The Supreme Court has declined to entertain a Special Leave Petition by beer major Fosters Australia. The company was seeking to challenge an Authority for Advance Rulings (AAR) order that made it liable to pay tax in India after sale of Fosters Indias intellectual property rights, brand and trademark to UKs SABMiller.

The apex court asked Fosters Australia why it did not move the high court before filing the SLP.

Fosters India was the Indian unit of the Australian beer major. The latter had independently valued these intangible assets such as brand, trademark, goodwill and its licence to Fosters India to brew the brand, at about $90,000. Fosters Australia sold the Indian unit to global beer major SABMiller in 2006 for $120 million.

Following the apex courts directive declining the companys SLP, Fosters Australia sought permission to withdraw the petition which was then granted by SC. While allowing the withdrawal of SLP, the apex court asked the I-T department to suspend the assessment proceedings for two weeks to allow the party to move the HC.

Fosters Australia had raised the following issues before the AAR: whether sale of brand, trademark and brewing licence of Fosters India to SABMiller is liable to be taxed in India or not.

AAR said tax had to be paid in India on the income from the transfer of its right, title and Fosters brand under the Indian Income Tax Act. However, licence given by the Australian company to its Indian arm for brewing Fosters beer is not taxable in India.

The AAR ruling was a shot in the arm for the Indian tax authorities who wanted to tax all recent cross-border acquisitions of Indian companies by foreign parties, including Vodafones $11-billion takeover of Indian telecom major Hutch-Essar.

AARs reasoning for holding these intangible assets taxable is: The situs of Fosters India brand, trademark and goodwill had been associated with the companys Indian business, and therefore, the sale of these assets to SABMiller was liable to be taxed in India under the provisions of the Income Tax Act. Section 9(1) of the Income Tax Act provides for taxing income generated in India.

AAR did not accept the Australian company's argument that unlike other capital assets which can be geographically located, the situs of these intangible assets, like brand and trademark, have no particular geographical location, and therefore, no situs apart from the domicile of the owner.

AAR ruled the trademark and brand together with the goodwill they generated were assets situated in India when the transfer of ownership took place in 2006.

"It would be interesting to note that if the high court admits writ petition under Article 226, the disgruntled party may knock at the doors of the Supreme Court under Article 136 for redressel. It would be at the discretion of the apex court whether or not to entertain such application," said Daksha Baxi and Sanjay Sanghvi of Khaitan & Co.

They said such long-drawn exercise would result in more delays and the concept of Advance Ruling was brought in only to eliminate delay on such matters.