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
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
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.
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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Cummins Inc. is a foreign company, rendering services in respect of desktop/laptop software license and internet mail facilities to its Indian associated enterprises, i.e. CIL and CSSL which were paying IT charges provided by the taxpayer.
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