LEGAL CORNER – October 2016 – CASE LAW-II :
FACTS OF THE CASE
The petitioner Cub PTY Limited (Formerly Known As foster’s Australia Ltd) had a 100% subsidiary – Dismin India Private Limited (Dismin). In turn, Dismin held 100% shares of FBG India Holdings Limited, Mauritius (FBG Mauritius), which, in turn, held 100% shares of Foster’s India Limited.
On 13.10.1997, a Brand License Agreement (BLA) was executed between the petitioner and Foster’s India Limited. By virtue of the BLA, Foster’s India Limited was licensed to use in India four of the trademarks owned by the petitioner.
In consideration of this license, the petitioner received royalty and was subjected to withholding tax in India.
On 04.08.2006, an agreement, known as ‘India sale purchase agreement’ (ISPA), was executed the petitioner, & SABMiller (A & A2) (hereinafter referred to as the said SABMiller). The said transaction was a composite agreement which provided for
- Sale of shares of FBG Mauritius by Dismin to SABMiller
- Sale of the following by the Petitioner to SABMiller
- 16 Trademarks, including the said four licensed trademarks;
- Foster’s Brand Intellectual Property; and
- Grant of exclusive and perpetual license in relation to Foster’s Brewing Intellectual Property confined to India, to SABMiller.
As a result of the ISPA, SABMiller became the owner of FBG Mauritius and thereby the owner of Foster’s India Limited. Furthermore, 16 trademarks, which were owned by the petitioner (which included the said four licensed trademarks), were sold/assigned to SABMiller.
On 22.09.2006, the petitioner moved an application before the Authority for Advance Ruling (AAR) under Section 245-Q of the Income Tax Act, 1961, seeking an advance ruling on whether any consideration received for transfer of brands and trademarks owned by a transferor located outside India was taxable in India because of its commercial use in India?
The AAR ruled that the situs of the Foster’s trademarks and brand was in India and any consideration received for their transfer to SAB Miller was taxable in India.
Aggrieved by the decision of the AAR, Foster’s Australia appealed before the Delhi High Court.
DELHI HIGH COURT’S DECISION
- By applying the common law principle of ‘Mobilia Sequuntur Personam’ (movables follow the law of the person), the Court concluded that the situs of the Foster’s brand was in Australia, where its owner, Foster’s Australia, was located.
- The Delhi High Court observed the legislature specifically introduced a deeming fiction (Explanation 5 to Section 9) to provide that a share of a foreign company, which derives its value substantially from assets located in India is a capital asset situated in India.
- The Delhi High Court noted that the legislature does not provide a similar deeming fiction for location of intangible capital assets such as intellectual property rights- brands, trademarks, logos, etc. It therefore concluded that, in the absence of a specific provision in the tax laws of India, the situs of the owner of an intangible asset would be the closest approximation of the situs of an intangible asset.
The writ petition is allowed. There shall be no order as to costs.
Date of Judgement/Order:25th July 2016
Court: Delhi High Court.