2016 (7) TMI 1094 - HC - Income Tax

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 that - 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 very nature, does not have any physical form. 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., intellectual property rights. Therefore, the well accepted principle of mobilia sequuntur personam would have to be followed. The situs of the owner of an intangible asset would be the closest approximation of the situs of an intangible asset. This is an internationally accepted rule, unless it is altered by local legislation. Since there is no such alteration in the Indian context, we would agree with the submissions made on behalf of the petitioner that the situs of the trademarks and intellectual 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 Foster s brand intellectual property is not taxable in India under the Income Tax Act, 1961. - Decided in favour of assessee.

Summary

Issues Involved:
1. Situs of intangible intellectual property rights.
2. Taxability of income from the transfer of trademarks and intellectual property under the Income Tax Act, 1961.
3. Applicability of the common law principle 'mobilia sequuntur personam'.
4. Validity of the AAR's ruling on the situs of intellectual property rights.

Issue-wise Detailed Analysis:

1. Situs of intangible intellectual property rights:
The primary issue in this case was determining the location (situs) of intangible intellectual property rights such as logos, brands, and trademarks. The petitioner argued that the situs of intangible assets should be determined by the location of the owner, based on the common law principle 'mobilia sequuntur personam'. This principle posits that the situs of an intangible asset follows the situs of its owner, as intangible assets do not have a physical presence. The petitioner, being an Australian company, contended that the intellectual property rights were located in Australia.

2. Taxability of income from the transfer of trademarks and intellectual property under the Income Tax Act, 1961:
The petitioner sought an advance ruling from the AAR on whether the income from transferring trademarks and intellectual property rights was taxable in India. The AAR ruled that the income accrued from the transfer of trademarks and Foster's Brand Intellectual Property was taxable in India, as these assets were deemed to be located in India. However, the income from the grant of a perpetual license in relation to Brewing Intellectual Property was not taxable in India.

3. Applicability of the common law principle 'mobilia sequuntur personam':
The petitioner argued that the principle 'mobilia sequuntur personam' should apply, meaning the situs of the intangible assets should be the same as the situs of the owner. The petitioner contended that since the owner was located in Australia, the intangible assets were also located in Australia. The AAR, however, rejected this principle, reasoning that the trademarks and intellectual property rights were used, nurtured, and registered in India, thus taking roots in India.

4. Validity of the AAR's ruling on the situs of intellectual property rights:
The court examined whether the AAR's ruling that the intellectual property rights were situated in India was valid. The court noted that the legislature had not provided a specific provision for the situs of intangible assets like trademarks and intellectual property rights. Therefore, the common law principle 'mobilia sequuntur personam' should apply. The court concluded that the situs of the trademarks and intellectual property rights would be the situs of the owner, which in this case was Australia. Consequently, the income from the transfer of these assets was not taxable in India.

Conclusion:
The court disagreed with the AAR's ruling and held that the income accruing to the petitioner from the transfer of trademarks and intellectual property rights was not taxable in India under the Income Tax Act, 1961. The writ petition was allowed, and the court ruled that there would be no order as to costs.