By Ashok Dhere, Jagdish D. Shah, Chartered Accountants
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11 Fosters Australia Ltd., In re
170 Taxman 341 (AAR)
S. 9(1)(i) of the Act
India-Australia Treaty
A.Y. : 2007-08. Dated : 9-5-2008
Issues :
l
Trademark/Brand registered in India and nurtured and used in business in India
represents property situated in India. Capital gain arising on transfer of
such property is taxable in India in the hands of non-resident transferor,
irrespective of the situs of the execution of contract and irrespective of
situs of delivery of such IPR.
l
Gain arising on transfer of technology and intellectual property in the form
of technology manuals, brewing IP, process, etc. vesting in NR transferor
abroad and delivered outside India is not taxable in India.
l
The assessee can rely on independent valuation report for determination of
that part of the composite consideration which is taxable in India.
Facts :
The applicant Australian Company (herein called FAL or Ausco)
was engaged in the business of brewing, processing, marketing and promoting and
selling beer products in Australia and abroad. Ausco owned various brands
including Foster’s brand and related logo which were in use in the marketing of
products. The technology and know-how, including recipe and brewing
specifications, were also owned by Ausco.
Ausco had registered its brand ‘Foster’ in India in the year
1993. Later on, some further brands were also registered in India.
Somewhere in 1997, Ausco entered into Brand Licence Agreement
with Foster India (ICO), a Group Company in India. Entire share capital of ICO
was held by companies in Mauritius which in turn were held by another group
company in Mauritius called Dismin. ICO was given an exclusive right to use
various brands of Ausco and was also given access to brewing technology and
know-how. For such licence, ICO was paying royalty after deducting suitable tax
at source.
On 4-8-2006, Ausco and Dismin entered into Sale & Purchase
(S&P) Agreement with SAB Miller Ltd., a UK Company, (herein SAB). The S&P was a
composite agreement for sale of Mauritius companies which held shares of ICO by
Dismin and sale by Ausco of trademarks, brand and assignment of contract for
grant of exclusive and perpetual licence in respect of brewing technology for
the territory of India. For all these (including for shares of ICO) items, SAB
was required to pay a sum of US $ 120 M.
In terms of the S&P Agreement, SAB UK nominated SKOL India,
subsidiary of SAB Group as the entity which purchased all the assets which were
subject matter of the S&P Agreement. The S&P Agreement was actually implemented
by execution of certain definitive agreements which included transfer of shares
by Dismin of its holding in the other Mauritius companies which held shares of
ICO. Ausco executed assignment agreement in September 2006 for transfer of
brands and trademark for use by SKOL in the territory of India. It also gave
perpetual licence for use of brewing intellectual property by delivery of
brewing manual and other related literature also for use within territory of
India. The assignment agreement was executed in Australia. It was claimed that
all deliverables in terms of the agreement were given to SKOL at Australia. A
nominal consideration of US $ 100 was stated to be the consideration of
assignment.
The applicant Ausco filed application before the AAR, seeking
advance ruling on the question whether receipt arising to it from the transfer
of its right, title and interest in and to the trademarks, brand IP and for
grant of exclusive perpetual licence of brewing technology was taxable in India.
The other related question raised before the AAR was that if the amount was held
taxable, whether the applicant was required to pay tax on the gain computed,
based on consideration as per independent valuation obtained by the applicant.
At the outset, the applicant’s counsel made it clear that
taxability of income arising from transfer of shares effected by Dismin (Mauco)
was not an issue before AAR.
On the aspect of non-taxability of gain arising from transfer
of brand and technology IPR, the applicant contended that these intangibles were
located at the domicile of the owner (i.e., at Australia). The applicant
relied on the terms of original brand licence agreement of 1997 signed by it
with ICO to contend that soon upon contemplated change of ICO’s ownership, the
licence agreement stood terminated. As a consequence, the assets reverted back
and were not situated in India as on the date on which
the same were transferred to SKOL. The applicant also contended that since
assets situated outside India stood transferred outside India, no part of
capital gains was chargeable to tax in India. By relying on decision of the
Supreme Court in the case of CIT v. Finlay Mills Ltd., (AIR 1951 SC 464),
it was the claim of the applicant that registration of trademark was merely for
protection of IPR and did not impact the situs or location of IPR. The assessee
also relied on AAR ruling in the case of Pfizer Corporation, in. Re
(2004) (271 ITR 101). In this case, Pfizer Corporation had granted access and
licence of technology use and trademark to another group company in India. The
licence agreement was terminated by paying compensation to ICO. After such
termination, Pfizer Corporation had transferred technology dossier to a Danish
company. The AAR had in that case accepted Pfizer’s contention that this
represented transfer of asset located outside India.
