How crucial marks/logos/designs (collectively hereinafter referred to as "marks") are for an enterprise is a well acknowledged fact. In the current dynamic business scenario an entity's identity and existence are dependent on how well it is able to establish itself in the minds of the people. To achieve this objective, organisations constantly undertake extensive advertisements and promotional activities. With businesses being carried on across the borders, multinationals join hands to increase their global presence.
Taxation in India, being based on "source based taxation" principles, revenue authorities perceive every cross border transaction with suspicion and attempt to levy tax on the premise that the source (accrual) of a payment is based in India. Accordingly, revenue has always regarded the payment for use of marks as Royalty, both in terms of section 9 of the Income-tax Act, 1961 (hereinafter referred to as "Act") and under the provisions of the Double Taxation Avoidance Agreement ('DTAA').
In this article, an endeavour has been made to touch upon the sensitive issue of taxability of consideration received by the foreign companies with respect to use of their marks in India.