Taxation issues in holding of IP with reference to Wealth Tax in India

8/14/2019 Taxation issues in holding of IP with reference to Wealth Tax in India

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Taxation issues in holding of IPwith reference to Wealth Tax in

India

ByByMs. Vintee Mishra,Ms. Vintee Mishra,

Brain League IP ServicesBrain League IP Services

2009 Brain League IP Services Pvt. Ltd.


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Introduction

We discover here meaning of holdingWe discover here meaning of holding

to establish that:to establish that:

It tantamount toIt tantamount to ownershipownership fromfromwhich not income, but wealth flowswhich not income, but wealth flows

TheThe objectiveobjective - To point out- To point out

whether there is any base existingwhether there is any base existingin India for wealth taxation of IP?in India for wealth taxation of IP?


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uest ons t at come toour mind which are as

follows:

1.1. Difference between in income & wealth?Difference between in income & wealth?

2.2. Importance of wealth as opposed just to income?Importance of wealth as opposed just to income?

3.3. Reason to call IP holding as wealth & why wealth tax isReason to call IP holding as wealth & why wealth tax isreferred here?referred here?

4.4. What is wealth & forms of wealth from IP?What is wealth & forms of wealth from IP?

5.5.

What are IP assets & IP debts?What are IP assets & IP debts?

6.6. What are the provisions of Indian Wealth Tax Act,What are the provisions of Indian Wealth Tax Act,1957?1957?

7. Why wealth taxes be levied on IP wealth?7. Why wealth taxes be levied on IP wealth?


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Limitation

However, since, the Indian provisionsHowever, since, the Indian provisions

are not existing & since my paper isare not existing & since my paper isdrafted keeping in mind only the Indiandrafted keeping in mind only the Indian

aspect, therefore it was tough 2 frameaspect, therefore it was tough 2 frame

how to tax the wealth, i.e. 2 devisehow to tax the wealth, i.e. 2 devise

methodology for the same.methodology for the same.


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What is wealth?

1.Total of all assets that people own.1.Total of all assets that people own.

2.Example home, other real estate etc2.Example home, other real estate etc

3.From that, subtract the debts like, mortgage3.From that, subtract the debts like, mortgage

debt on your homedebt on your home

4.Difference is referred to as net worth, or4.Difference is referred to as net worth, or

just wealth.just wealth.


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Why Wealth?

1.1. As against income, wealth is more important toAs against income, wealth is more important to

be taxed.be taxed.

2.2. Two people having the same income may not beTwo people having the same income may not beas well off if one person has more wealth. If oneas well off if one person has more wealth. If one

person owns his home, for example, and the person owns his home, for example, and the

other person doesnt, then he is better off.other person doesnt, then he is better off.

3.3. Provides financial security.Provides financial security.

4.4. Assets A safety blanket.Assets A safety blanket.


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IP Holding & Wealth Tax

1.Holding of any property is directly proportional to the1.Holding of any property is directly proportional to theright over it via ownership.right over it via ownership.

2.Income come from various sources & channels, thus,2.Income come from various sources & channels, thus,ownership is not required here.ownership is not required here.

3.Holding of intellectual property = ownership = wealth3.Holding of intellectual property = ownership = wealth

4.Thus taxation of this wealth is discussed here.4.Thus taxation of this wealth is discussed here.


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Ownership in IP through self

creations or contractsIf through Contracts:If through Contracts:

1. Assignment

2. Transfer

3. Transmission

4. Mortgage

5. Securitisation

6. License (Exclusive or Non-Exclusive)

7. Gift

8. Inheritance

9. Equity ownership

10. Partnership


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Transfer, transmission,

assignment, inheritance1.Contractual arrangements like transfer,1.Contractual arrangements like transfer,

transmission or through operation of law, liketransmission or through operation of law, likedeath, succession through inheritance, assignmentdeath, succession through inheritance, assignmentetc.etc.

2.Deemed asset transfer2.Deemed asset transfer

3. Arms length3. Arms length

4.The principle of inheritance = principle of natural4.The principle of inheritance = principle of naturallaw = applicable to intellectual, as to materiallaw = applicable to intellectual, as to material

property.property.5.Absolute transfer of ownership, thus being5.Absolute transfer of ownership, thus being

worthy of wealth tax.worthy of wealth tax.


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Licensing, Mortgaging

1.Revocable or irrevocable transfers1.Revocable or irrevocable transfers

2.Money consideration is2.Money consideration is not an IPnot an IP assetasset

3.Its not an asset just a flow of income for both3.Its not an asset just a flow of income for both

the licensee or the licensor in form of licensethe licensee or the licensor in form of license

fee, royalty n benefits derived there from.fee, royalty n benefits derived there from.

t


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qu ty s ares npartnership

arrangement1.Holders = owner of that % of shares in the1.Holders = owner of that % of shares in the

companycompany

2.Owners have right over the assets,equally liable2.Owners have right over the assets,equally liablefor debts, thusfor debts, thus wealth createdwealth created here.here.

3.Similar goes with the partners of a partnership3.Similar goes with the partners of a partnershipconcernconcern

4. Wealth4. Wealth

shoulb be taxedshoulb be taxed in such cases.in such cases.


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Securitisation

IP securitisation actually creates anIP securitisation actually creates an

instrument to secure the property &instrument to secure the property &proprietory interest over it. Inproprietory interest over it. In IndiaIndia

it is still far fetched, but doesit is still far fetched, but does

bring ownership with it.bring ownership with it.


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Gifts

As far as gifts are concerned , in normal tangibleAs far as gifts are concerned , in normal tangible

properties, the tax paid under Gift Tax Act beforeproperties, the tax paid under Gift Tax Act before

1963 & 1972 are made liable for taxation in1963 & 1972 are made liable for taxation in

Wealth Tax Act also .Wealth Tax Act also .

Since tax is to be levied on immoveable &Since tax is to be levied on immoveable &

moveable properties, both, thus IP being amoveable properties, both, thus IP being a

immoveable one can be considered for same.immoveable one can be considered for same.


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Indian Wealth Tax Act, 1957

It does not include any intangible assets u/s 2(ea) .It does not include any intangible assets u/s 2(ea) .

For ascertainment of location of assets & liabilities the intangibleFor ascertainment of location of assets & liabilities the intangible

properties like easementry rights are consideredproperties like easementry rights are considered

Clearly no taxation of ip s discussed newhereClearly no taxation of ip s discussed newhere


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Indian Income Tax Act, 1961

Thus, if we want consideration for taxing of IP wealth, we canThus, if we want consideration for taxing of IP wealth, we canresort 2 the depreciation provisions under section 35A & 35ABresort 2 the depreciation provisions under section 35A & 35ABin Income Tax Act, 1961, then therein, deduction has beenin Income Tax Act, 1961, then therein, deduction has beenallowed at on acquisition of IP properties & against this, IPallowed at on acquisition of IP properties & against this, IP

property is not charged as asset within the purview of sectionproperty is not charged as asset within the purview of section2(ea) of Wealth Tax Act, which is an exception to the fact that2(ea) of Wealth Tax Act, which is an exception to the fact thatmost of the assets that are given depreciated in Income Tax Act,most of the assets that are given depreciated in Income Tax Act,1961 are charged for Wealth Tax but not IP assets as exposal to1961 are charged for Wealth Tax but not IP assets as exposal toWealth Tax regime. Now this is a fallacy on the part ofWealth Tax regime. Now this is a fallacy on the part of

lawmakers to include a provision in one Act & not balancinglawmakers to include a provision in one Act & not balancingthereof for the same in the other.thereof for the same in the other.


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Conclusion

A basis for developing a tax systemA basis for developing a tax system

is existingis existing

In haywireIn haywireThus, a mechanism specially for theThus, a mechanism specially for the

intangible intellectual portion isintangible intellectual portion is

strictly needed for fair distribution ofstrictly needed for fair distribution ofwealth in the economy.wealth in the economy.

Documents

Taxation issues in holding of IP with reference to Wealth Tax in India