S. 195 : Deduction of tax at source-Non-resident-Purchase of trademark-Assessee acquired absolute ownership of trademark “Jamawar” from a non-resident for lump-sum consideration-Payment made for outright purchase of a capital asset and not for use of trademark – Consideration for transfer of ownership of trademark taxable, if at all, under the head “Capital gains” and not as “royalty” -Assessee not liable to deduct tax at source under section 195- Demand under sections 201(1) and 201(1A) deleted. [S. 5(2), 9(1)(vi), 201(1), 201(1A).]
The assessee acquired ownership rights in the trademark “Jamawar” from Al Houda Hotels & Tourism Co., Qatar, through Abu-Ghazaleh Intellectual Property (AGIP), for a lump-sum consideration of ₹65.50 lakh. The Assessing Officer treated the remittance as “royalty” under section 9(1)(vi) and held the assessee to be in default under section 201(1) for failure to deduct tax under section 195, raising a demand of ₹6,81,200 along with interest of ₹3,61,036 under section 201(1A). The CIT(A) confirmed the action of the Assessing Officer. Before the Tribunal, the assessee furnished the trademark assignment agreement, evidence of ownership, details of the rights transferred, valuation and commercial terms of the transaction and the tax residency certificate of the recipient, and contended that the payment was for outright acquisition of a capital asset and not for use of the trademark. The Tribunal held that the assessee had furnished complete documentary evidence establishing acquisition of the trademark and that the payment was made for transfer of ownership for a lump-sum consideration. Relying, inter alia, on the decisions in Saregama (I) Ltd. and GE India Technology Centre (P.) Ltd., the Tribunal held that a payment for outright purchase of a capital asset could not be treated as royalty and that the obligation under section 195 arises only when the remittance is chargeable to tax in India. Accordingly, the assessee could not be treated as an assessee-in-default and the demand raised under sections 201(1) and 201(1A) was deleted. The appeal was allowed. (AY. 2019-20) (ITA No. 2619/Mum/2026 dt. 18-08-2026)
LSL Holdings Private Limited v. ITO (Int. Tax)(Mum.)(Trib.) [www.itatonline.org]
[Coram : Hon’ble Shri Pawan Singh, JM and Hon’ble Shri Girish Agrawal, AM]