An Indian hospitality company paid Rs.65.50 lakh to an offshore agent to acquire outright ownership of the trademark “Jamawar” — the name of its own restaurant in London. The tax department wasn’t convinced this was a simple asset purchase: it called the payment “royalty,” treated the company as an assessee-in-default for not deducting TDS under Section 195, and raised a demand of over Rs.10.42 lakh in tax and interest. The company’s position was that this was a lump-sum, outright acquisition of intellectual property — not a licensing fee. ITAT Mumbai agreed, and its reasoning turns on a distinction every business buying IP or trademarks from abroad needs to understand: TDS on trademark purchase from a non-resident is not automatic — it depends entirely on how the asset actually changed hands.
Quick Answer
Does an Indian company need to deduct TDS under Section 195 when purchasing a trademark from a non-resident?Not automatically. ITAT Mumbai has held that TDS under Section 195 applies only if the remittance is a “sum chargeable to tax” in India in the recipient’s hands. Where the payment is genuine consideration for the outright, absolute transfer of ownership of a trademark — a capital asset — rather than a licensing or royalty arrangement, and the non-resident recipient has no permanent establishment or business connection in India, no TDS obligation arises, regardless of how large the payment is.
Case Snapshot
| Case Name | LSL Holdings Private Limited v. Income Tax Officer (International Tax), Ward-3(1)(2), Mumbai |
| Citation | ITA No. 2619/MUM/2026 |
| Court / Bench | Income Tax Appellate Tribunal, “A” Bench, Mumbai (Physical Hearing) |
| Coram | Shri Pawan Singh (Judicial Member) & Shri Girish Agrawal (Accountant Member) |
| Assessment Year | 2019-20 |
| Date of Hearing | 21 May 2026 |
| Date of Order | 18 August 2026 |
| Key Issue | Whether a remittance for acquiring ownership of a foreign trademark constitutes “royalty” under Section 9(1)(vi), triggering a TDS obligation under Section 195 |
| Outcome | Appeal allowed — Section 201(1)/201(1A) demand of Rs.10,42,240 deleted in full |
Table of Contents
Legal Issue: TDS on Trademark Purchase from a Non-Resident Under Section 195
Section 195 requires TDS on payments to non-residents only where the remittance represents a “sum chargeable to tax” under the Act. Section 9(1)(vi) deems royalty income to accrue or arise in India in specified circumstances, but Explanation 2 to Section 9(1)(vi) — via its proviso — expressly excludes any consideration that would be chargeable in the recipient’s hands under the head “Capital Gains” from the definition of “royalty.” The dispute here was whether a lump-sum remittance for acquiring the trademark “Jamawar” was a genuine, absolute purchase of a capital asset (outside “royalty,” and potentially outside India’s taxing jurisdiction altogether) or a payment for the use or partial transfer of rights in the mark (which would fall within “royalty” and trigger a TDS obligation).
Facts of the Case
LSL Holdings Private Limited, a Mumbai-based company, remitted Rs.65,50,000 in August 2018 to acquire ownership of the trademark “Jamawar” — the brand name of a restaurant the company operates in London — from Al Houda Hotels & Tourism Co. of Qatar, through Abu-Ghazaleh Intellectual Property (AGIP), a trademark agent based in Doha. The transaction was reported through Form No.15CA/CB and flagged by the tax department’s system for verification, since no TDS had been deducted on the remittance.
The Assessing Officer (International Tax) issued notices under Sections 133(6) and 201 seeking details of the transaction. The company explained that the payment was for assignment of a trademark and that, since no income had accrued or arisen in India to the recipient under Section 5(2), no TDS was required under Section 195. The AO sought the assignment agreement (furnished in Arabic, registering the trademark in Qatar), details of the recipient’s presence in India, and a Tax Residency Certificate. The company did not respond to a subsequent show-cause notice asking why the remittance should not be treated as royalty. The AO separately noted that AGIP’s own website indicated it had a branch in Delhi.
The AO held the remittance was royalty for use of the “Jamawar” trademark, treated the company as an assessee-in-default under Section 201(1) for failing to deduct 10% TDS, and computed a total liability of Rs.10,42,240 — Rs.6,81,200 in tax (with cess and surcharge) plus Rs.3,61,036 in interest under Section 201(1A) for 53 months, from 10 August 2018 to 31 December 2022.
On appeal, the company submitted its trademark assignment agreement, proof of ownership, details of the commercial terms, and the recipient’s Tax Residency Certificate. The CIT(A) nonetheless upheld the AO’s order, holding that no documentary evidence had been furnished and that a transfer of ownership or partial rights in a trademark falls within “royalty” unless absolute and perpetual ownership is conclusively proved.
Arguments of the Parties
For the Assessee (AR: Sh. Prakash Jotwani, Advocate)
- The lower authorities failed to appreciate that the company purchased outright ownership of “Jamawar” from Al Houda Hotels & Tourism Co. through the TMP agent AGIP — royalty is a recurring payment for the right to use a mark owned by someone else, whereas this was a lump-sum purchase making the company the owner.
- Explanation 2 to Section 9(1)(vi) excludes consideration chargeable under “Capital Gains” in the recipient’s hands from the definition of royalty; since the recipient’s income from an outright transfer would fall under Capital Gains, the remittance is not royalty.
- The CIT(A) overlooked documentary evidence that was, in fact, on record: the trademark assignment agreement, proof of ownership, and commercial terms of the transfer, furnished specifically in response to the CIT(A)’s own show-cause notice, with an upload acknowledgment on file.
- The recipient’s Tax Residency Certificate was also furnished, and the recipient had no permanent establishment or business connection in India, so its income was not taxable in India — meaning Section 195 did not apply regardless of how the payment was characterized.
- Relied on: Saregama (I) Ltd. v. ACIT; Asia Satellite Telecommunication Co. Ltd. v. DIT; GVK Oil & Gas Limited v. ADIT; GE India Technology Centre (P) Ltd. v. CIT; Pidilite Industries Ltd. v. ITO (TDS); ACIT v. M&B Engineering Limited; Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT & Anr.
For the Revenue (DR: Sh. Surendra Mohan, Sr. DR)
- Supported the orders of the lower authorities.
- Per the CIT(A)’s finding, the relevant documents were not furnished, so the trademark agreement, deed of transfer, and terms of the right transfer were not considered.
- On the Revenue’s reading, the deed of assignment did not transfer complete rights — only partial rights.
- The assessee had not proved that the recipient lacked a business connection in India.
Court/Tribunal’s Decision
The Tribunal allowed the appeal and deleted the entire Section 201(1)/201(1A) demand of Rs.10,42,240, holding that the company was not liable to deduct TDS on the remittance made for acquiring the “Jamawar” trademark.
Reasoning Behind the Decision
On examining the paper book, the Tribunal found that the company had, in fact, furnished the trademark assignment agreement, evidence of ownership, the nature of the rights transferred, valuation details, the mode of the commercial transaction, and the recipient’s Tax Residency Certificate — directly contradicting the CIT(A)’s finding that no documentary evidence had been furnished. The Tax Residency Certificate showed the recipient, Abu-Ghazaleh Intellectual Property, to be a tax resident of Jordan.
Relying on the Kolkata Tribunal’s ruling in Saregama (I) Ltd. v. ACIT — itself following the Delhi High Court in Asia Satellite Telecommunication Co. Ltd. v. DIT and the Andhra Pradesh High Court in CIT v. Andhra Petrochemical Ltd. — the Bench held that a lump-sum payment for the transfer of ownership of a capital asset, as distinct from payment of past or future royalties, is consideration for an outright purchase and does not attract TDS obligations. The Tribunal also invoked the Supreme Court’s foundational ruling in GE India Technology Centre (P.) Ltd. v. CIT, which holds that the obligation to deduct tax under Section 195 arises only where the remittance is a sum chargeable to tax under the Act — not merely because a remittance abroad has been made.
On this basis, the Tribunal found no justification for treating the company as an assessee-in-default and deleted the demand in full.
Key Legal Principle
The obligation to deduct TDS under Section 195 on a remittance to a non-resident arises only if that remittance is a sum chargeable to tax under the Act in the recipient’s hands — never merely because a cross-border payment has been made. Where a lump-sum remittance genuinely represents consideration for the outright, absolute transfer of ownership of intellectual property such as a trademark, and the recipient’s resulting income would fall under “Capital Gains” rather than recurring royalty, the payment falls outside the definition of “royalty” under Explanation 2 to Section 9(1)(vi), and no TDS obligation arises absent independent proof that the recipient’s income is otherwise taxable in India.
Practical Implications for Businesses
- For companies acquiring trademarks, brands, or IP from abroad: Whether TDS applies turns critically on documented proof of an outright, absolute, perpetual transfer of ownership — the assignment agreement, proof of ownership, valuation, and commercial terms — not a licensing or right-to-use arrangement.
- Respond to departmental notices promptly and completely: Several of the AO-stage adverse findings arose because the company reportedly did not respond to certain show-cause notices at that stage; comprehensive evidence surfaced only at the CIT(A)/Tribunal level, after the dispute had already escalated.
- A recipient’s Tax Residency Certificate matters independently: Evidence that the non-resident has no permanent establishment or business connection in India strengthens the position that no income is taxable in India, regardless of how the payment is characterized.
- Appellate factual findings can be directly challenged with paper-book evidence: The Tribunal overturned the CIT(A)’s finding that “no documents were furnished” once it verified the paper book itself, with specific page references — a reminder that a well-indexed paper book is a real litigation asset.
Related Judgments and Limitations
| Case | Forum | Relevance |
|---|---|---|
| Saregama (I) Ltd. v. ACIT (ITA No.1813/Kol/2009) | ITAT Kolkata | Directly relied on — lump-sum payment for outright transfer of ownership is a capital asset purchase, not recurring royalty |
| Asia Satellite Telecommunication Co. Ltd. v. DIT (2011) 332 ITR 340 | Delhi High Court | Relied on by the Kolkata Tribunal in Saregama for the same principle |
| CIT v. Andhra Petrochemical Ltd. (2015) 373 ITR 207 | Andhra Pradesh & Telangana HC | Also relied on by the Kolkata Tribunal in Saregama |
| GE India Technology Centre (P.) Ltd. v. CIT (2010) 327 ITR 456 | Supreme Court | Foundational authority — Section 195 TDS obligation arises only if the remittance is chargeable to tax under the Act |
| CIT v. Creative Infocity Ltd. (relying on ITO v. HEUBACH Colour Pvt. Ltd., 53 taxmann.com 377) | Gujarat High Court | Cited by the assessee — payment for outright purchase of drawing/design held not taxable as royalty or fees for technical services |
| Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT & Anr. (CA Nos.8733-8734 of 2018) | Supreme Court | Cited by the assessee — landmark ruling on royalty/FTS characterization of cross-border software payments |
Frequently Asked Questions
Not automatically. ITAT Mumbai has held that TDS applies only if the remittance is a sum chargeable to tax in India in the recipient’s hands. A genuine, documented outright purchase of a trademark — as opposed to a licensing arrangement — falls outside the definition of royalty and may not attract TDS at all.
Royalty is typically a recurring payment for the right to use an asset owned by someone else. A purchase transfers absolute, perpetual ownership for a lump-sum consideration. Explanation 2 to Section 9(1)(vi) specifically excludes consideration that would be chargeable as Capital Gains in the recipient’s hands from the definition of royalty.
In this case, the Tribunal accepted the trademark assignment agreement, proof of ownership transfer, the mode and commercial terms of the transaction, and the recipient’s Tax Residency Certificate as sufficient evidence of an absolute ownership transfer.
No. Per the Supreme Court’s ruling in GE India Technology Centre v. CIT, applied in this case, TDS under Section 195 is triggered only if the remittance is a sum chargeable to tax under the Act — not merely because money crosses the border.
No. The Assessing Officer had separately flagged that the recipient’s agent appeared to have a branch in Delhi. The Tribunal decided the case on the capital-asset/royalty-exclusion ground and did not expressly address this point, so it remains an open question rather than one conclusively resolved by this ruling.
Final Verdict
Based on the above facts and reasoning, the appeal was allowed. ITAT Mumbai deleted the entire Section 201(1)/201(1A) demand of Rs.10,42,240 raised against LSL Holdings Private Limited, holding that the remittance for acquiring outright ownership of the “Jamawar” trademark was a capital asset purchase — not royalty — and that, in any event, no TDS obligation under Section 195 arises unless the payment is shown to be a sum chargeable to tax in India in the recipient’s hands.
Also Read
Corresponding Provisions Under the Income-tax Act, 2025
This case was decided under the Income-tax Act, 1961, as it concerns Assessment Year 2019-20. Under the Income-tax Act, 2025, Section 195 (TDS on payments to non-residents) corresponds to Section 393(2), Table Serial No.17; Section 201(1) and 201(1A) (consequences of TDS default) correspond to Section 398; Section 9(1)(vi) (royalty deemed to accrue or arise in India) is addressed within the restructured Section 9, with related Explanations now at Section 9(6); and Section 254(1) (orders of the Appellate Tribunal) corresponds to Section 363(1). These mappings were verified against multiple independent sources at the time of writing but should be re-checked against the enacted text before being relied on for tax years governed by the new Act.
Source Judgment: LSL Holdings Private Limited v. Income Tax Officer (International Tax), Ward-3(1)(2), Mumbai, ITA No. 2619/MUM/2026, ITAT Mumbai “A” Bench, order pronounced 18 August 2026. This order can be looked up on the official ITAT judicial search portal using the ITA number above.
Want the full order copy? Download it here.
Legal Disclaimer: This article is for general informational purposes only and analyses a specific Tribunal order under the Income Tax Act, 1961, as it applied to Assessment Year 2019-20. It is not legal or tax advice, and it does not account for developments after the date of publication or for the specific facts of any reader’s case. Readers should verify the applicable current position — including the internal inconsistencies noted above in the source order — and consult a qualified Chartered Accountant or tax professional before acting on this or any similar matter.
