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Cub Pty Limited (Formerly Known As Foster's Australia Ltd) Versus Union Of India & Ors

2016 (7) TMI 1094 - DELHI HIGH COURT

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 Avoidance Agreement between India and Australia? - - Held .....

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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., intellectual property rights. Therefore, the well accepted princi .....

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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 brand intellectual property is not taxable in India under th .....

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h 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 referred to as the AAR) on, inter alia, the following question .....

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R 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 taxed under the Income Tax Act, 1961. 3. The petitioner is ag .....

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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, the common law principle mobilia sequuntur personam has been e .....

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come 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 to this conclusion, the AAR did not accept the applicabilit .....

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uestion, 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 Private Limited (Dismin). In turn, Dismin held 100% shares of FBG, .....

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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 licensed trademarks in India as a licensee. 6. On 04.08.2006, a .....

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cluding 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. Furthermore, 16 trademarks, which were owned by the petitioner ( .....

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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, the BLA was required to be terminated. It will be remembered t .....

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d 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 in India. Being aggrieved by the said ruling, the petitioner .....

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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 initial licence granted under the BLA did not confer any proprieta .....

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e 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 countries were to be accepted, serious and major consequences invol .....

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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 law, L. H. Harris Drug Co. v. Stucky, 46 Fed. 624, and has .....

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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 situs of the owner of such intangible assets. It was submit .....

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s 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 this case indicate that the domicile and principal place of .....

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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 created the relationship of debtor and creditor between plaint .....

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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 the 1938-1939 term the Supreme Court of the United States r .....

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e 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 & Refining Co. v. Calvert: 414 S.W.2d 172 (Tex. 1967) (Pg 8); (i .....

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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 crucial question that needs to be addressed is whether the ca .....

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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 the view that it was reasonable to hold that the marketing i .....

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ew 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 assignment as noted in Clause 5.3 of the ISPA. We would tend to a .....

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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) was concerned, Mr Ganesh pointed out that the same was in resp .....

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ndia 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 operations in India. It was, therefore, contended that this was inco .....

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tur 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 answered by Mr Sahni himself, obviously as - no . According to .....

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ply 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 does not pose any problem. An intangible capital asset, by its .....

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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, its value substantially from the assets located in India. 20 .....

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