said licensed trademarks in India. The BLA did not transfer any other right to Foster s India Limited. In other words, the licensed trademarks continued to remain the absolute property of the petitioner. Foster s India Limited was only permitted to use the said four lic .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to SABMiller (A & A2)/its nominee: (a) 16 Trademarks, including the said four licensed trademarks; (b) Foster's Brand Intellectual Property; and (c) Grant of exclusive and perpetual license in relation to Foster's Brewing Intellectual Property confined to India, to SABMiller. Purchase price as mentioned under the ISP Agreement was USD 120 million. 7. As a result of the ISPA, SABMiller (A & A2) became the owner of FBG Mauritius and thereby the owner of Foster s India Limited. Furt .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e) each of the following to occur: (i) xxxx xxxx xxxx xxxx (ii) xxxx xxxx xxxx xxxx (iii) the termination of each of the: (A) Brand Licence Agreement; and (B) Technical Licence and Services Agreement; xxxx xxxx xxxx xxxx It is, therefore, clear that under the ISPA, prior to the completion of the sale and purchase of the sale shares, the trademarks, the Foster's Brand Intellectual Property and the licence of the Foster's Brewing Intellectual Property in accordance with clauses 6 and 7, th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

BMiller (A & A2)]. 9. On 22.09.2006, the petitioner moved an application before the AAR under Section 245-Q of the Income Tax Act, 1961, seeking an advance ruling on, inter alia, the question extracted earlier in this judgment. By the impugned order dated 09.05.2008, the AAR held the income arising from the transaction of the transfer of the 16 trademarks to be deemed income accruing in India on the basis of its finding that the said intellectual property rights were capital assets situate i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s unquestionably in Australia. The petitioner was the owner of the said brand/mark and the petitioner is an Australian company. The petitioner has also granted licences to use the trademarks in various countries across the world (approximately between 70-100 countries), including India. It was submitted that a licence to use a trademark confers only a limited right for the use of the mark and there is no assignment of any proprietary interest therein. It was, therefore, submitted that the initia .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

was submitted that a distinction has to be drawn between the trademark and the right to use the trademark. According to Mr Ganesh, the situs of the trademark would be that of its owner. The right to use a trademark only generates royalty, which is paid to the owner, but the situs of the trademark remains that of the owner of the trademark. It was also contended by Mr Ganesh that if the contention that the grant of licence results in transfer of the situs of the trademark to the licensee countri .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and is protected even in the absence thereof. The statute, more or less, fortifies the common law by conferring a statutory title to the trademark on the owner. Mr Ganesh referred to the decision in the case of Norwich Pharmacal Company v. Commissioner of Internal Revenue: 1934 BTA Lexis 1344, wherein it was observed as under:- Rights in trade-marks are of common law origin, General Baking Co. v. Gorman, 3 Fed.(2d) 891; certiorari denied, 268 U.S. 705. The right to a trade-mark exists at common .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ies cited, supra, and La Croix v. May, 15 Fed. 236. 11. The learned counsel for the petitioner submitted that the location of a trademark is governed by the common law maxim of mobilia sequuntur personam . According to this principle or doctrine, the personal property held by a person is governed by the same laws that govern that person. This principle has been applied to determine the situs of intangibles which entails that the situs of intangible assets are to be determined on the basis of the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

al. App. LEXIS 1499, wherein it was observed as under:- It is immaterial that the plaintiff, prior to the transfer of its trade-mark and goodwill to be used in the State of Washington, also owned and conveyed a warehouse and equipment which it owned in Seattle. It still remains true, as conceded by the written stipulation of facts and the findings of the court, that plaintiffs domicile and principal place of business was in California and not in Washington. All of the facts and circumstances of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e corporation to its domicile in California. The doctrine of mobilia sequuntur personam appears to apply in full force to the facts of this case. We conclude that the commissioner properly and lawfully assessed [ *8] and taxed to plaintiff the proceeds received in the year 1938, from the transfer of the trade-mark and good will of plaintiffs business. It is immaterial whether those property rights in intangible property may also be attributable to the contract, which the court suggests merely cr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ration whose business was located in this state. That fixes the situs of the taxable property. xxxx xxxx xxxx xxxx The term mobilia sequuntur personam is a maxim defined as meaning, Movables follow the [law of the] person. (58 C.J.S. 837.) In Miller v. McColgan, 17 Cal.2d 432 [110 P.2d 419, 134 A.L.R. 1424], it is said at page 443: The doctrine of mobilia sequuntur personam has been repeatedly and consistently maintained in determining the taxable situs of intangible property, and as recently as .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f intangibles. It was further submitted that it is within the jurisdiction of the legislature to promulgate specific provision for determination of situs of the trademarks. However, in India, since the legislature has not specifically provided for the situs of trademarks, therefore, the common law rule of mobilia sequuntur personam would be applicable. Reliance was placed on the following decisions:- (i) Reliable Stores Corp. v. City of Detroit: 260 mich. 2 (Pg 2 and 3); (ii) Humble Oil & Re .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

urt decision in Commissioner of Income Tax, Bombay v. Finlay Mills Limited: (1951) 20 ITR 475(SC). It was, therefore, contended that the mere fact that the trademarks were registered in India also did not mean that the situs of the trademarks had been shifted from Australia to India. 14. Mr N. P. Sahni appearing on behalf of the respondent/revenue supported the ruling of the AAR. He drew our attention to the said decision and, in particular, to paragraph 7 thereof, where the AAR noted that the c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ights, which were transferred by virtue of the ISPA and the deed of assignment, were located in India? 15. The AAR came to the conclusion that the trademarks registered in India, together with the other features of the Foster s brand, had undoubtedly generated appreciable goodwill in the Indian market and such goodwill had been nurtured in India by the reason of coordinated efforts of the petitioner and Foster s India Private Limited till the date of the ISPA in 2006. The AAR was, therefore, of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

India at the time of the transfer. The AAR also took the view that the registration of the petitioner s trademark was one of the relevant factors pointing to the roots that the trademarks had taken and the recognition they had gained in India. The AAR also took the view that the termination of the BLA was not antecedent to the deed of assignment. This observation was straightaway criticized by Mr Ganesh as being wrong inasmuch as the termination of the BLA was a condition precedent to the assig .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ent was made, the situs of the trademark was firmly located in Australia and, therefore, could not be the subject matter of taxation in India. 16. The AAR also relied on Geoffrey s case (supra), Kmart s case (supra) and Muller s case (supra). According to Mr Ganesh, Muller s case was related to goodwill and not trademarks and the Kmart s case (supra) could not have been relied upon because it had been overruled by the Supreme Court in a subsequent decision. Insofar as Jeofferey s case (supra) wa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

brand trademarks on a global basis, no other rights except India specific intellectual property rights were the subject matter of the transaction in question. He also submitted that when the brand was initially introduced in India, it had no value. But, when the petitioner sold the trademark and the brand intellectual property rights with respect to the territory of India, substantial proceeds were received by them from SABMiller. This clearly represents the value it had gained from its operatio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e petitioner placing reliance on the maxim of mobilia sequuntur personam . As an example, he submitted that suppose an Australian had registered trademarks and had spent and promoted the said trademarks only in India, could it still be said that since the said Australian was a resident of Australia, the situs of the trademark could also lie in Australia. A further question was posed that if the Australian migrated to another country, would the situs shift to that country? These questions were an .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hat the principle of mobilia sequuntur personam would not apply in the present case and, therefore, no interference with the ruling of the AAR was called for. DISCUSSION: 19. The issue of situs of an intangible asset, such as the intellectual property rights in trademarks, brands, logos etc. is indeed a tricky one. Insofar as the tangible assets are concerned, there is absolutely no difficulty. They exist in physical form and their existence is at specific locations. Thus, fixing their situs doe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ded to Section 9(1)(i) of the Income Tax Act, 1961 by virtue of the Finance Act, 2012 with retrospective effect from 01.04.1962. The said Explanation 5 reads as under:- Explanation 5. - For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version