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TMI Blog2016 (7) TMI 1094X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight, title and interest in and to the trademarks and the Foster's Brand Intellectual Property is taxable in India under the Income Tax Act, 1961. The AAR arrived at its said ruling after holding that the said intellectual property rights of the petitioner, which were the subject matter of assignment/transfer, were situate in India. The plea of the petitioner is that in the case 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 evolved, whereby a fiction is created to the effect that the situs of an intangible capital asset would be the situs of the owner of that asset. In this backdrop, it has been contended that since the owner of the intangible assets in question was located in Australia, the petitioner, being an Australian compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id 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, an agreement, known as India sale purchase agreement (ISPA), was executed in Melbourne between Dismin, the petitioner, Foster's Group Limited, SABMiller (A A2) (hereinafter referred to as the said SABMiller) and SABMiller Africa Asia B.V. The said transaction was a composite agreement which provided for:- (i) Sale of shares of FBG Mauritius by Dismin to SABMiller (A A2); (ii) Sale of the following by the Petitioner to SABMiller (A A2)/its nominee: (a) 16 Trademarks, including 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o move the High Court. And, that is how the present petition has been filed challenging the ruling given by the AAR. ARGUMENTS: 10. On behalf of the petitioner, Mr Ganesh, the learned senior advocate, contended that the origin of the Forster s mark was unquestionably in Australia. The petitioner was the owner 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 proprietary rights in Foster s India Limited. It was contended that as the trademarks were originally adopted by the petitioner in Australia, admittedly the intellectual property rights therein vested in the petitioner and the situs of those rights was clearly Australia. He submitted that by the grant of the licence under the BLA, since there was no transfer of any proprietary right, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 submitted that the principle behind this doctrine was that intangibles are subject to the immediate control of the owner and since the intangibles themselves do not have any real situs, the domicile of the owner is the nearest approximation to their location. Reliance was placed on the decision of the Court of Appeal of California, Third Appellate District in the case of Rainier Brewing Company v. CHAS. J. McColgan: 94 Cal. App. 2d 118;1949 Cal. App. LEXIS 1499, wherein it was observed as under:- It is 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... continues to operate and be applicable in the absence of any contrary statutory provisions especially providing for the situs of intangibles. It was further submitted that it is within the 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); (iii) David M. Howell v. The Village of Cassopolis: 35 Mich. 471 (Pg 2); (iv) Bradley et al. v. Bauder: 36 Ohio St. 28 (Pg 5); (v) In re Truscon Steel Co.: 246 Mich. 174 (Pg 2); and (vi) Fordhman Law Review: Vol. 4 Issue 2 Article 9 (page 355) 13. It was also contended by Mr Ganesh that the registration of a trademark does not entail creation of a trademark nor does it have any impact on its location. Reliance was placed on the Supreme Court decision in Commissioner of Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 agree with Mr Ganesh on this aspect of the matter. At this point, it may be stated that Mr Ganesh had raised an argument that if the grant of a licence shifted the situs of the trademarks from Australia to India, the cancellation of the very same licence would, in any event, entail shifting back of the situs of the trademark to Australia. His argument was that if this were to be accepted, then clearly at the time when the deed of assignment was made, the situs of the trademark was firmly located 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 respect of income from intangibles, which is different from capital gains f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obilia sequuntur personam would not apply 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 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 5 has been added to Section 9(1)(i) of the Income Tax Act, 1961 by virtue of the Finance Act, 2012 with retrospective effect from 01.04.1962. The said Explanation 5 reads as under:- Explanation 5. For the remo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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