Owner’s situs is ‘intangible asset’ situs: DHC

In an important ruling, the Delhi High Court ruled that the location (situs) of the owner of an intangible asset would be the location of an intangible asset in the absence of any specific provision in the Income Tax Act, 1961 (“Act”) to that effect.

After reviewing Explanation 5 to Section 9(1)(i) of the Act, a Division Bench of the Court observed, “Thus, the legislature, where it wanted to specifically provide for a particular situation, as in the case of shares, where the share derives, directly or indirectly, its value substantially from assets located in India, it did so. There is no such provision with regard to intangible assets, such as trademarks, brands, logos, i.e., intellectual property rights. Therefore, the well accepted principle of ‘mobilia sequuntur personam’ would have to be followed. The situs of the owner of an intangible asset would be the closest approximation of the situs of an intangible asset.”

The Court said that this is an internationally accepted rule, unless it is altered by local legislation, and hence overruled Authority for Advance Ruling’s decision that the income accruing to the petitioner from the transfer of right, title or interest in and to the trademarks in Foster’s brand intellectual property is taxable in India.

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