| | | | | AAR’s decision in Pfizer Corporation Case that the |
| Introduction | | | | assets were restored to him in Australia because of |
| Business today has no boundaries, no limitations. The | | | | the termination of the BL Agreement due to the S & P |
| word has evolved drastically from local Barter system | | | | Agreement. But it was seen from the facts and |
| to the current global market. Also the laws governing | | | | circumstances that Pfizer ruling was not applicable |
| them have changed a lot. When East India Company | | | | because BL Agreement was terminated only after the |
| first came to India in 17th century they would have | | | | sale and not before. According to Section 9(1)(i) of the |
| never thought about the various laws which are | | | | Income-tax Act, 1961, the following incomes shall be |
| applicable for doing business in this country now. | | | | deemed to accrue or arise in India : (i) all income |
| The Indian economy is at the stage of volatile change. | | | | accruing or arising, whether directly or indirectly, through |
| Due to Government’s foreign policy and huge Indian | | | | or from any business connection in India, or through or |
| market, there has been a considerable influx of foreign | | | | from any property in India, or from any asset or |
| companies into India. As a pursuant there are plenty of | | | | source of income in India or through the transfer of |
| transactions, mergers and acquisitions of worth billions | | | | capital asset situate in India. If the transfer is of capital |
| taking place. Government benefits from these | | | | asset situated in India, then it is immaterial whether the |
| transactions as the parties have to pay taxes | | | | transaction takes place outside India or it is governed |
| because they occur in India and involve Indian | | | | by the provisions of DTAA, tax has to be paid by the |
| companies and their assets which are situated here. | | | | non-resident by virtue of section 9(1)(i) of the Act. So, |
| But the real dispute occurs when the transaction is | | | | the crucial question is regarding the situs of assets. |
| between two parties which are alien and also it takes | | | | Foster’s “F” logo was registered in India in |
| place outside India. This was the main issue in the | | | | 1993 and after the BL Agreement in 1997 the said |
| recent Foster’s SAB Miller deal. UK-based | | | | intellectual property was being put to use for almost a |
| SABMiller had acquired Foster's India, belonging to | | | | decade. The registered trademark along with other |
| global drinks giant Foster's Australia Ltd, for 120 million | | | | features of the Foster’s brand like advertising, |
| dollars in 2006. The tangible and intangible assets | | | | marketing, distributing, quality control, etc had created a |
| (brand and trademarks) of Foster's India were taken | | | | appreciable goodwill in the market here and such |
| over by the UK Company. The question which was | | | | goodwill has been nurtured by the coordinated efforts |
| raised by Foster’s Australia Ltd before Authority of | | | | of both Foster’s Australia and Foster’s India. |
| Advance Ruling (AAR) was whether the income | | | | Thus, the IP had a tangible presence in India at the time |
| arising to it from the transfer of its right, title and | | | | of transfer in 2006. There is also no legal principle |
| interest in and to the trademarks and Foster's brand | | | | supporting that situs of intangible assets is only in the |
| intellectual property is taxable in India? | | | | residence of the owner. There is sufficient evidence |
| Main Text | | | | that situs can exist in more than one country. There |
| The applicant (before AAR) was foster’s Australia | | | | are also decided cases in U.S.A and U.K which |
| Ltd which is a wholly owned subsidiary of Foster’s | | | | supports the principle that goodwill is territorial and |
| Group Ltd. It is non-resident foreign company | | | | exists at the place of business. The Supreme Court of |
| incorporated in Australia in the name of Carlton and | | | | South Carolina in Geoffrey Inc. V South Carolina Tax |
| United Breweries Ltd. It is a major beer company | | | | Commission said “intangibles may acquire a situs |
| which brews, process, packages, markets, promotes | | | | for taxation other than at the domicile of the owner if |
| and sells beer products globally. It also owns various | | | | they have become integral parts of some local |
| brands including Foster’s brand in relation to beer | | | | business”. Same view was taken by Court of |
| products which comprises of trademarks, logos, | | | | Appeals of New Mexico in the case of Kmart |
| devices, brand guidelines, advertising material, | | | | Properties Inc. vs. Taxation and Revenue Department |
| technology and know-how including recipes and | | | | where it was held “Being intangible property, a |
| brewing specifications. It entered into a Brand License | | | | trademark can only have “physical presence |
| Agreement (BL Agreement) with Foster’s India Ltd | | | | beyond the state of its creation, in those locales where |
| on 13/10/97. By virtue of this agreement Foster’s | | | | it is put to tangible use, it logically follows that those |
| India got an exclusive licence to brew, package, label, | | | | marks are physically present during their period of |
| and sell Foster’s Lager (beer) and an exclusive | | | | use. Otherwise, trademarks could never be physically |
| right of user of the trade-marks within the territory of | | | | present anywhere other than where the tax payer |
| India. Foster’s India was also authorized to use the | | | | designates for its own tax purposes”. In Star |
| Mark (Foster’s) as part of its corporate name. On | | | | Industrial Co.Ltd. vs. Yap Kwee Kor Trading, the Privy |
| 04/08/2006, Foster’s Australia Ltd executed a Sale | | | | Council speaking through Lord Diplock observed thus |
| and Purchase Agreement (S &P Agreement) with | | | | –“Goodwill, as the subject of proprietary rights, is |
| SAB Miller, UK, in Australia, for the transfer of shares | | | | incapable of subsisting by itself. It has no independent |
| and other intangible assets in the nature of intellectual | | | | existence apart from the business to which it is |
| property. As a sequel to this agreement a Deed of | | | | attached. It is local in character and divisible; if the |
| Assignment was entered between Foster’s | | | | business is carried on in several countries a separate |
| Australia Ltd and SKOL Breweries Ltd, an Indian | | | | goodwill attaches to it in each.” |
| company nominated by SAB Miller as transferee. | | | | The contention was also raised about quantification of |
| Under this agreement Dismin Investment Pvt. Ltd., | | | | the consideration of the transaction which only |
| agreed to sell shares of its subsidiary company FBG | | | | attributes to India should be taxed. But it can be seen |
| Holdings Ltd. and also Foster’s Australia Ltd. agreed | | | | that the Foster’s Group owns Foster’s India |
| to sell (a) trade marks (b) Foster’s Brand Intellectual | | | | through a cobweb of its own subsidiaries. So, the |
| Property and (c) the grant of exclusive and perpetual | | | | whole business in India is being transferred and the |
| licence in relation to Foster’s Brewing Intellectual | | | | whole consideration is liable to be taxed in India. |
| Property, confined to the territory of India. It may be | | | | |
| noted that both the companies i.e. Dismin and FBG | | | | Conclusion |
| Holdings are Foster’s Group Company and FBG | | | | This deal shows the intention of the tax authorities |
| Holdings (Mauritian company) held 77.2% shares in | | | | towards the various companies who try to evade |
| Foster’s India. However, taxability of income arising | | | | taxes by taking help of the loopholes in the Act. The |
| from sale of shares by Dismin is not an issue here. | | | | development is a shot in the arm for Indian tax |
| The major question was, whether Foster’s | | | | authorities bent on taxing all recent cross-border |
| Australia Ltd. was liable to pay taxes in India by virtue | | | | acquisitions of Indian companies. The income-tax |
| of sale of its intangible assets in accordance with | | | | department feels that transactions between two |
| Income-Tax Act 1961 (the Act) and the Double | | | | offshore entities can be taxed, as long as the business |
| Taxation Avoidance Agreement (DTAA) between | | | | pertains to the Indian market. Based on this argument, |
| India and Australia. | | | | the department has raised tax demands on the |
| To answer this question it was relevant to find that the | | | | Vodafone-Hutch deal, and more recently on |
| trademarks, Foster’s Brand and Brewing IP rights, | | | | participatory notes (PN) trades between FIIs and |
| which were conveyed to SKOL, can be said to be | | | | foreign entities, with no direct access to the Indian |
| capital assets situated in India and the consideration | | | | stock market. The tax department’s stance on the |
| received in connection therewith is liable to be treated | | | | Foster’s deal is also based on a similar logic. |
| as income that accrues or arises in India. Foster’s | | | | Foreign companies adopt colourable device in routing |
| Australia contended that situs of intangible assets is | | | | the deal through a media of various companies. This |
| located outside India as these assets have no | | | | deal was between two different entities which are |
| geographical location and no situs except from the | | | | located abroad but it mainly included Indian company |
| domicile of the owner. It also argued based on the | | | | and was a stapled transaction. |