Recently the Delhi High Court's in the case of CUB Pty Ltd ('the assessee') granted relief to multinationals licensing and registering their intellectual property in India and held that the situs of an intangible asset like intellectual property rights ('IPRs'), shall be the situs of the owner of such asset.
Facts of the case
The assessee is a company incorporated under the tax laws of Australia with many direct and indirect subsidiaries in India. The assessee had entered into a brand license agreement with one of the indirect subsidiaries whereby the indirect subsidiary was licensed to use in India four of the trademarks owned by the assessee.
During the relevant assessment year, the assessee transferred some of its trademarks (including four trademarks licensed to India) and IPRs to a third party outside India. After the transfer the assessee sought an advance ruling from the AAR on whether receipts arising from the above transfer will be taxable in India. The AAR held that the said transfer was taxable in India as the trademarks were used in India, matured in India and some of them were registered in India. Aggrieved by the decision of the AAR, the assessee filed an appeal before the Delhi High Court ('the Court').
In terms of Section 9(1)(i) of the Income Tax Act, 1961 ('the Act'), all income accruing or arising, directly or indirectly, inter alia, through the transfer of a capital asset situated in India, shall be deemed to have accrued or arisen in India. The question that arises for consideration in the writ petition pertains to the situs of the IPRs such as logos, brands, trademarks, which are capital assets, but intangible in nature.
The Court in this decision has stated that an intangible capital asset, by its very nature, does not have any physical form. Therefore, it does not exist at any particular location. Further, the legislature could have, through a deeming fiction, provided for the location of an intangible capital asset, such as IPRs, but, it has not done so insofar as India is concerned. Accordingly, the Court has accepted the internationally accepted principle of 'mobilia sequuntur personam' which provides that the personal property held by a person is governed by the same laws that govern that person and held the situs of the intangible asset to be outside India.
Nangia's take
The Act provides an expanded source rule in case of shares situated outside India, and even in case of fees for technical services, even where these services are performed outside India. As pointed out by the Court, there is no specific provision in Indian tax laws with regards to situs/ location of IPRs, hence such intangibles cannot be taxed in India. Accordingly, in the absence of any specific guidance in the legislature, applying the common practices and principle the court ruled in favor of the assessee.
Source: WP(C) 6902/2008
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