Restricted trademark licence without exclusive right is not a deemed sale; franchise and royalty receipts remained non-taxable.

A restricted, non-exclusive licence to use a brand name and know-how, retained under the transferor's supervision and control, does not amount to a transfer of the right to use goods or a trade mark. Applying that principle, brand franchise and technical fees received from beer bottling units were held not taxable as deemed sales, because the licensees acquired no exclusive legal right and the appellant retained ownership and effective control. The same reasoning applied to packaged drinking water royalty receipts, which were also held not taxable as transfer of the right to use the trade mark. The departmental appeals failed and the assessee obtained relief.

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Issues: (i) Whether brand franchise and technical fees received from beer contract bottling units were consideration for transfer of right to use the brand name or trade mark and therefore taxable. (ii) Whether royalty received for permitting licensees to use the brand name for packaged drinking water amounted to transfer of right to use the trade mark and was taxable.

Issue (i): Whether brand franchise and technical fees received from beer contract bottling units were consideration for transfer of right to use the brand name or trade mark and therefore taxable.

Analysis: The agreements were read as a whole and found to grant only a limited, non-assignable, non-transferable and non-exclusive permission to use the brand name and know-how for manufacture under the appellant's supervision and control. The bottling units did not obtain exclusive legal right to use the marks, and the ownership and effective control always remained with the appellant. Applying the settled attributes of transfer of the right to use goods, the arrangement was held to be only a licence and not a transfer attracting deemed sale treatment.

Conclusion: The brand franchise and technical fees were not taxable as transfer of right to use the brand name or trade mark, and the finding was in favour of the assessee.

Issue (ii): Whether royalty received for permitting licensees to use the brand name for packaged drinking water amounted to transfer of right to use the trade mark and was taxable.

Analysis: The technical know-how and licence agreements for packaged drinking water likewise showed only a restricted permission to use the brand for manufacture and marketing, without exclusive assignment of the trade mark to any licensee. The appellant retained ownership and control throughout, and the royalty was held not to arise from a deemed sale. The transaction was also treated as not incidental or ancillary to the appellant's main business so as to attract tax under the provision invoked by the assessing authority.

Conclusion: The royalty receipts were not taxable as transfer of right to use the trade mark, and the finding was in favour of the assessee.

Final Conclusion: The appellate tribunal held that neither the beer franchise/technical fee nor the packaged water royalty constituted taxable deemed sales, so the departmental appeals failed and the assessee obtained complete relief against the impugned appellate order.

Ratio Decidendi: A transaction amounts to transfer of the right to use a trade mark or goods only when the transferee obtains an exclusive legal right to use them for the relevant period and the transferor is excluded from concurrent use; a restricted licence under the transferor's supervision is not a deemed sale.

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