Journal of Intellectual Property Rights

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Need for Invention in the Taxation Regime of Patents


Affiliations
1 Saikrishna & Associates, Delhi – 110 003,, India
2 J Sagar Associates, Gurugram — 122 009, Haryana, India
3 University School of Law and Legal Studies, GGSIP University, Dwarka, Delhi — 110 078, India
 

The patent system was introduced with the motto of ensuring furtherance of science and technology for the benefit of society. When compared with other Intellectual Property (IP), patent has a different dimension that is of technology transfer, and the same has been playing a vital role in domestic and international trade and commerce. Every event of commercialising patent attracts economic returns to the patentee as well as the country where it is registered, retained and commercialised. Thus, merely having inventor friendly ecosystem without foreseeing to retain the registered patents in India for commercialisation to the fullest extent will not favour the developmental goals of the nation. In this context, the paper examines the Indian Taxation regime for the taxing events of patents, both under direct and indirect taxes, and their conduciveness for the effective promotion of creation, retention and commercialisation of patents in India. This paper also compares the taxation of patents in other jurisdictions with India and recommends a favourable tax regime for patents which would incentivise innovation and consequent commercialisation leading to the advancement of the nation

Keywords

Patent, Economic Rights, Commercial Exploitation, Taxation, Royalty, Income, Income Tax, GST, Patent Box.
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  • Patents (Amendment) Act, 2005 through which Section 5 was omitted.

  • Section 83 of the Patents Act.

  • Section 2(j) of the Patents Act.

  • Section 7 of the Patents Act.

  • Section 53 of the Patents Act.

  • Section 48 of the Patents Act.

  • Patent rights are territorial in nature.

  • Patents Act mandates to go for registration for protection unlike in copyright and trademark.

  • Section 70 of the Patents Act.

  • Section 69 of the Patents Act.

  • Section 20 and Section 7(2) of the Patents Act.

  • Section 2(1)(f) of the Patents Act.

  • Insitu form Technical Services v Inliner UK Plc (1992) RPC 83, p 105.

  • Section 140 of the Patents Act.

  • Singhal S, Agrawal A & Sakthivel M, Commercializing Copyright–A Taxing Event for the Copyright Owner?, Journal of Intellectual Property Rights, 27 (4) (2022) 290.

  • Singhal S, Agrawal A & Sakthivel M, Taxing the Trade of the Trade Mark, Journal of Intellectual Property Rights, 27 (5) (2022) 367.

  • Section 2(24) of the IT Act.

  • Section 4 of the IT Act.

  • Section 2(31) of the IT Act.

  • Section 5 of the IT Act.

  • Section 6 of the IT Act.

  • Section 6 of the IT Act. For instance: A company is a resident in India under the IT Act in a FY when either (a) it is an 'Indian company'; or (b) its 'place of effective management'. The phrase' place of effective management" means 'a place where key management and commercial decisions that are necessary for the conduct of business of an entity as a whole are, in substance made'.

  • Section 5(1) of the IT Act.

  • Section 5(2) of the IT Act.

  • Section 2(45) of the IT Act.

  • CIT v Manmohan Das [1966] 59 ITR 699 (SC).

  • Section 2(13) of the IT Act.

  • Section 37(1) of the IT Act.

  • Section 43(6)(c) of the IT Act

  • Section 2(11) of the IT Act. It means a group of assets falling within a class of assets comprising either (a) tangible assets, or (b) intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, not being goodwill of a business or profession, in respect of which the same percentage of depreciation is prescribed.

  • Section 32(1)(ii) of the IT Act read with Rule 5(1) of the Income Tax Rules, 1962 ("IT Rules") and Part B of Appendix I of IT Rules.

  • Section 56(1) of the IT Act.

  • Section 57(iii) of the IT Act.

  • Section 80B(5) of the IT Act. It means 'the total income computed in accordance with the provisions of this Act, before making any deduction 'under Chapter VIA of the IT Act.

  • Section 80A(1) of the IT Act.

  • Clause (h) of the Explanation to Section 115BBF of the IT Act and Clause (g) of the Explanation to Section 80RRB of the IT Act.

  • As defined in Section 2(1)(q) of the Patents Act.

  • As defined in Section 2(1)(q) of the Patents Act.

  • Section 9(1)(vi) of the IT Act.

  • Section 115A(1)(b) of the IT Act.

  • Plus applicable surcharge and cess

  • As per Explanation (c) to Section 44DA of the IT Act, the term 'permanent establishment' is defined to include "a fixed place of business through which the business of the enterprise is wholly or partly carried on".

  • Section 44DA of the IT Act.

  • Section 90(2) of the IT Act.

  • Section 48(1) of the IT Act.

  • Section 2(14) of the IT Act.

  • As per H. Mohmed & Co. v CIT [1977] 107 ITR 637 (Gujarat), a' stock-in-trade' is "something in which a trader or a businessman deals; whereas his capital asset is something with which he deals. It is possible that one and the same commodity may in the case of one assessee be his stock-in-trade, whereas in the case of another assessee it may be his capital asset. For example, in the case of an assessee who carries on the business of buying and selling land, land may be his stock-in-trade but in the case of an assessee who has invested his savings in land and gets income from the land or the structures put up on the land, the land is his capital asset. Therefore, one of the indications for deciding as to what is stock in-trade is whether a particular assessee is buying or selling the commodity or whether he has merely invested his amount with a view to earn further income or with a view to carry on his other business. It may be pointed out that 'trade' means that particular business activity where the person engaged in the profession buys or sells. All businesses may be carried on for the purpose of earning a profit but that particular kind of business where the businessman buys and sells a commodity can only be designated as 'trade'." [Emphasis supplied]

  • [1984] 8 ITD 57 (BOM.).

  • Section 2(42A) of the IT Act.

  • Second proviso to Section 48 of the IT Act.

  • Plus applicable surcharge and cess. Section 112(1) of the IT Act.

  • [1987] 168 ITR 733 (Bombay).

  • Section 55(2)(a) of the IT Act.

  • [2017] 78 taxmann.com 188 (Mumbai - Trib.).

  • Section 50 of the IT Act.

  • Explanation 2 to Section 9(1)(vi) of the IT Act.

  • Section 2(52) of the CGST Act.

  • Section 2(102) of the CGST Act.

  • Section 9(1) of the CGST Act and Section 5(1) of the IGST Act.

  • 'GST laws collectively refers CGST Act and Integrated Goods and Services Tax Act, 2017 ("IGST Act").

  • Section 7(1) of the CGST Act.

  • Schedule II to the CGST Act.

  • Entry 5(c) of Schedule II to the CGST Act.

  • Serial No. 452P of Notification No. 1/2017 Central Tax (Rate), dated 28-6-2017 read with Notification No. 13/2021 Central Tax (Rate), dated 27-10-2021.

  • Serial No. 17 item (ii) of Notification No. 11/2017 Central Tax (Rate) dated 28-6-2017 read with Notification No. 6/2021 Central Tax (Rate), dated 30-9-2021.

  • USV (P.) Ltd., In re, [2021] 133 taxmann.com 296 (AAR - MAHARASHTRA), the question of classification of transfer of registered trademarks as either supply of goods or supply of services under GST law was raised. However, based on the certain procedural the application for advance ruling was rejected as being not maintainable under section 95 of CGST Act.

  • Comparative analysis by OECD available at https://qdd.oecd.org/data/IP_Regimes

  • Griffith R, Miller H & O'Connell M, Ownership of intellectual property and corporate taxation, Journal of Public Economics, 112 (2014) 12, ISSN 0047-2727, https://doi.org/10.1016/j.jpubeco.2014.01.009.

  • Alstadsæter A, Barrios S, Nicodeme G, Skonieczna A M & Vezzani A, Patent Boxes Design, Patents location, and local R&D, Economic Policy, 33(93) (2018) 131, https://doi.org/10.1093/epolic/eix021

  • Departmental Circular No. 3 of 2017, dated 20th January 2017.


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  • Need for Invention in the Taxation Regime of Patents

Abstract Views: 117  |  PDF Views: 102

Authors

Anjali Agrawal
Saikrishna & Associates, Delhi – 110 003,, India
Shiv Singhal
J Sagar Associates, Gurugram — 122 009, Haryana, India
M Sakthivel
University School of Law and Legal Studies, GGSIP University, Dwarka, Delhi — 110 078, India

Abstract


The patent system was introduced with the motto of ensuring furtherance of science and technology for the benefit of society. When compared with other Intellectual Property (IP), patent has a different dimension that is of technology transfer, and the same has been playing a vital role in domestic and international trade and commerce. Every event of commercialising patent attracts economic returns to the patentee as well as the country where it is registered, retained and commercialised. Thus, merely having inventor friendly ecosystem without foreseeing to retain the registered patents in India for commercialisation to the fullest extent will not favour the developmental goals of the nation. In this context, the paper examines the Indian Taxation regime for the taxing events of patents, both under direct and indirect taxes, and their conduciveness for the effective promotion of creation, retention and commercialisation of patents in India. This paper also compares the taxation of patents in other jurisdictions with India and recommends a favourable tax regime for patents which would incentivise innovation and consequent commercialisation leading to the advancement of the nation

Keywords


Patent, Economic Rights, Commercial Exploitation, Taxation, Royalty, Income, Income Tax, GST, Patent Box.

References