The Bombay High Court recently refused to entertain a petition filed by Hindustan Unilever Limited (HUL) challenging a ₹962 crore tax demand issued by the Income Tax Department. The demand stemmed from a 2024 order passed by the Deputy Commissioner of Income Tax, raising questions about HUL’s compliance with tax rules involving trademark purchases.
Background of the Case: Trademark Purchase Dispute
The core of the dispute revolves around HUL’s acquisition of the health drink brand Horlicks from GlaxoSmithKline (GSK) in 2020. The transaction, worth over ₹3,000 crores, involved the transfer of intellectual property rights, including trademarks registered in India. According to the tax department, HUL failed to deduct tax at source (TDS) during this purchase, as mandated by Indian tax laws for transactions involving assets located in India.
Multiple Notices Issued to HUL
Following the acquisition, HUL received several notices from the Income Tax Department between October 2022 and January 2023, seeking detailed clarifications regarding the foreign remittance involved in the transaction. HUL complied by providing the requested information and sought extensions for fulfilling certain requirements.
In February 2023, the Deputy Commissioner issued another notice, this time questioning whether the trademark purchase should be classified as a capital asset located in India. HUL responded to this notice in March 2024, submitting a valuation report from EY and offering clarification on the issue.
Tax Demand Despite Compliance Efforts
Despite HUL’s efforts to comply with the tax regulations, the Deputy Commissioner concluded that the intellectual property purchased was an Indian asset, thus attracting TDS under Indian law. Consequently, a tax demand of ₹962 crores was raised against the company.
Delhi HC Precedent and Criticism of the Tax Officer
HUL referenced a 2016 Delhi High Court ruling in a similar case, CUB Pty Ltd. vs Union of India, to support its stance. In that case, the court ruled that if the ownership of intangible assets like trademarks or patents is based outside India, the income generated from using those assets in India is not subject to Indian tax. This precedent should have worked in HUL’s favor.
However, the tax officer reacted negatively to the Delhi HC’s ruling. The Bombay High Court criticized this stance and ordered the removal of certain statements made by the tax officer from the official records.
Court’s Decision and HUL’s Next Steps
Although the Bombay High Court rejected HUL’s petition, it did provide the company with an option to appeal the tax demand before the revenue authorities. Additionally, HUL has been given 15 days to file an appeal and request a stay on the enforcement of the tax demand and any related penalties.
The case highlights the ongoing tension between Indian tax authorities and multinational corporations over compliance issues related to intellectual property and asset transfers. HUL’s next move will determine the outcome of this high-stakes tax dispute.
