Case details:
Soktas Tekstil Sanayi Ve Ticaret AS, the assessee is a non-resident corporate, incorporated under laws of Turkey. It is engaged in designing and producing cotton & cotton fabric, exported across the world. The Assessee had a wholly owned subsidiary Soktas India Pvt.
In the period March 2019, the assessee had entered into Trademark Licence Agreement with Indian subsidiary, transferring exclusive, irrevocable & perpetual rights to use the identified trademarks & brand names, in defined geographical territories.
Subsequently in the same period, the assessee sold/ transfered all equity shares of Indian subsidiary to Grasim Premium Fabric Private Ltd.
The assessee under view that consideration received for transferring the right to use the trademarks and brand-names is a capital gain, offered in the return filed, the adjusted sale consideration (after making a suo motu transfer pricing adjustment) as capital gain and after taking benefit of provisions under Article 13 of India - Turkey DTAA, assessee claimed exemption of the capital gain from taxation in India.
Application of provisions and earlier judgements: Under Section 2(47) of Income tax Act, the expression 'transfer' wrt capital asset is defined as sale, exchange or relinquishment of the asset or the extinguishment of any rights therein.
Article 13 of the Tax Treaty, which provides for taxation of capital gains, speaks of alienation of any property.
In the present appeal, the assessee has permitted the licensee, to use the brand name/trademark in the defined geographical territory as per T&C set out in the TLA . Trademark Licence Agreement has specifications for manner of utilization of trademark/brand name and licensee is bound by such conditions/restrictions. The assessee HAS NOT sold, exchanged or relinquished or extinguished its rights, wrt trademarks/brand names, but has simply permitted the licensee the right to use of brand name and trademark in a particular geographical territory.
TLA has clauses permitting the assessee to terminate the agreement in case of breach of conditions, implying that it is a case of licence conferring right to use the trademark/brand name and not sale/ transfer to licensee.
Judgement: On consideration of facts and materials of the case and applying the rationales laid down in various decisions, the tribunal held that the consideration received by the assessee for the right to use of brand name/trademark under TLA essentially is in the nature of royalties as defined under section 9(1)(VI) read with Article 12(3) of 'India - Turkey tax treaty'.