Question 1

What is the CA's role in an IP infringement suit and which statute governs damages?

Accepted Answer

In trademark infringement suits under Section 135 of the Trade Marks Act 1999, the court may award actual damages or an account of profits. The CA prepares a forensic profit computation — reconstructing the infringer's revenue attributable to the infringing mark — to support either measure. A similar quantification applies to copyright suits under Section 55 of the Copyright Act 1957.

Question 2

How are royalties or lost profits treated for income-tax purposes in the hands of the IP owner?

Accepted Answer

Royalties received from exploitation of a patent, copyright, or trademark are taxable as business income under Section 28 of the Income-tax Act 1961 (or the corresponding provision of ITA 2025 for Tax Year 2026-27 onwards). Where the IP owner is an individual not carrying on business, royalties from literary or artistic works may be claimed as a deduction of up to ₹3 lakh under Section 80QQB of ITA 1961 (AY 2026-27 and earlier).

Question 3

Does a settlement or damages award attract GST?

Accepted Answer

Per CBIC Circular No. 178/10/2022-GST dated 3 August 2022, amounts received as damages or penalty for breach of contract — including IP infringement settlements — are not 'consideration for supply' and therefore not liable to GST. However, ongoing royalty arrangements for licensed use of a trademark or patent are taxable under SAC 9973 at 18% GST.

Question 4

How is an IP asset valued for litigation or settlement purposes?

Accepted Answer

The three internationally recognised methods are: (1) Cost approach — historical development or acquisition cost; (2) Market approach — comparable licence transactions; (3) Income approach — discounted cash flows attributable to the IP. For patents, the Controller General of Patents under the Patents Act 1970 (Section 84 compulsory licence proceedings) references royalty rates prevailing in the industry as a benchmark. Our expert report documents the chosen method and assumptions for court or arbitral submission.

Question 5

Can transfer pricing rules apply when IP is licensed between group companies?

Accepted Answer

Yes. Where an Indian entity licenses IP to or from a related foreign entity, the transaction is an 'international transaction' under Section 92B of ITA 1961, and arm's-length pricing must be demonstrated using one of the methods prescribed in Rule 10B of the Income-tax Rules 1962. The comparable uncontrolled price (CUP) or profit split method is most commonly used for IP. Form 3CEB (accountant's report) must be filed if the aggregate international transactions exceed ₹1 crore.

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Transfer Pricing — Form 3CEB

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