Taxation Issues In Holding Of Ip With Reference To Wealth Tax In India

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

By Ms. Vintee Mishra, Brain League IP Services

© 2009 Brain League IP Services Pvt. Ltd.

Introduction We discover here meaning of holding to establish that:  It tantamount to ownership from which not income, but wealth flows  The objective - To point out whether there is any base existing in India for wealth taxation of IP? 

Questions that come to our mind which are as follows: Difference between in income & wealth? 2. Importance of wealth as opposed just to income? 3. Reason to call IP holding as wealth & why wealth tax is referred here? 4. What is wealth & forms of wealth from IP? 5. What are IP assets & IP debts? 6. What are the provisions of Indian Wealth Tax Act, 1957? 7. Why wealth taxes be levied on IP wealth? 1.

Limitation   However, since, the Indian provisions are not existing & since my paper is drafted keeping in mind only the Indian aspect, therefore it was tough 2 frame how to tax the wealth, i.e. 2 devise methodology for the same.

What is wealth? 1.Total of all assets that people own. 2.Example – home, other real estate etc 3.From that, subtract the debts like, mortgage debt on your home 4.Difference is referred to as net worth, or just wealth.

Why Wealth? 1. 2.

3. 4.

As against income, wealth is more important to be taxed. Two people having the same income may not be as well off if one person has more wealth. If one person owns his home, for example, and the other person doesn’t, then he is better off. Provides financial security. Assets – A safety blanket.

IP Holding & Wealth Tax 1.Holding of any property is directly proportional to the right over it via ownership. 2.Income come from various sources & channels, thus, ownership is not required here. 3.Holding of intellectual property = ownership = wealth 4.Thus taxation of this wealth is discussed here.  

IP Assets & Debts   Assets

Debts 



  

Proprietary technology involved Patents Goodwill Brand value & trademark etc

Infringement & law suits,



Repair & maintenance of research & development equipment



Dividend payment for equity share investment in the company by subscribers etc

Ownership in IP through self creations or 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

Transfer, transmission, assignment, inheritance 1.Contractual arrangements like transfer, transmission or through operation of law, like death, succession through inheritance, assignment etc. 2.Deemed asset transfer 3. Arms length 4.The principle of inheritance = principle of natural law = applicable to intellectual, as to material property. 5.Absolute transfer of ownership, thus being worthy of wealth tax.

Licensing, Mortgaging 1.Revocable or irrevocable transfers  2.Money consideration is not an IP asset  3.Its not an asset just a flow of income for both the licensee or the licensor in form of license fee, royalty n benefits derived there from. 

Equity shares n partnership arrangement 1.Holders = owner of that % of shares in the company 2.Owners have right over the assets,equally liable for debts, thus wealth created here. 3.Similar goes with the partners of a partnership concern 4. Wealth shoulb be taxed in such cases.    

Securitisation IP securitisation actually creates an instrument to secure the property & proprietory interest over it. In India it is still far fetched, but does bring ownership with it.

Gifts As far as gifts are concerned , in normal tangible properties, the tax paid under Gift Tax Act before 1963 & 1972 are made liable for taxation in Wealth Tax Act also . Since tax is to be levied on immoveable & moveable properties, both, thus IP being a immoveable one can be considered for same.

Indian Wealth Tax Act, 1957 It does not include any intangible assets u/s 2(ea) . For ascertainment of location of assets & liabilities the intangible properties like easementry rights are considered Clearly no taxation of ip s discussed newhere

Indian Income Tax Act, 1961 Thus, if we want consideration for taxing of IP wealth, we can resort 2 the depreciation provisions under section 35A & 35AB in Income Tax Act, 1961, then therein, deduction has been allowed at on acquisition of IP properties & against this, IP property is not charged as “asset” within the purview of section 2(ea) of Wealth Tax Act, which is an exception to the fact that most of the assets that are given depreciated in Income Tax Act, 1961 are charged for Wealth Tax but not IP assets as exposal to Wealth Tax regime. Now this is a fallacy on the part of lawmakers to include a provision in one Act & not balancing thereof for the same in the other.

Conclusion A basis for developing a tax system is existing In haywire Thus, a mechanism specially for the intangible intellectual portion is strictly needed for fair distribution of wealth in the economy.