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2023 (9) TMI 54 - HC - VAT and Sales TaxTaxability - Deemed sale or not - receipts towards royalty and the transfer of the right to use intangible property - HELD THAT - A reading of the judgment in Quick Heal Technologies 2022 (8) TMI 283 - SUPREME COURT clearly shows that the issue is not whether there is a transfer of property in goods but if there is a transfer of the right to use the property in goods. The first Appellate Authority and the Tribunal essentially held that there is no exclusive transfer of the goods and that the decision of the Division Bench in Malabar Gold regarding the trademark would come to the rescue of the assessee. The judgment in Malabar Gold 2013 (7) TMI 101 - KERALA HIGH COURT has not become final as it is challenged before the Supreme Court. That apart, it cannot be held that it is a requirement of law that there should be a transfer of the entire right to the exclusion of the transferor for there to be a transfer of the right to use. The transfer of the right to use goods is distinct and separate from the transfer of goods. Thus, it has to be held that in a contract for the transfer of the right to use the goods, the taxable event is the execution of the contract for delivery of the goods, and if that has taken place, it was immaterial whether the transfer was exclusively or to the exclusion of all others. In the instant case, the transferee obtained a legal right to use the goods for the period during which he had such legal rights, which had to be to the exclusion of the transferor - the Tribunal has clearly gone wrong in law while dismissing the appeals preferred by the State. The order of the Tribunal impugned before us is set aside. Case remitted back to the assessing officer to consider the question afresh and pass a speaking order dealing with the contentions of the assessee. The questions of law are answered in favour of the State and against the assessee - revision disposed off.
Issues Involved:
1. Taxability of receipts towards royalty and the transfer of the right to use intangible property. 2. Limitation on assessment for the year 2005-2006. Issue 1: Taxability of Receipts Towards Royalty and Transfer of Right to Use Intangible Property The assessing officer found that the assessee had received Rs. 3,68,97,749.05/- towards income from copyright and royalty for the transfer of the right to use ringtones for specific periods during the assessment years 2005-2006 to 2010-2011. The officer concluded that this income was taxable under Entry 68 of the III Schedule of the KVAT Act, 2003, which includes intangible items like copyright and patent. The officer relied on the Supreme Court's judgment in Tata Consultancy Services v. State of Andhra Pradesh and the High Court's decision in Malabar Gold Pvt. Ltd. v. Commercial Tax Officer to support the taxability of such receipts. The assessee argued that they were paying service tax under the Central Finance Act and cited the Supreme Court's decision in Imagic Creative Pvt. Ltd. v. Commissioner of Commercial Taxes to claim that VAT and service tax are mutually exclusive. The Appellate Authority agreed with the assessee, stating that the royalty received was subject to service tax and not VAT. The Tribunal upheld this view, noting that the transfer of the right to use goods must be exclusive, which was not the case here. The State contended that the Tribunal erred in law by not recognizing that the assessee was liable to pay sales tax. The Tribunal had wrongly interpreted the requirement of exclusive transfer of goods. The Supreme Court's judgment in Quick Heal Technologies Ltd. clarified that the transfer of the right to use goods does not require exclusive transfer. The High Court concluded that the Tribunal had misdirected itself and set aside its order, restoring the assessing authority's decision, except for the year 2005-2006. Issue 2: Limitation on Assessment for the Year 2005-2006The assessee contended that the assessment for 2005-2006 was barred by limitation as per the Finance Act 2010, which required all pending assessments to be completed by 31/3/2011. The High Court remitted the matter back to the assessing officer to consider the limitation issue afresh and pass a speaking order addressing the assessee's contentions. Conclusion:The High Court ruled in favor of the State, setting aside the Tribunal's order and restoring the assessing authority's decision for all years except 2005-2006. The matter for 2005-2006 was remitted back to the assessing officer for reconsideration on the limitation issue.
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