9911796707
TMI Blog2022 (12) TMI 1091X X X X Extracts X X X X X X X X Extracts X X X X ..... in brief are, the assessee is a non-resident corporate entity incorporated under the laws of Turkey and a tax resident of Turkey. As stated by the Assessing Officer, the assessee is specialized in designing and producing cotton and cotton fabric, which is exported around the world. The assessee had a wholly owned subsidiary Soktas India Pvt. Ltd. In the year under consideration, the assessee had entered into Trademark Licence Agreement (TLA) with the Indian subsidiary transferring exclusive, irrevocable and perpetual rights to use the identified trademarks and brand names in defined territories. The transfer of such right to use to the Indian subsidiary was for a lumpsum consideration of USD 100,000/- equivalent to Rs.77,16,800/- as on 05.03.2019. Subsequently, the assessee entered into a share purchase agreement with Grasim Premium Fabric Pvt. Ltd. transferring all equity shares of the Indian subsidiary. 4. Be that as it may, the assessee being of the view that the consideration received from transferring the right to use the trademarks and brand-names, whether is at arm's length or not, undertook a suo motu transfer pricing adjustment of Rs.4,04,04,326/- based on an independent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under Article 12 of Indian - Turkey DTAA. While doing so, learned DRP relied upon the decision of the Hon'ble Delhi High Court in case of Hilton Roulunds Ltd. Vs. CIT [2019], 412 ITR 436 (Delhi). 6. Before us, learned counsel appearing for the assessee submitted that under the TLA the assessee has transferred exclusive, irrevocable and perpetual right for usage of trademark and brand-name in favour of the Indian subsidiary. In this context, he drew our attention to various clauses of the TLA. He submitted, by conferring/transferring such right the assessee has allowed the licencee to use the trademark/brand name within the defined territories in exclusion of all other persons, including, the assessee. Drawing our attention to the definition of transfer under section 2(47) of the Act, learned counsel submitted, relinquishment or extinguishment of any rights in capital asset amounts to transfer. He submitted, as per the terms of TLA the assessee has granted irrevocable right to use the trademark/brand-name for perpetuity in the defined territories. Therefore, to that extent assessee's rights over the trademark/brand-name in the defined territories stand extinguished. Hence, the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical territory. He submitted, though, the TLA uses, the words 'exclusive', 'irrevocable' and 'perpetual' right, however, in effect it is not so. Drawing our attention to financial statements of Grasim Premium Fabric Pvt. Ltd., the company which purchased the shares of assessee's Indian subsidiary, learned Departmental Representative submitted, in the schedule of assets, the consideration paid for usage of trademark/brandname is not shown. Thus, he submitted, licencee does not consider the brand-name/trademark to be an asset owned by it. Thus, he submitted, the contention of the assessee that the amount received towards transfer of right to use of trademark/brand name is in the nature of capital gain and not royalty, cannot be accepted. In support, he strongly relied upon the decision of the Hon'ble Delhi High Court in case of Hilton Roulunds Ltd. Vs. CIT (supra). 8. We have considered rival submissions in the light of the decisions relied upon and perused the materials on record. As far as factual aspect concerning the issue in dispute is concerned, there is no dispute between the parties. It is a fact on record that under a TLA executed on 04.03.2019 with the Indian subsidiary, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... names and trademark shall always remain with the assessee and the licencee accepts such fact. Licencee further agrees that it shall not at any time do or cause to do any act or thing directly and indirectly which contests or in any way impairs any part of licensor's rights in or title to the brand-names or trademark and the goodwill attached thereto. The licence shall also not act or do anything in contravention to or inconsistent with the directions of the licensor set out in the brand booklet. It further clarifies that the licencee agrees and acknowledges that the use of brand-names and trademarks by the licencee shall inure to the benefit of and be on behalf of the licensor and also agrees to assist the licensor in recording the trademark licence agreement with appropriate Government authorities. Clause 5.3 makes it further clear that the licencee agrees that nothing in the agreement shall give the licencee any right, title or interest in the brand-names and trademark other than the right to use the same in accordance with the terms of the agreement. It further makes it clear that the licencee shall not attack or deny the title of the licensor to the brand-names or trademarks un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either fully or even partially. 11. Even, in the defined geographical territory the licensee cannot use the brand names/trademarks independently and in accordance with its own will, as, the right to usage of brand name/trademarks given to the assessee has been circumscribed/restricted by various terms and conditions of the TLA, including the guidelines set out in the brand booklet. 12. The expression 'transfer' with reference to a capital asset, as defined under section 2(47) of the Act, speaks of sale, exchange or relinquishment of the asset or the extinguishment of any rights therein. In the facts of the present appeal, it is patent and obvious, the assessee has not sold, exchanged or relinquished or extinguished its rights either wholly or partially with reference to the trademarks/brand names. What the assessee has permitted the licensee to do is to use the brand name/trademark in the defined geographical territory as per the terms and conditions set out in the TLA. The expression 'transfer' in its ordinary sense and in common parlance as well as in law means, transfer of complete right, title, interest and ownership over an asset. Once an asset is transferred, the original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st to determine as to whether a particular mark has been licensed or assigned is to see if the licensor/assignor has retained any rights in the mark. If rights are retained with the owner, usually it is a license and if no rights are retained by the owner, then it would usually be an assignment. A license is, therefore, nothing but a permissive use of the mark, which permission, is revocable. A `right to use' is usually a license and not an assignment, except in certain circumstances. Some of the questions that determine whether an arrangement is a license or an assignment include: i) Whether the user acknowledges the licensor‟s right and title over the mark? ii) Whether it is a mere right to use the mark or it was a transfer/assignment of a permanent nature? iii) Whether the manner of use is specified and restricted and the effect thereof on the rights of the user? iv) Whether the payment made by the User is one-time, fixed running royalty or a percentage of sales, with or without investment made by the Licensor on marketing and advertising? v) Whether the licensor has right of supervision and control over the use of the mark? vi) Whether sole and exclusive r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brand name/trademark in favour of the licensee. 16. In so far as the decisions cited by learned counsel for the assessee, in case of Mrs. K. Bhagyalakshmi Vs. DCIT (supra), the issue was, whether the consideration received in respect of sale of television rights for films through irrevocable deed of transfer for a period of 99 years would fall within the definition of royalty under section 9(1)(vi) of the Act. Hon'ble Court after referring to section 26 of the Copyright Act, 1957, held that the said provision stipulates period of 60 years. Further, taking note of the undertaking of the transferors that they will not sale the VCD/DVD rights to any other party in future, held that the transferor has transferred full and absolute right upon the transferee. However, the facts in assessee's case are different, as, there is no such undertaking by the licensor with regard to the brand names/trademarks. In case of S.P. Alaguvel Vs. DCIT (supra), the Hon'ble Court has followed the observations made in case of Mrs. K Bhagyalakshmi (supra) with reference to section 26 of the Copyright Act. In case of CUB Pty Ltd. Vs. UOI (supra), the issue was whether the licensor has transferred its rights ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
