ITAT Mumbai Deletes TDS Demand Treating Outright Trademark Purchase as Royalty

LSL Holdings Private Limited Vs ITO (ITAT Mumbai)

Summary: The appeal concerned a foreign remittance made by LSL Holdings Private Limited for acquiring ownership of the “Jamawar” trademark from Al Houda Hotels and Tourism Co. in Qatar through TMP agents Abu-Ghazaleh Intellectual Property. The order heading identifies the appeal as ITA No. 2619/MUM/2026 for A.Y. 2019-20, while paragraph 1 refers to A.Y. 2020-21 in describing the impugned order; that source inconsistency is retained. Ground 4(a) states a remittance of Rs.65,60,000/-, whereas the assessment table records total payments of Rs.65,50,000; both source figures are retained. The transaction had been reported through Form No. 15CA/CB and was flagged for verification because tax had not been deducted from the foreign remittance. The Assessing Officer/ITO (TDS) issued notices under section 133(6) read with section 201 and called for details explaining the non-deduction under section 195. The assessee maintained that the payment was for an outright acquisition of a capital asset and not recurring consideration for use of a trademark, and therefore no income chargeable to tax in India arose to the recipient.

The AO treated the remittance as royalty under section 9(1)(vi), treated the assessee as an assessee in default and created a demand of Rs. 10,42,240, including tax and interest under section 201(1A). Before the CIT(A), the assessee relied on the trademark assignment documentation, ownership evidence, the nature of the rights transferred, valuation material and the recipient’s tax residency position. The CIT(A), however, upheld the AO’s action, observing that the evidence did not establish an absolute and perpetual transfer of ownership. Before the Tribunal, the assessee reiterated that the transaction transferred ownership of the trademark for a lump-sum consideration and relied on several judicial precedents. The Revenue supported the lower authorities and contended that complete rights had not been transferred and that the recipient’s business connection in India had not been disproved. The Tribunal found from the material on record that the assessee had furnished the trademark assignment agreement, evidence of ownership, details of the nature of the right transferred, valuation and the mode of commercial transaction, together with the tax residency certificate of the recipient, which identified the recipient as a tax resident of Jordan.