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Indian Tax Not Due On Foster's IP Transfer, Court Rules

by Mary Swire,, Hong Kong

04 August 2016

In a landmark ruling delivered on July 25, 2016, India's Delhi High Court has ruled that income arising from the transfer of intangible assets located outside India is outside the purview of the Income Tax Act.

The court's decision was handed down in response to a writ petition filed by Cub Pty Limited (formerly known as Foster's Australia Limited) challenging an advance ruling from the Authority for Advance Ruling, which held that, since the intellectual property rights in question were located in India, any income arising from the transfer of such rights is deemed to be taxable in India. The company argued before the court that since the owner of the intangible assets in question was located in Australia, the intangible assets were also located in Australia. Therefore, the transfer of those assets would not result in any income deemed to have accrued in India and would not be liable to tax in India, it argued.

The crux of the submission made by the company before the court was that the situs of intangible capital assets has to be determined by the situs of the owner, given that intangible assets 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. The company relied on the common law principle mobilia sequuntur personam in support of its contention.

Ruling in favor of the company, the court said: "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 India Sale Purchase Agreement, would not be in India."

The court explained: "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. There is no such provision with regard to intangible assets, such as trademarks, brands, logos, that is, intellectual property rights. Therefore, the well accepted principle of mobilia sequuntur personam would have to be followed."

TAGS: court | tax | business | trademarks | India | interest | Intellectual Property | law | intellectual property | Australia | tax authority | agreements | legislation | tax planning | transfer pricing | trade | Tax

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