IMPORTANT POINT
The court affirmed that the acquisition of intellectual property registered in India is subject to TDS under the Income Tax Act, emphasizing the relevance of territoriality in tax obligations.

ORDER :

G.S. Kulkarni, J.

1. This petition filed under Article 226 of the Constitution of India assails an order dated 23 August, 2024 passed by the Deputy Commissioner of Income-tax under section 201(1) raising a demand and interest under section 201(1A) of the Income-tax Act, 1961 (for short “the Act”) against the petitioner of an amount of Rs.962,75,14,624/-. The demand in question is inter alia on the basis that the petitioner did not comply with the provisions of Section 195 of the Act to deduct tax at source (TDS) in relation to the acquisition/purchase of a Trade Mark registered in India, namely, of a Health Food Drink of the brand Horlicks (“India HFD IP”), by the petitioner from the foreign/non-resident group entities of GlaxoSmithKline Plc. who assigned such rights in favour of the petitioner under an Assignment Deed dated 1 April, 2020. The petitioner paid the foreign assignors an amount of Rs.3045.14 crores (EUR 375.6 million), which was remitted by the petitioner against the invoice raised by Horlicks Ltd., a British Company(HUK).

2. On 7 October, 2022, a notice under section 133(6) of the Act was issued by the Deputy Commissioner of Income-tax/Assessing Officer to the petitioner calling upon the petitioner to furnish a detailed note of the nature of transaction qua the foreign remittance. Between the period October, 2022 and January, 2023, multiple notices under section 133(6) were issued seeking details of the transactions. Such notices were duly responded by the petitioner and also at times, seeking extension of time.

3. It is the case of the petitioner that on 28 February, 2023, a notice under section 201 of the Act was issued to the petitioner inter alia recording that in connection with the proceedings under section 201 of the Act for the assessment year in question (AY 2021-22) the petitioner should submit details, namely, the valuation report from Ernest & Young (E&Y) about the valuation of 375 million Euro for FY 2020-21 on the trademark of Horlicks brand “pertaining to India”. The petitioner was also called upon to show cause as to why such trademark “Horlicks” should not be considered as a capital asset situated in India, basis the above valuation report of E&Y at the time of sale. The petitioner has stated that thereafter various notices were issued under section 201 read with Section 133(6) of the Act, which were duly replied by the petitioner.

4. The petitioner next contended that on 11 March, 2024 a detailed show cause notice under section 201 of the Act was issued to the petitioner calling upon the petitioner to show cause as to why consideration paid for assignment of India specific Intellectual Property Rights, be not held to be in lieu of acquisition of assets situated in India. The petitioner in response to the said notice, addressed letter dated 15 March, 2024 to the Deputy Commissioner inter alia requesting the Deputy Commissioner to grant adjournment for four weeks from 15 March, 2024, as the petitioner was occupied with last quarter advance tax compliance and it needed time to file a response to the detailed show cause notice issued by the department. The petitioner recorded that the petitioner may require time for seeking/collating information from external stakeholders so as to respond to the show cause notice, hence extension of time will facilitate the petitioner to address all the queries effectively. Quite significantly, it was stated by the petitioner that the proceeding is “not time barring”, while making a request for extension of time. The following contents in that regard are required to be noted, which reads thus :

“Further, as the proceeding is not time barring, we request your support for extension of time. We once again reiterate our commitment to provide all the information available to us as the taxpayer and are committed to being a compliant assessee, as always.

We apologize for any inconvenience caused to your goodself in this regard. We trust you will accede to our request and