2008 (6) TMI 564 - HC - VAT and Sales Tax

Whether the royalty income received by the assessee from the franchisees for the use of the trade mark is exigible to tax under the Kerala General Sales Tax Act, 1963 in the hands of the assessee? Whether, in the facts and circumstances of the present case, can it be said that there exists the concept of goods , turnover and taxable turnover with reference to the receipt of royalty by the assessee from its franchisees? Held that - The questions of law raised by the assessee in these revision petitions are no more debatable in view of what has been stated by this Court in the case of Mechanical Assembly Systems (India) Pvt. Ltd. v. State of Kerala 2005 (12) TMI 536 - KERALA HIGH COURT . These revision petitions require to be rejected

Summary

Issues:
1. Taxability of royalty income under the Kerala General Sales Tax Act, 1963.
2. Concept of "goods," "turnover," and "taxable turnover" in relation to royalty receipt from franchisees.

Analysis:

1. The primary issue in this judgment is the taxability of royalty income under the Kerala General Sales Tax Act, 1963. The court deliberated on whether the royalty income received by the assessee from franchisees for the use of a trademark is subject to taxation. The court referred to previous decisions and emphasized the broad definition of "goods" to include tangible and intangible property, such as software programs and intellectual property. The court highlighted that once intellectual property is put on a medium and marketed, it becomes goods susceptible to sales tax. The judgment cited relevant decisions from the Supreme Court and other High Courts to support the inclusion of intangible property like trademarks under the ambit of taxable goods.

2. The second issue pertains to the interpretation of the concepts of "goods," "turnover," and "taxable turnover" concerning the receipt of royalty by the assessee from franchisees. The court discussed the distinction between the transfer of the right to use a trademark and the assignment of a trademark. It clarified that under the relevant Act, tax is levied on the transfer of the right to use goods, not the transfer of ownership in the goods. The judgment highlighted that the transfer of the right to use a trademark falls within the purview of the Act, emphasizing the importance of written authorization for such transfers. The court also referenced decisions from the Bombay High Court and the Madras High Court to support its interpretation of the law regarding the transfer of the right to use trademarks.

In conclusion, the court rejected the revision petitions based on the precedent set in previous decisions and the interpretation of relevant legal provisions. The judgment emphasized the broad scope of taxable goods, including intangible property like trademarks, and upheld the taxability of royalty income under the Kerala General Sales Tax Act, 1963.