Taxation issues in holding of IP

with reference to Wealth Tax in

India

© 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:
1. 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?
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. As against income, wealth is more important to
be taxed.
2. 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.
3. Provides financial security.
4. 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

 Infringement & law suits,

 Proprietary technology
involved  Repair & maintenance of
 Patents research & development
equipment
 Goodwill
 Brand value &  Dividend payment for
trademark etc 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.