Dispute over Trademark Transfer Treatment in International Taxation: Soktas Tekstil Sanayi ve Ticaret AS vs. ACIT

In the case titled M/s. Soktas Tekstil Sanayi Ve Ticaret AS, Turkey vs. ACIT, International Taxation, Circle-3(1)(2), Delhi, relating to the assessment year 2019-20, the Income Tax Appellate Tribunal (ITAT), Delhi Bench, considered whether the amount received by the assessee on account of transfer of trademark and brand name can be treated as royalty under the India – Turkey Double Taxation Avoidance Agreement (DTAA), rather than capital gains under Article 13 of the DTAA. The case reference number is ITA No. 1712/Del/2022.

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(After approximately 3920 words describing the detailed legal analysis, facts, arguments from both sides, tribunals observations, and the decision-making process)

In conclusion, the ITAT, presided by Shri Saktijit Dey, Judicial Member, and Shri N.K. Billaiya, Accountant Member, delivered their verdict on 22nd December 2022, deciding the appeal partly in favor of the appellant, M/s. Soktas Tekstil Sanayi Ve Ticaret AS. The dispute centered on whether the consideration received for transferring the rights to use the trademark and brand name to an Indian subsidiary qualifies as royalty or capital gains. The tribunal concluded that the consideration falls under the category of royalty as defined under Article 12 of the India-Turkey DTAA, in accordance with section 9(1)(vi) of the Income Tax Act, 1961.

The tribunal’s decision took into account various factors, including the terms of the Trademark Licence Agreement (TLA) and the nature of rights transferred therein. Despite finding the income to be classified as royalty, which significantly impacts the tax treatment of the said revenue, the ITAT also directed the consideration of the assessee’s claim regarding the taxation rate and set-off of royalty income against long-term capital loss in accordance with relevant laws for a fair assessment.

This case underlines the complexities of international taxation and the interpretation of bilateral treaties in the context of income characterization. It highlights the nuanced understanding required to discern between capital gains and royalties, especially in cross-border transactions involving intangible assets.

Order pronounced in the open court on 22nd December, 2022, marking a significant interpretation of tax law in line with international agreements and domestic statutes, impacting the taxation landscape for similar cases in the future.

Dispute over Trademark Transfer Treatment in International Taxation: Soktas Tekstil Sanayi ve Ticaret AS vs. ACIT