Tea Board, India v ITC Limited 

may be the first case on infringement of a registered geographical indication (GI) to

be decided by an Indian Court. The Calcutta High Court denied an interim injunction to the Tea Board of India, the
registered proprietor of the GI, Darjeeling. The Tea Board sued ITC, inter alia, under the Geographical Indication of
Goods (Registration & Protection) Act 1999, for infringement of its registered GI against the use of the name
"Darjeeling Lounge, alleging such use amounted to an act of unfair competition including passing off.

SEE ALSO: THE PATH TOWARDS MUTUAL RECOGNITION

The Tea Board sought relief on the basis that use of the name Darjeeling Lounge by ITC to refer to a section of its
hotel, amounts to an act of passing-off and therefore, an act of unfair competition. In response, the Court noted that
every kind of passing-off would not necessarily amount to an act of unfair competition without further elucidating the
dividing line between the two concepts. The Court explained that the registered proprietor can complain against the
use of the GI under a passing-off action, if the GI has any "nexus" with the product with which it is exclusively
associated with under its registration. ITC's Darjeeling Lounge being an exclusive area within the confines of its hotel,
it is accessible only to its high-end customers, who may merely frequent the area and be served with any beverage.
Accordingly, the Court concluded that there was scarcely any likelihood of deception or confusion.

Further, in holding that the use of Darjeeling was not the sole prerogative of the Tea Board, the Court highlighted that
the word has been used so extensively in trading and commercial business for decades prior to the GI Act that the
subsequent registration of the GI would not, prima facie, entitle the Tea Board to any interim relief in this case.

Effectively, the court has limited the scope of passing-off under the GI Act to only those cases where there is identity
in the goods, and has also pointed that the descriptiveness or generic nature of a GI may be a factor in denying an
interim injunction. While it is a ruling only at the interlocutory stage, the decision is likely to have significant
ramifications in future cases in India, especially when obtaining interim injunctions forms a critical aspect of any IP
litigation strategy.

What is GI?

A Geographical Indication (GI) is defined in the TRIPS Agreement. The mark of GI

acts as an indicator which identifies a good as which originates in the territory of a
Member country, or a regional locality in that territory, which has a quality, reputation
or other characteristic of the good because of it its geographical origin. Since the
qualities depend on the geographical place of production, there is a clear link between
the product and its original place of production.[1]

Rights of a GI Holder

A Geographical Indication right enables the GI tag holder to use the indication to
prevents its use by a third party whose product does not stand upon the given
standards. For example, in India the Darjeeling tea geographical indication is
protected, and the GI right holders of Darjeeling tea can exclude use of the term
“Darjeeling” for tea not grown in their tea gardens or not produced according to the
given standards of the geographical indication.

However, a protected Geographical Indication does not enable the holder to prevent
someone from making a product using the same techniques and having the same
human intervention into the product as those set out in the standards for that
indication. Protection for a geographical indication is usually obtained by acquiring a
right over the sign that constitutes the indication.[2]

Case Study: Tea Board of India Vs. ITC Ltd.[3]

Arguments given by the plaintiff

According to the plaintiff, defendant has infringed the registered geographical

indication rights having a fraud and malice intention and the rights of the plaintiff are
being hampered in this way –

a) The defendant has fraudulently used the tag of Geographical Indication (GI) in
naming one of its business premises as ‘DARJEELING LOUNGE’ which is a
registered GI.

b) The defendant having malice intention used the name ‘DARJEELING’ for the
presentation and sale of goods which it sells in such lounge.

c) The defendant has disguised its customers by suggesting that the goods which it
sells at the said ‘DARJEELING LOUNGE’originate in the said geographical area.

d) The defendant by using the registered GI has hampered the rights of the plaintiff as
the defendant misleads its customers by telling them that the products are originated
from the designated place of origin.

e) The use of the name ‘DARJEELING’ for the purpose of the said lounge and for the
purpose of publicity and selling of goods has created an unfair competition and the
plaintiff can use his right of passing off and other rights for the matter.

f) The defendant’s use of the name ‘DARJEELING’ for naming the lounge,
advertising and selling products against the honest trade practices.

g) The defendant, by using the impugned name ‘DARJEELING’ for the purpose of
the lounge has threated the commercial activities of the persons who are actually in
the business of the Darjeeling Tea.

h) The use of the name ‘DARJEELING’ for the purposes of its lounge and all
purposes relating thereto is a serious threat to the trade of the existing tea business and
also disregard to the registered GI tag having a particular standard.

i) The wrongful acts of the defendant in using the ‘DARJEELING’ name and logo is a
highly misleading to the general public as regards the nature or manufacturing process
or characteristics and suitability of the goods actually sold in the said lounge.
In order to prevent the Defendant from violating the above rights of the GI tag holder
in reference with the Trademark Act and Geographical Indications, the plaintiff had
moved an interlocutory application for temporary injunction to restrain the defendant
from infringing the rights in any manner possible.

Arguments by the Defendant

According to the defendant, there is no cause of action for filing the suit as the suit
was barred by limitation. Since the plaintiff had only certification trademark, no right
or cause of action could arise for the plaintiff under such certification trademark
against the defendant’s using the “DARJEELING LOUNGE” in view with the
Trademark Act. As per the Defendant the suit is also not maintainable under section
26 of the Geographical Indications Act.

Judgement

The Hon’ble Justice Sahidullah Munshi of Calcutta High Court, opined that the suit
by Tea Board was barred by limitation as the hotel lounge was started in January
2003. But the suit was filed only in 2010 which is beyond the limitation provided
under Section 26(4) of the GI act which is for 5 years.

The Court went into the merits of the case and Justice Munshi observed that, “It is
also not found that there has been any infringement under the Geographical
Indications of Goods Act because the defendant’s ‘Lounge’ is not relating to goods.
Plaintiff’s rights conferred by the registration of the word ‘Darjeeling’ is only in
relation to tea. ‘Darjeeling’ is not a trade mark. It is only used to indicate geographical
indication of a place of origin of tea originating from Darjeeling. The law relates to
geographical indication is confined only to goods. The plaintiff does not own any
right in the name of ‘Darjeeling’ for any goods other than [Link] Geographical
Indications Act can only extend to goods and admittedly, the defendant’s lounge does
not fall within the category of ‘goods’”.

The Hon’ble Court further found that there is no unfair competition under the
definitions of Geographical Indications Act as the business area of plaintiff and
defendant is totally different and among the 87 tea estates none of them had raised any
issue. The Board also claimed that its rights under Trademarks Act 1999 also stood
violated by the use of name ‘Darjeeling’ for the lounge. But the Court noted that the
Board only had certification trademark within the meaning of Section 2(e) of the
Trademarks Act 1999, which does not amount to a registered trademark. The
certification trademark gave the Board only the authority to certify that the concerned
tea is connected with Darjeeling region and here the defendant is dealing with service.
The Court stated that there is no relation between the defendants ‘DARJEELING
LOUNGE’ and the plaintiff’s rights under Trademark or GI act and the allegations are
baseless and the Court dismissed the suit for Rs.10 lakhs.[4]

Conclusion   

From the above case we can conclude that a registered GI gives right to the GI tag
holder to stop any person or entity from using the registered mark of GI or its name in
a product which might be similar or deceptively similar to the registered product or it
might not be similar to the registered product, but have the registered name in it. But
if a person is using the registered name or logo of GI in a service then that will not
come under the ambit of The Geographical Indications of Goods (Registration and
Protection) Act, 1999 because if we look at the definition of GI itself given in the
TRIPS and in the section 2(e) of the domestic GI act then we will find the use of word
“good/s” in it and the word service is mentioned no where and GI is about the product
with special characteristics because of environment, climate and human intervention
of a specific region. So, on this merits court dismissed the appeal by the plaintiff.

Under the Indian Copyright Act, 1957 the range of economic rights available to the owner of a
copyrighted work are detailed in Section 14, with several provisions that deal with various kinds
of works, which can broadly be categorized as right of reproduction, distribution, adaptation, and
communication to the public. The application of principle of exhaustion needs to be gathered
from the spirit of the provision as there is no express recognition of the same in words. The
distribution right with regard to different copyrighted works is dealt, with certain significant
disparity under the Section, as: (a) In case of literary, dramatic or musical work, not bring a
computer programme, to issue copies of the work to the public not being copies already in
circulation14 (b) In case of a computer programme, to issue copies of a computer programme to
the public not being copies already in circulation and to sell or give on commercial rental or offer
for sale or for commercial rental any copy of the computer programme where the programme
itself is the essential object of rental15 (c) In case of an artistic work, to issue copies of the work
to the public not being copies already in circulation16 (d) In case of a cinematograph film, to sell
or give on hire or offer for sale or hire any copy of the film regardless of whether such copy has
been sold or given on hire on earlier occasions17 (e) In case of a sound recording, to sell or give
on hire or offer for sale or hire any copy of the sound recording regardless of whether such copy
has been sold or given on hire on earlier occasions18 14 Supra note 7, S. 14 (a)(ii). 15 S. 14(b)(i)
& (ii). 16 S. 14(c)(iii). 17 S. 14(d)(ii). 18 S. 14(e)(ii). 5 An explanation to the Section says that
“for the purposes of this section, a copy which has been sold once shall be considered to be a
copy already in circulation.” But the Act does not elucidate where it is deemed to be in
circulation, and thus, it has been left open to be decided as to whether the principle of exhaustion
that can be inferred from Section 14 would have regional, national or international application.
Defining the scope of exhaustion is essential for the publishing industry as their internationally-
accepted business models predominantly thrive on the territorial division of rights which
facilitates their publishing country-specific editions.

Principle of exhaustion is subject to limitations of law which are followed in a particular

place. While Indian Patent Law 3 and Trademark Law4 expressly endorse the principle of
International exhaustion, there still prevails confusion over its applicability in case of
copyrighted products.

the rule of exhaustion would vary based on the kindof intellectual property in
question. For example, under Indian Copyright law, a purchaser of a literary
work is free to resale her copy but a purchaser of computer software cannot
do so. The reading of S.14, that embodies the meaning of the word
"copyright", S.14(a)(ii) states that, "in case of literary, dramatic or musical
work, not being a computer programme, – to issue copies of work to the
public not being copies already in circulation."5 Whether India follows National
or international exhaustion depends on the interpretation of the term "already
in circulation". If it was supposed to mean national exhaustion then the
legislators could have written it as "already in circulation in India". The
Explanation to this section reads, "..a copy which has been sold once shall be
deemed to be a copy already in circulation". This mentions nothing about the
place of occurrence of first sale. So, it will be wrong on our part to infer that it
strictly refers to National Exhaustion. Also, according to a very well-known
common law maxim "Everything that is not forbidden is allowed" we can say
that since international exhaustion is not specifically forbidden anywhere in
the Indian Copyright Act,1957, the legislators intended to permit it.
Penguin Books Ltd. v. India Books Distributors (1985 Delhi High Court) – interpreted section 51
to prohibit importation of copies into India for the purpose of selling notwithstanding the fact
that there is no specific right to import granted under section 14 of the Copyright Act, 1957.
Court interpreted the work ‘publish’ in 14(a)(ii) to include power to exclude importation where
rights are exhausted internationally. that as far as literary works are concerned, the exhaustion of
rights happen on the first legal sale of a copy of a work, only within the territory in which the
copyright owner proposed the work to be sold This was followed by an amendment with an
intent to undo the rule in Penguin. 1994 Amendment to Section 14 (1)(a) (ii)- “to issues copies of
the work to the public not being copies already in circulation” The problem with the amendment
was that it does not define the territoriality of first sale- whether international or national. Hence
in Eurokids International v. India Book Distributors Ltd. (2005 Bombay HC), the ratio of
Penguin decision was followed. As noted by Padmanabhan (2012),10 the court did not
acknowledge the impact of the 1994 amendment and the question of what constitutes importation
of an infringing copy under Section 51(b)(iv). Inventing a new concept of ‘parallel exports’, in
John Wiley & Sons v. Prabhat Chander Kumar Jain (2010 Delhi HC), the court prohibited
exportation of books from Indian distributors notwithstanding the fact that right of copyright
holder were territorially exhausted in India- Section 14(1)(a)(ii) amendment in 1994 rendered
completely redundant. Furthermhggggggggggggggggggggggggggggguore there is no right to
export granted to the copyright owner in India, nor are border measures extended to exports in
India.

John Wiley & Sons v. Prabhat Chander Kumar Jain8

A New York Based company, John Wiley & Sons Inc., exclusively granted
license to Wiley India Pvt Ltd. to exercise rights over the distribution of certain
books. In India and certain South Asian countries these books were sold as
low-priced editions. A label on the book read: "The book for sale only in the
country to which first consigned by Wiley India Pvt. Ltd and may not be re-
exported. For sale only in: Bangladesh, Myanmar, India, Indonesia, Nepal,
Pakistan, Philippines, Sri Lanka and Vietnam." It can be said that only by this
label they intended to prevent all the purchasers from exporting the books to
others countries except than those mentioned in the label. The court held this
to be an infringement u/s 51 of the Copyright Act, 1957 and rejected the
application of international exhaustion saying that, since the act has no clear
provision stating so, it could be concluded that it allows only national
exhaustion.

Warner Brothers Entertainment Inc. v. Santosh V.G.6

In this case the plaintiffs were film producers. After their film was released in theaters
and had run its course it was to be released through other forms of media such as
DVDs, rental cables and satellite televisions. The plaintiffs also followed a practice of
releasing a film first in certain number of countries and then in other countries. The
defendant legally purchased these films stored in phonograms and imported them to
India. He operated a sort of video shop through which he was giving these films on hire
basis.
The Court was faced with the issue that, whether giving these imported films, which are
particularly authorized to be sold or rented outside the territory of India, on hire/rent/sale
in India amount to infringement u/s 51 (a) (i) of the Copyright Act, 1957. The court held
that the doctrine of exhaustion was not applicable in this case as S.14 (a)(ii) of the
Copyright Act allows the doctrine of exhaustion to be applied in case of literary,
dramatic and musical works and not to cinematographic films. However, the court
reserved itself and did not comment on whether such exhaustion was national or
international. Also, the conclusion of the court that the defendant's act of importation
and distribution amounted to infringement was not reasoned properly

Prakash (2011) 11 argues that that “Indian courts have fundamentally misunderstood the doctrine of
first sale, and consequently have wrongly held that parallel importation is disallowed by Indian law. He
further looks at the ingenuity displayed by a court in prohibiting export of low-priced editions from
India, and comes to the conclusion that this is also wrong in law. The author believes there is a way out
of this quagmire that we find ourselves in due to judicial inventions: that of accepting a proposed
amendment to the Copyright Act.” Copyright Amendment Bill 2010 suggested amendment to the
definition of infringing copy (section 2m) to allow international exhaustion. However, on lobbying by
copyright owners this provision was dropped by the parliament in 2012 Act. A Report by National
Council of Applied Economic Research. (NCAER) commissioned by the Ministry of HRD recommended
international exhaustion by thorough reviewing literature in this area and basing it onempirical evidence
rooted in economic theory. However, no action has been taken since then.

The Indian Copyright Amendment Bill, 2010 envisioned to incorporate the principle of international
exhaustion to all classes of works through amendments to section 2(m) that defines infringing copies42
and to Sections 14(d)(ii) and Section 14(e)(ii) that affect the films and sound recordings,43 thereby giving
a green signal to parallel imports in the copyright regime too. The proposed amendments finally saw the
light of the day with the passing of Copyright (Amendment) Act, 2012.

s regards literary works, the position of law in India as in force now, holds the view that “the
applicability of first sale doctrine qua the sales effected by the exclusive licencee to the defendants will
at best exhaust the rights of the exclusive licencees to complain of infringement and not the rights of the
owner. The right of the owner to complain for remaining infringement in unauthorised territories for
violation of the permission granted and violation of rights will remain intact.” 26 The dictum was
reiterated subsequently that “market segmentation- either vertically, or horizontally, in terms of
geographical areas, or in terms of copies authorized to be made, or sold or rented, is an integral part of
a copyright proprietor's legitimate strategy to exploit his exclusive rights. The sale, and offer for sale, of
such low priced editions, meant for exclusive use in India, by the defendant, who is clearly targeting
overseas buyers, to whom such products cannot be sold at Indian prices, constitutes acts of
infringement under Section 51.”27 Thus, the interesting outcome of the decisions would be that the
applicability of first sale doctrine in literary works would partially exhaust the rights of the licencee and
not of the owner of the copyright.

[Link] ([Link])

CYBERLAW NOTES

2.  - The OECD GuidelinesThe Organisation for Economic Development (OECD)

Basic ideas about privacy protection emerged in the 1970's, dating back to the advent
of the "Information Society" and the introduction of computers into various areas of
economic and social activity. During this time period, there was a growing public
perception that the greater need for information, and the proliferation of computerized
systems, would result in a reduction in the power of individuals to control the personal
information collected and stored about them. Computers were seen as a technology
for processing large amounts of data quickly and cheaply and as a technology which
concentrated enormous power in the hands of computer specialists and data
processing managers. The combination of computer technology and
telecommunications was already holding out the prospect of complex information and
communications networks at the national and international level. 6

In the 1970's the Member Countries of the OECD reached a consensus on issues
related to the protection of privacy to promote the free flow of information across
their borders and to prevent legal issues related to the protection of privacy from
creating obstacles to the development of their economic and social relations. To this
end, the OECD Council on September 23, 1980, adopted the Privacy Guidelines. The
Guidelines were intended to form the basis of legislation in the organization's
Members States.

At the core of the Guidelines is a set of eight principles to be applied to both the
public and private sectors: (1) the collection limitation principle, (2) the data quality
principle, (3) the purpose specification principle, (4) the use limitation principle, (5)
the security safeguards principle, (6) the openness principle, (7) the individual
participation principle and (8) the accountability principle. The OECD Guidelines are
not legally binding on Member States. However, the Guidelines have been widely
accepted and form the cornerstone of fair information practices designed to protect
personal information around the world.7 The Canadian Federal Government affirmed
its commitment to the OECD Guidelines in 1984. Rather than pass legislation
applying these guidelines to the federally regulated public sector, the Federal
Government committed itself to encouraging private sector corporations to develop
and adopt voluntary privacy protection codes based upon the OECD Guidelines.

The OECD principles identified in the Guidelines outline the rights and obligations of
individuals in the context of automated processing of personal data, and the rights and
obligations of those who engage in such processing. The Guidelines apply to personal
data, whether in the public or private sectors, which pose a danger to privacy and
individual liberties because of the manner in which it is processed, or because of its
nature or the context in which it is used. The core OECD privacy principles are as
follows:

Collection Limitation Principle: There should be limits to the collection of

personal data and any such data should be obtained by lawful and fair means
and, where appropriate, with the knowledge or consent of the data subject.

Data Quality Principle: Personal data should be relevant to the purposes for

which they are to be used, and, to the extent necessary for those purposes,
should be accurate, complete and kept up-to-date.

Purpose Specification Principle: The purposes for which personal data are
collected should be specified not later than at the time of data collection and the
subsequent use limited to the fulfilment of those purposes or such others as are
not incompatible with those purposes and as are specified on each occasion of
change of purpose.

Use Limitation Principle: Personal data should not be disclosed, made available
or otherwise used for purposes other than those specified in accordance with
[the Purpose Specification Principle] except: (a) with the consent of the data
subject; or (b) by the authority of law.

Security Safeguards Principle: Personal data should be protected by reasonable

security safeguards against such risks as loss or unauthorised access,
destruction, use, modification or disclosure of data.

Openness Principle: There should be a general policy of openness about

developments, practices and policies with respect to personal data. Means
should be readily available of establishing the existence and nature of personal
data, and the main purposes of their use, as well as the identity and usual
residence of the data controller.
 Individual Participation Principle: An individual should have the right: a) to
obtain from a data controller, or otherwise, confirmation of whether or not the
data controller has data relating to him; b) to have communicated to him, data
relating to him within a reasonable time; at a charge, if any, that is not
excessive; in a reasonable manner; and in a form that is readily intelligible to
him; c) to be given reasons if a request made under subparagraphs (a) and (b) is
denied, and to be able to challenge such denial; and d) to challenge data
relating to him and, if the challenge is successful to have the data erased,
rectified, completed or amended.

Accountability Principle: A data controller should be accountable for

complying with measures which give effect to the principles stated above

*[Link] ([Link])

NATIONAL TREATMENT PRINCIPLE

GATT Article III requires that WTO Members provide national treatment to all other Members. Article
III:1 stipulates the general principle that Members must not apply internal taxes or other internal
charges, laws, regulations and requirements affecting imported or domestic products so as to afford
protection to domestic production. In relation to internal taxes or other internal charges, Article III:2
stipulates that WTO Members shall not apply standards higher than those imposed on domestic
products between imported goods and “like” domestic goods, or between imported goods and “a
directly competitive or substitutable product.” With regard to internal regulations and laws, Article III:4
provides that Members shall accord imported products treatment no less favourable than that accorded
to “like products” of national origin. In determining the likeness of “like products,” panel conclusions in
the past have relied on a number of criteria including tariff classifications, the product’s end uses in a
given market, consumer tastes and habits, and the product’s properties, nature and quality. The same
idea can be found in reports by WTO panels and the Appellate Body

The Japan-Alcoholic Beverages case is also known for its jurisprudence on the concept of “like
products”3 The question before the Panel in this case was whether „vodka‟ and the Japanese drink
„sochu‟ were alike. While Japan argued that the two shared no similarities, the Panel in its report (which
was later upheld by the Appellate Body) stated that the two should be regarded as alike due to the fact
that the two shared the same physical characteristics and even the same end-use. The differences in the
same simply lie in the fact that the process of filtration is not the same. In elaboration, the Panel gave a
comparison of other alcoholic beverages like „rum‟ to sochu, stating that the two cannot be considered
as „like‟ products because of the difference in the ingredients, while „whiskey‟ and „brandy‟ had
different appearances to that of „sochu‟. At the same time, „gin‟ „genever‟ and „liqueurs‟ contained
certain addictives. To this extent, vodka and sochu must be considered as like products given the fact
that they are similar in appearances and even have identical end-uses. There were however, no clear
guidelines as to the circumstances in which goods may be considered as „like.‟

ENABLING CLAUSE

ENABLING CLAUSE provision has established GSP in the GATT legitimate

foundation, causing the developing country enjoying “the special and
differential treatment” in world trade multilateral trading systems the status to
be able to establish completely in the law, and does not need to appear again
by this kind of edge rule way, which is exceptional exemption.

enabling clause is exception stipulations of Article 1 of the GATT 1994 (MFN) PRINCIPLE

Paragraph 1 of the Enabling Clause states that:

“1. Notwithstanding the provisions of Article I of the General Agreement,

contracting parties may accord differential and more favourable treatment to
developing countries, without according such treatment to other contracting
parties.

IMPORTANT CASE LAW

EU– Differential provision of tariff preferences to developing countries (DS246) On December

10, 2001, the European Council announced Council Regulation No. 2501/2001 of generalized
tariff preferences scheme covering the period from January 1, 2002 to December 31, 2004. The
regulation consists of: (i) general arrangements; (ii) special incentive arrangements for the
protection of labor rights; (iii) special incentive arrangements for the protection of the
environment; (iv) special arrangements for least developed countries; and (v) special
arrangements to combat drug production and trafficking (the “drug arrangement”). Among these
arrangements, the general arrangements (i) are for developing countries in general, while the
drug arrangement (v) is applicable only to the following twelve countries: Bolivia, Colombia,
Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Pakistan, Panama, Peru,
and Venezuela. India argued that the Regulation is discriminatory since only twelve beneficiary
countries are granted duty free access to the EC market, while all other developing countries are
entitled only to the full applicable duties or duty reductions. In March 2002, India requested
WTO dispute settlement consultations over the inconsistency of the Regulation with MFN and
the Enabling Clause. India requested the establishment of a panel in December 2002. The panel
report was circulated to Member countries in December 2003. The panel found that the drug
arrangement constituted a special treatment benefiting only some developing countries and,
therefore, was inconsistent with GATT Article I. The panel further found that the measure’s
inconsistency with GATT could not be justified under the Enabling Clause, because not all
developing countries equally received the special treatment, and such differential treatment was
not based on special treatment for the least developed countries. Moreover, the panel found that
the drug arrangement could not be justified under GATT Article XX(b), since it allows
exceptions only for “necessary measures to protect life and health” and the drug arrangement
was not intended as such. The EU appealed the panel’s findings to the Appellate Body in January
2004. The Appellate Body report was issued in April 2004, and subsequently adopted. The
Appellate Body found that, in light of the object and purpose of the WTO Agreement Chapter 1
Most-Favored-Nation Treatment Principle and the Enabling Clause, the Enabling Clause does
not necessarily prohibit the granting of different special treatment to different GSP (Generalized
System of Preferences) beneficiaries. However, the Appellate Body also found that identical
treatment should be granted to all GSP beneficiaries who are at the same level of “development,
financial and trade needs” that the treatment is expected to solve. The Appellate Body upheld for
different reasons the panel’s findings that the EU violated its WTO obligations because the drug
arrangement did not establish any criteria of grounds to differentiate the beneficiaries under the
drug arrangement from other GSP beneficiaries and that, therefore, all similarly-situated GSP
beneficiaries did not benefit from the drug arrangement.

1) Canada – Measures Regarding Automobiles (DS139 ) Under the Agreement Concerning

Automotive Products with the United States, which took effect in 1966 (the “Auto Pact”), the
government of Canada accorded dutyfree treatment to vehicles, provided that importers (the
Big Three and others, hereinafter referred as “Auto Pact members”) met certain conditions (e.g.,
Canadian value-added — the required rates varied, but in general they were 60 percent or
more). The system was implemented to provide tariff exemption to automobiles imported by
any company that met the above conditions. However, the Free Trade Agreement (FTA)
between the United States and Canada resulted in barring extension of the Auto Pact status to
any new companies. This treatment continued after the North American Free Trade Agreement
(NAFTA) took effect. What this essentially meant was that original Auto Pact member companies
in Canada could import automobiles duty-free, provided they met the cited conditions, while
non-members had to pay a 6.1 percent tariff (rate as of February 2000), despite the fact that all
of these companies produced and offered like products and services. The Ministry of Economy,
Trade and Industry (METI) deemed this a priority trade policy issue and, in July 1998, requested
bilateral consultations with Canada under WTO dispute settlement procedures. Japan requested
the establishment of a panel in 313 Chapter 1 Most-Favored-Nation Treatment Principle
November of that year, and in February 1999 a panel was established to review the Japanese
complaint in conjunction with a similar EU complaint. The panel issued its report in February
2000, and the Appellate Body issued its report in May. Both reports upheld virtually all of
Japan’s arguments, finding that the measure: (1) violated GATT Article I:1 (MFN treatment); (2)
violated GATT Article III:4 (national treatment); (3) violated the SCM Agreement; and (4) violated
Article XVII of the GATS (national treatment). (However, the Appellate Body overturned the
finding of the panel that the duty waiver violated Article II of the GATS (MFN treatment) and
Article XVII (national treatment) of the GATS, stating that the panel based its ruling on a lack of
sufficient evidence.) 2) EU – Measures Regarding Bananas (DS27) Under the Lomé Convention,
the European Union maintains measures that provide preferential treatment to imports of
bananas from countries in Africa, the Caribbean, and the Pacific (ACP) in the form of tariff
quotas (i.e., different tariffs are applied to set in-quota and out-of-quota amounts for the
individual ACP countries). These measures have been before a panel twice under the GATT (see
Chapter 16 “Regional Integration”). After the conclusion of the Uruguay Round, the European
Union created a new tariff quota regime for bananas. However, the United States, whose
companies mainly deal in Latin American bananas, was dissatisfied with the new regime and
argued that the licensing system provided preferential treatment to ACP bananas. The United
States further argued that the preferential allocation of the quota to Latin American countries,
who are parties to the “Framework Agreement on Bananas (BFA)” (especially Colombia and
Costa Rica), was inconsistent with the WTO Agreement. After bilateral negotiations under GATT
Article XXII between the European Union and the United States, as well as with some Latin
American countries (Ecuador, Guatemala, Honduras, and Mexico), a panel was established in
May 1996. Japan participated in the panel process as a third party. In the report submitted in
May 1997, the panel found that the EU’s measures were inconsistent with the WTO agreements
on the following points. The report of the Appellate Body generally upheld the main findings of
the panel. (1) Allocating a portion of the quota regarding third-country and non-traditional ACP
bananas to only operators who deal in the EU and traditional ACP bananas is inconsistent with
Article I:1 (MFN) and Article III:4 (national treatment) of the GATT. The Lomé waiver does not
waive the EU’s obligations under Article I:1 with respect to licensing procedures applied to third-
country and non-traditional ACP imports. The obligation under GATT Article I:1 was therefore
still in force. (2) The above preferential allocation of the quota to operators who deal in
traditional ACP bananas creates less favourable conditions of competition for like service
suppliers from third countries, and is therefore inconsistent with the requirements of Article II
(MFN treatment) and Article XVII (national treatment) of GATS. (3) Regarding the “BFA”,
although it was not unreasonable for the EU to conclude at Part II WTO Rules and Major Cases
314 the time the BFA was negotiated that Colombia and Costa Rica were the only Members that
had a substantial interest in supplying the EU market, the EU’s allocation of tariff quota shares is
inconsistent with Article XIII:1 (nondiscriminatory administration of quantitative restrictions).
Regarding the relationship between the inclusion of the BFA tariff quota shares in the EU’s tariff
schedule and GATT Article XIII, the GATT Article XIII prevails over the EU’s tariff schedule. (For a
broader discussion concerning the Lomé Conventions, see Chapter 16 “Regional Integration”.
For details on the dispute between the United States and the EU over the implementation of the
recommendation by DSB, see Chapter 15 “Unilateral Measures”.)
02_01.pdf ([Link])

Waiver of MFN Principle In Favour of Developing Countries:

GATT provides for exception to the Most Favoured Nation principle in favour of the
developing countries. Historically, developing countries were critical of the GATT because
the trade of the developing countries were not growing as fast as developed countries within
the framework of the GATT. Such dissatisfaction led to a study called the Haberler Report ,
which supported the perception that the export earnings of developing countries were not
satisfactory. Later, the formation of United Nation Conference on Trade and Development
(UNCTAD) spurred several initiatives within the GATT. First, in 1965, the GATT contracting
parties adopted Part IV of the GATT to demonstrate a new concern for the interests of the
developing countries. Second, in 1971, the GATT adopted two waivers for two types of
preferences to favour developing countries: 1) a set aside of the MFN obligation to permit a
generalised system of preferences ; and 2) permission for developing countries to exchange
tariff preferences among themselves.

In 1979, both waivers were made permanent through the so-called Enabling Clause. The
Enabling Clause continues to guide WTO policy. The Enabling Clause settled a debate
within the GATT and established the policy of special and preferential treatment for
developing countries. At the same time, the Enabling Clause contains a so-called
graduation clause (Para 7) which is the policy that eventually preferential treatment should
end. Article XXXVI, which is incorporated in Part IV of the GATT, is a hortatory provision of
Principles and Objectives stating the need to raise standards of living in developing
countries, the need for rapid and sustained expansion of their export earnings and
increased access to world market for their products. Article XXXVI sets out the principle that
developed countries do not expect reciprocity for their commitments to remove or reduce
tariffs and other trade barriers.

To take an hypothetical example, assume that the United States grants duty free treatment
to rice from Laos, which is not yet a WTO member. The United States does so because
Laos is a less developed country in need of help. The United Sates makes the same
decision, for the same reason, for rice imported by the United Sates from Cambodia, which
is a WTO member. The normal MFN rate of 15 percent continues to apply to rice imported
by the United States from Japan, which is also a WTO member. Would Japan have an MFN
grievance against the American decision? The answer is no. The United States can grant
duty-free treatment to developing countries under its Generalised System of Preferences
program, whether they are WTO members or not by virtue of Paragraph 1 of Enabling
Clause which provides for the general MFN waiver.

In other words, one must first ascertain if and whether the goods at question are alike; and only if the
answer the question is positive, can one proceed to examine if the said like products have been
subjected to internal taxes and internal charges that are in excess to those applicable to domestic
products.

The Enabling clause paragraph 2 (a) states that:

(a)Preferential tariff treatment accorded by developed contracting parties to

products originating in developing countries in accordance with the
Generalized System of Preferences

Important for my answer

The EC-Tariffs case subsequently also examined the meaning of the word ‘development’ as used
in paragraph 3(c) the enabling clause and the scope of the phrase ‘the developing countries’ as
used in paragraph 2(a) of the clause. Concerning the developing countries, it held that since the
needs of all developing countries vary it cannot be so that the word ‘developing countries’ as
used in the clause implies that it includes all developing countries, certain discriminations and
flexibility is permitted. As for the word ‘development’, the Appellate Body decided that while
the general meaning of the word implies social and economic development, but due to its usage
in the enabling clause, which has interpreted the beneficiaries of GSPs as per their economic
status, it means that the definition of development should also be restricted to economic
development.
The above-explained interpretations thus leave room for the developed countries to take
advantages of the same and allow benefits to be conferred in manners that can circumvent the
positions taken by the Appellate Body. They could adopt policies under which the economic
development of these beneficiary countries is only a secondary objective and still be able to
sidestep the Most Favoured Nation clause as prescribed under Article I:1. Due to the lack of an
objective standard for differentiating amongst the developing countries, research has shown that
developed countries constantly take conditions like labour rights, environment performances, etc.
into account while formulating their GSPs and the beneficiaries under them.[iv] This shows that
they do not acknowledge the economic status of a beneficiary country as the primary reason for
formulating their policies instead focus on other objectives that will help them better their global
position.

WTO | Appellate Body Repertory of Reports and Awards 1995-2013 - Enabling Clause important

L_4903_EnablingClause_en.[Link] ([Link])

TAXATION LAW
Agriculture is said to be the primary occupation in India. It is usually
the only source of income for the large rural population in India. The
country as a whole is entirely dependent on agriculture for its basic
food requirements. The government has numerous amount of
schemes, policies and other measures to promote growth in this
sector – one of them being an exemption to income tax.

1. Agriculture: The meaning of agriculture though not covered in

the Act has been laid down by the Supreme Court in the
case CIT v. Raja Benoy Kumar Sahas Roy where agriculture has
been explained to consist of two types of operations –basic
operations and subsequent operations.

 The basic operations would include cultivation of the land

and consequently tilling of the land, sowing of seeds,
 planting and all such operations that require the human skill
and effort directly on the land itself.

 The subsequent operations would include operations that

are carried out for growth and preservation of the produce
like weeding, digging soil around the crops grown etc and
also those operations which would make the product fit for
use in the market like tending, pruning, cutting, harvesting,
etc. Income derived from saplings or seedlings grown in a
nursery would also be considered to be agricultural income
whether or not the basic operations were carried out on
land.
Agriculture Income under Income Tax ([Link])

CIT vs. Rajasthan and Gujarati Charitable Foundation Poona reported in (2018) 402 ITR 0441 (SC).

Case laws

Bacha F. Guzdar v. C.I.T., Bombay[xii]

The appellant, MrsBacha F. Guzdar, was, in the accounting year 1949-50, a
shareholder in two Tea companies, Patrakola Tea Company Ltd., and
Bishnauth Tea Company Ltd., and received from the aforesaid companies
dividends aggregating to Rs 2750.

The two companies carried on the business of growing and manufacturing

tea.

By Rule 24 of the Indian Income Tax Rules, 1922, it is provided that

Income derived from the sale of tea grown and manufactured by the seller in
the taxable territories shall be computed as if it were income derived from
business and 40% of such income shall be deemed to be income, profits and
gains, liable to tax.

Therefore  40% of the income of the Tea companies was taxed as income
from the manufacture and sale of tea and 60% of such income was exempt
from tax as agricultural income.

The contention of  the Appellant,

 The dividend income received by her in respect of the shares held by her in
the said Tea companies is to the extent of 60% agricultural income in her
hands and therefore  exempt from tax

The contention of  the Revenue,

The dividend income is not agricultural income and therefore the whole of
the income is liable to tax.

Supreme Court held that,

Agricultural income as defined in the Act is obviously intended to refer to the

revenue received by direct association with the land which is used for
agricultural purposes and not by indirectly extending it to cases where that
revenue or part thereof changes hands either by way of distribution of
dividends or otherwise.
In fact and truth dividend is derived from the investment made in the shares
of the company and the foundation of it rests on the contractual relations
between the company and the shareholder.

The dividend is not derived by a shareholder by his direct relationship with

the land. Therefore whosoever receives profit from the land directly is
entitled to the exemption.

A shareholder does not receive profit directly from the land, though the
company may be involved in agricultural activities and is not entitled to the
exemption
In Maharaj Kumar Gopal Saran Narain Singh v. CIT[xvi]
Annual payment for life to the assessee was not held to be agricultural
income and therefore not exempt from tax where the annuity arose out of a
transfer made by the assessee of a portion of his estate for discharging his
debts and for obtaining an adequate income for his life. It was held that it was
not rent or revenue derived from land but money paid under a contract
imposing personal liability on the covenantor the discharge of which was
secured by a charge on land

C.I.T. v. Benoy Kumar Sahas Roy[xviii]

In this case, the court emphasized that certain basic operations should be
carried out along with subsequent operations. The Supreme Court observed
that if the integrated activity of the agriculturist, viz., agriculture, which
includes the basic operations and the subsequent operations, is undertaken
and performed in regard to any land, that land can be said to have been used
for agricultural purposes and the income derived therefrom can be said to be
agricultural income derived from the land by agriculture

Agriculture Income under Income Tax ([Link])

Non-agricultural income
As mentioned earlier, certain agriculture-related works and the income thus
generated, is categorised as non-agricultural income and is taxable.
Heavy processing: When an agricultural produce undergoes a process to
become marketable, the final product is categorised as non-agricultural. For
example, the production of tea, coffee, rubber, etc. Also, if a farmer sells
processed items without carrying out any agricultural or processing
operations, the income would be categorised as business income.
Breeding of livestock: This includes dairy animals, fishery and poultry
farming on agricultural land.
Tree plantation: Trees grown on farmland only to be used as timber, fall in
the non-agriculture category, as no active agricultural business has been
concluded in the entire process.
Trading: Those who earn their income by trading agricultural produce, have
to pay standard taxes on their income.
Export: Income earned from the export of agricultural produce, could be
exempt from IT if certain conditions are satisfied.

1. Income of nursery [Explanation 3 to section 2(1A)]:

Any income derived from saplings or seedlings grown in a nursery shall
be deemed to be agricultural income. So, irrespective of the fact as to
whether the basic operations have been carried out on land, such
income will always be treated as agricultural income & so will be eligible
for exemption under section 10(1) of the Act.
2. In CITv Maddi Venkatasubbaya (1951) 20 ITR 151 (Mad), it is held that
profit on sale of standing crops/agricultural produce purchased by the
assessee is not an agricultural income

CAPITAL GAIN
Any Income derived from a Capital asset movable or immovable is taxable
under the head Capital Gains (S. 45-55)under Income Tax Act 1961. The
Capital Gains have been divided in two parts under Income Tax Act 1961.
One is short term capital gain and other is long term capital gain

Income under the Capital Gains

1. Chargeability:
Capital gains shall be chargeable to tax if following conditions are satisfied:
a) There should be a capital asset. In other words, the asset transferred
should be a capital asset on the date of transfer;
b) It should be transferred by the taxpayer during the previous year;
c) There should be profits or gain as a result of transfer.
. Meaning of Capital Asset [Sec 2(14)]
Capital Asset is defined to include:
a) Any kind of property held by an assessee, whether or not connected with
business or profession of the assessee.
b) Any securities held by a FII which has invested in such securities in
accordance with the regulations made under the SEBI Act, 1992
Type of Capital Assets
A. Short Term Capital Asset
Capital asset held for not more than 36 months immediately prior to the date
of transfer shall be deemed as short-term capital asset. However, following
assets held for not more than 12 months shall be treated as short-term capital
assets:
a) Equity or preference shares in a company which are listed in any
recognized stock exchange in India;
b) Other listed securities;
c) Units of UTI;
d) Units of equity oriented funds; or
e) Zero Coupon Bonds.
Note: Unlisted shares and immovable property (being land or building or both)
held for not more than 24 months immediately prior to the date of transfer
shall be treated as short-term capital asset.
B. Long Term Capital Asset
Capital Asset that held for more than 36 months or 24 months or 12 months,
as the case may be, immediately preceding the date of transfer is treated as
long-term capital asset.
Rates of tax on capital gains:
1. Short Term Capital Gains
a) Short-term capital gains shall be included in the gross total income of the
taxpayer and will be taxed at the normal rates;
b) Short-term capital gains arising from transfer of Equity Shares, Units of an
Equity Oriented Funds or a unit of a business trust which is chargeable to
securities transaction tax shall be taxed at 15% under Section 111A;
Note:-
Now benefit of reduced rate of tax (i.e., 15%) shall be available w.e.f. 1-4-
2016 even in respect of income arising from transfer of units of a business
trust which were acquired by assessee in lieu of shares of special purpose
vehicle as referred to in section 47(xvii).
2. Long Term Capital Gains
a)  Long-term capital gains are subject to tax at 20%;
b)  Long-term capital gains arising from transfer of listed securities, units or a
zero coupon [other than as referred to in point d) below] bonds shall be
taxable at lower of following:
20% after taking benefit of indexation; or
10% without taking benefit of indexation.
c)  Long-term capital gains arising to a non-residents or foreign company from
transfer of unlisted securities shall be taxed at without giving benefit for
indexation;
d)  Long-term capital gains arising from transfer of listed equity share, or a unit
of an equity oriented fund or a unit of a business trust as referred to in Section
112Ashall be chargeable to tax at the rate of 10% in excess of Rs. 1 Lakh.
Section 46(2) was interpreted and applied by the Supreme Court in N.
Bagavathy Ammal vs. CIT , wherein the Court held that the word asset
used in Section 46(2) would encompass assets of all kinds even if the
same were not capital assets. Thus, agricultural land, which is not a capital
asset by virtue of Section was still held to be an asset, and the intention of
Section 46(2) being to levy capital gains on all ‘assets’ would include
agricultural land as well. In this case, the assessee received agricultural
assets upon liquidation. However, the question arises whether if the
assessee does not have enough liquidity(cash/bank) with itself, can it be
compelled to pay capital gains? Can it be compelled to sell the asset just
for realising its tax liability? The argument was not taken up by the
assessee but it is indeed difficult to imagine compelling the assessee to
pay capital gains when only an asset has been received.

Deemed owner [Section 27]:

Income from house property is taxable in the hands of its owner. However, in the
following cases, legal owner is not considered as the real owner of the property and
someone else is considered as the deemed owner of the property to pay tax on income
earned from such house property:

1. An individual, who transfers otherwise than for adequate consideration any house
property to his or her spouse, not being a transfer in connection with an agreement to
live apart, or to a minor child not being a married daughter, shall be deemed to be the
owner of the house property so transferred;

2. The holder of an impartible estate shall be deemed to be the individual owner of all
the properties comprised in the estate;

3. A member of a co-operative society, company or other association of persons to

whom a building or part thereof is allotted or leased under a house building scheme
shall be deemed to be the owner of that building or part thereof;

4. A person who is allowed to take or retain possession of any building or part thereof
in part performance of a contract of the nature referred to in Section 53A of the
Transfer of Property Act, 1882 shall be deemed to be the owner of that building or
part thereof;

5. A person who acquires any rights (excluding any rights by way of a lease from
month to month or for a period not exceeding one year) in or with respect to any
building or part thereof, by virtue of any such transaction as is referred to in section
269UA(f), shall be deemed to be the owner of that building or part thereof.

Income under the House Properties

 

Basis of Charge [Section 22]:

Income from house property shall be taxable under this head if following conditions are satisfied:

a) The house property should consist of any building or land appurtenant thereto;

b) The taxpayer should be the owner of the property;

c) The house property should not be used for the purpose of business or profession carried on by the

Computation of income from house property:

Income from a house property shall be determined in the following manner:

Particulars
Gross Annual Value
Less: Municipal Taxes
Net Annual Value
Less: Standard deduction at 30% [Section 24(a)]
Less: Interest on borrowed capital [Section 24(b)]
Income from house property
Gross Annual value [Sec. 23(1)]

The Gross Annual Value of the house property shall be higher of following:

a) Expected rent, i.e., the sum for which the property might reasonably be expected to be let out from
subject to maximum of standard rent;

b) Rent actually received or receivable after excluding unrealized rent but before deducting loss due

Out of sum computed above, any loss incurred due to vacancy in the house property shall be deducte
 

 CIT West Bengal v. Biman Behari Shaw, Shebait (1968) 68 ITR 815 (Cal)
Facts & Issue: Premises in questions were properties dedicated to deities. The will in respect
of the property laid down that “no body save and except the Brahmin performing the worship
of the deity and servants shall ever be competent to reside in the property”. ITO
thus conducted the bona fide annual value of the properties at the amounts which they were
likely to fetch if let out into the market. The assessee objected to the assessment of annual
value of the properties that they were not let out and no income accrued there from. It
was contended that in view of injunction contained in the will the premises had no letting
value.

Cal HC observed: -
(1) The tax shall be payable by an assessee under the head income from property in respect
of the bona fide annual value of property consisting of any buildings or lands appurtenant
thereto of which he is the owner, other than such portions of such property as he may occupy
for the purpose of any business, profession or vocation carried on by him the profits of which
are assessable to tax, subject to the following allowance, namely,......

(2) For the purposes of the section, the annual value of the property shall be deemed to be
the sum for which the property might reasonably be expected to let from year to year."

It is apparent from the section quoted above that even where a property is not let and even
where it does not produce any income, the Income-tax Officer is to proceed on the basis of a
notional income, which the property might reasonably be expected to yield from year to year.
Now, where a property, is not actually let, even then there ought to be included in the
annual income of the owner a notional income from the property. The letting value of
property, whether let or not, can be objectively ascertained on reasonably basis. If there be
restrictions on the letting of the premises, that may merely reduce letting value but it cannot
be said, without more, that because of the existence of a restrictive clause there can be no
notional annual income deemed to arise from the premises.
Citation-Kinaria J in DM Vakil v CIT (similar citing for Sir Currimbhoy Ebrahim Baronetcy
Trust v CIT)
"The legislature was therefore expressly provided that the tax shall be payable by the
assessee in respect of the bona fide final value irrespective of the question whether he
receives that value or not. Section 9(2) provides that for the purposes of this section, the
expression annual value shall be deemed to mean the sum for which, the property might
reasonably be expected to let from year to year. It is again significant to note that the word
used is might and not can or is. Reading these two paragraphs of section 9 together, it is
clear that the income from property is thus an artificially defined income and the legibility
arises from the fact that the assessee is the owner of the property. It is further provided in
the section that if the owner occupies the property he has to pay tax calculated in the
manner provided therein. Therefore, by reason of the fact that the property is not let
out, the assessee does not escape taxation.
East India Housing & Land Development Trust Ltd v. CIT (1961) 42 ITR 49(SC)
Held that income from letting out house property is assessable under the head ‘Income
from house property’, even if it has been earned by a company set up with an object of
developing and setting up markets.

Citations:-
In United Commercial Bank Ltd. v. Commissioner of Income- tax this court explained after
an exhaustive review of the authorities that under the scheme of the Income-tax Act, 1922,
the heads of income, profits and gains enumerated in the different clauses of section 6
are mutually exclusive, each specific head covering items of income arising from a particular
source.

In Fry v. Salisbury House Estate Co. Ltd. a company formed to acquire, manage and deal
with a block of buildings, having let out the rooms as unfurnished offices to tenants, was
held chargeable to tax under Schedule A to the Income Tax Act. 1918, and not Schedule
D. The company provided a staff to operate the lifts and to act as porters and watch and
protect the building; and also provided certain services such as heating and cleaning to the
tenants at an additional charge. The taxing authorities sought to charge the income from
letting out of the rooms as receipts of trade chargeable under Schedule D, but that claim was
negatived by the House of Lords holding that the rents were profits arising from the
ownership of land assessable under Schedule A and that the same could not be included in the
assessment under Schedule D as trade receipts.

In Commercial Properties Ltd. v. Commissioner of Income-tax income derived from rents

by a company whose sole object was to acquire lands, build houses and let them to
tenants and whose sole business was management and collection of rents from the said
properties, was held assessable under section 9 and not under section 10 of the Income-
tax Act. It was observed in that cases that, merely because the owner property, was a
company incorporated with object of owning property, the incidence of income derived from
the property owned could not be regarded as altered; the income came more directly and
specifically under the head "property" than income from business.

(18) RB Jodhamal Kuthiala v. CIT. AIR 1972 SC 126

The assessee was a, registered firm deriving income     from securities, property, business and
other- sources. In 1946 it purchased a hotel in 'Lahore for a sum of Rs. 46 lacs. For that
purpose it raised a loan of Rs. 30 lacs from a bank and a loan of Rs. 18 lacs from one R. The
'loan taken from the, bank was largely repaid but with R the assessee came to an agreement
whereby R accepted a half share in the said property in lieu of the loan advanced and-. also
1/3rd of the outstanding liability of the bank. This arrangement came into effect on
November 1, 1951. After the creation of Pakistan, Lahore became a part of Pakistan and the
hotel in question was declared evacuee property. As such it came to vest in the Custodian
in Pakistan. In its returns for the assessment years 1952-53, 1955-56 and 1956-57 the assessee
claimed  certain amounts as losses on account of interest payable to the bank but showed the
gross annual letting value from the said property at Nil. The Income-tax Officer held that
since the property had vested in the Custodian no income or loss from that property could
be considered in the assessee's case. The Appellate Assistant Commissioner confirmed the
order of the Income-tax Officer. The Appellate Tribunal however came to the conclusion that
the assessee still continued to be the owner of the property for the purpose of the
computation of loss, and the interest paid was a deductible allowance under s. 9(1) (iv) of the
Income-tax Act, 1922. In. reference the High Court on an analysis of the various provisions of
the Pakistan (Administration of Evacuee Property) Ordinance.15 of. 1949 came to the
conclusion that for the purpose of s. 9 of the Act-the assessee could not be considered as the
owner of that property: 'In the assesee's appeal to this Court it was contended that the
property vested in the Custodian only for. the purpose of administration and the assessee still
continued to be its- owner.

HELD :  Under the Pakistan (Administration of Evacuee Property) Ordinance 1949 the evacuee

could not take possession of his property. He could not lease that property. He could not sell
the property without the consent of the custodian. He could not mortgage that property. He
could not realise the income of the property. All the rights that the evacuee had in the
property were exercisable by the Custodian excepting that he could not appropriate the
proceeds to his own use. The              evacuee had only a beneficial interest in the property.
In the eye of the law the Custodian who had all the powers of the owner was the owner of the
property. His position was no less than that a Trustee.

Section 9 of the Income-tax Act,- 1922, brings to tax the income from property and. not
the interest of a. person in the property. A property cannot be owned by two persons,
each one having independent and exclusive right over it. Hence for the purpose of s. 9 the
owner must be that person who can exercise the rights of the owner, not on behalf of the
owner but in his own right. Accordingly the assessee was not the owner of the property in
question during the relevant assessment years for the purpose of s. 9 of the Act.

It is true that equitable considerations are irrelevant in interpreting tax laws. But those laws
like all other laws have to be interpreted reasonably and in consonance with justice. If the
thousands of evacuee who left practically all their properties as well as businesses in
Pakistan                had been considered as the owners of those properties and businesses as
long as the 'ordinance' was in force then those unfortunate persons would have had to pay
income-tax on the basis of the annual letting value of their properties and on the income,
gains and properties of the business left by them in Pakistan though they did not get a paisa
out of those properties and business. Fortunately no one in the past interpreted the law in
the manner suggested by the assessee.

CONCLUSION- Since there is no international obligation against parallel importation,

nothing prevented the Court from taking the stand that unless there is an express provision conferring
importation rights on the owner of copyright or prohibiting parallel importation, it need not be
considered to be prohibited in India.

Parallel import general definition

The term "parallel importation" refers to goods produced and sold legally, and
subsequently exported. 'Parallel imports' are genuine goods that are legitimately
acquired from the rights holder and subsequently sold at lower prices through
unauthorised trade channels in the same or a different market. Parallel Imports
basically constitute import of Non-Counterfeit or Genuine Goods from one
country to another without the permission of the IP owner. The products are
indeed legal, but are unauthorized because they are imported without the
permission of the Proprietor. The products thus, imported are often termed as
Grey Products (and not black, owing to the fact that they are genuine).

Exhaustion general definition

An exemption from the general standard is the guideline of exhaustion. It implies that when an
item is legitimately put available on the market, that item is depleted or exhausted, it means that
the IPR proprietor has lost its entitlement to practice the IPR protection about that good. A basic
model is that of a car producer claiming IPR in its vehicles. This producer can preclude different
organizations from selling vehicles encroaching its licenses or trademarks, nonetheless, he/she
can’t forbid clients who have purchased its vehicles from reselling them to outsiders or the third
parties.

Categories based on the Territorial Extent

National Exhaustion: It is where the creator loses to control the re-sale the item in the country
where the underlying approved deal of sale occurred. Under a severe regional utilization of the
precept, a sale in nation A under a nation A patent (or copyright or trademark) would debilitate
or exhaust the IP Owner’s privileges just in nation A, and the IP Owner could depend on its
different patents in different nations to enjoin sales, look for harms or conceivably even require
customs authorities to stop encroaching imports at the border. This standard would hold although
the IP rights in all the nations are the equivalent.
Regional Exhaustion: It is that standard of exhaustion where the creator loses control the re-sale
the item in a specific region where the underlying first approved sale occurred inside that
specific region. It must be noticed that the rights and privileges get depleted within the region
and the proprietor of IP rights can practice all rights concerning even that specific good outside
that area. The most widely recognized case of the activity of this mechanism is inside the
European Community.
International Exhaustion: It is where the creator loses control the re-sale the specific item
independent of where the initial approved deal occurred. Under this rendition of the principle a
sale by or under the authority of an IP Owner anyplace debilitates its rights and privileges under
all counterpart IP protection anywhere in the world. This precept has consistently appeared to be
hard to accommodate with the fundamental frameworks of national IP rights however keeps
away from the reasonable issues and trade hindrances of a regional principle.

Exhaustion in trademark
In India, parallel importation is intricately linked to the principle of exhaustion of
rights under the Trademarks Act, 1999. The principle of exhaustion of rights is
enshrined in Article 6 of the Agreement on Trade-Related Aspects of Intellectual
Property Rights (TRIPs), which states that "nothing in this Agreement shall be
used to address the issue of the exhaustion of intellectual property rights".
Hence, each state is entitled either to prohibit or to allow parallel imports within
its own legal framework.

Two major issues that are often discussed in the context of parallel importation
and trademarks in India are, whether parallel importation constitutes infringement
under Section 29 of the Trademarks Act and whether India recognizes the
principle of international exhaustion of rights under Section 30 of the Trademarks
Act.

Two clauses had been incorporated in the Trade Marks Act under the pre-
existing Section 30 viz. subclauses 3 & 4. Section 30 deals with limits on the
effect of a registered trademark. The new subclause 3 prevents the trademark
owner from prohibiting the sale of goods in any geographical area on grounds of
trademark rights, once three goods under the registered trademark are lawfully
acquired by another person. Subsection 4 states that subsection 3 shall not apply
when the condition of goods is changed or impaired after they have been put on
the market.

The new provisions give a right to the proprietor of a registered trademark to

oppose further dealings in the goods, if legitimate reasons exist. The new sub
clauses 3 & 4 recognize the principle of 'exhaustion of rights' of the trademark
owner.

Section 30 sub-clauses (3) and (4)[1] of the Indian Trademarks Act, 1999, deal
with the exhaustion of rights after first sale of goods. From a cursory reading of
the same, one would deduce that the intention of the legislature was to recognize
domestic exhaustion only.
The landmark judgment in this regard was delivered in Samsung Electronics Company ... vs
Kapil Wadhwa & Ors.1 (2012 Delhi High Court), a Single Judge of Delhi High Court interpreted
the interface of Section 29 and 30 to connote national exhaustion. the main issue was
whether the Indian Trade Marks Act, 1999, embodies the International
Exhaustion Principle or National Exhaustion principle when the Registered
Proprietor of Trade Mark places the goods in the market under Registered Trade
MarkSingle bench decision ruled against international exhaustion stating that Section 29(1) read
with 29(6) prohibits the sale of imported genuine products without the authorization of the
registered proprietor in India and that Section 30(3) embodies only National Exhaustion
principles and does not extend to products acquired from a foreign market.
This was subsequently challenged in appeal to the division bench. The Bench ruled in
favour of international exhaustion. It noted: “There is no law which stipulates that goods sold
under a trade mark can be lawfully acquired only in the country where the trade mark is
registered. In fact, the legal position is to the contrary. Lawful acquisition of goods would mean
the lawful acquisition thereof as per the laws of that country pertaining to sale and purchase of
goods. Trade Mark Law is not to regulate the sale and purchase of goods. It is to control the use
of registered trademarks”. The bench further noted: “Thus the neutral expression ‘the market’
without the legislature adding words to indicate whether it was the domestic or the international
market which was in the mind of the legislature does not justify the conclusion arrived at by the
learned Single Judge as the only logical conclusion.”

Hence the division bench reversed the single judge decision- held that section 30(3) does not
impose any territorial conditions for benefiting from the doctrine of first sale .

The Court also held that India follows International exhaustion of rights.

In the case of Kapil Wadhwa v Samsung Electronics , the only condition imposed by the court on
parallel imports, in relation to trademarks, is that the imported goods should state that they have
been imported, and that after sales service and warranty is not provided by the Right Holder and
rather by the Buyer.

1
Samsung Electronics Company v. Kapil Wadhwa & Ors., (2013 (53) PTC 112 (Del.)
 In Marlboro case2, while upholding the international exhaustion principle, The Delhi High
Court lays the burden of proving that the initial purchase of the trademarked good was legal on
the importer: "The defendant needs to demonstrate that the reproved merchandise, bearing a
specific trademark, were put in any market worldwide by the registered proprietor of the said
trademark or with its assent and from that point, the defendant lawfully obtained them
consequently.”

 INDIAN CUSTOMS LAW ON IMPORT OF INFRINGING GOODS

As per the provisions of the Intellectual Property Rights (Imported Goods) Enforcement

Rules, 2007, a Right Holder may apply to the Commissioner of Customs at a port where the
goods infringing his IP rights are likely to be imported.
If the Custom authorities arrive at the conclusion that the goods being imported are infringing in
nature, they can confiscate the goods under as per the provisions of the Customs Act, 1962.
The Central Board of Excise & Customs has issued a circular dated May 08, 2012
on “Enforcement of Intellectual Property Rights on Imported Goods” clarifying that parallel
importation is not prohibited unless
 the goods bear a false trademark; or
 the goods bear a false trade description in relation to any of the matters connected to the
description, statement or other indications of the product.

ADR

It might be assumed that this is the same law as that which the parties chose to govern the substantive
issues in disput. An ‘applicable law clause’ will usually refer only to the ‘substantive issues in dispute’. It
will not usually refer in terms to disputes that might arise in relation to the arbitration agreement itself.

2
Philip Morris Products S.A. & Anr v. Sameer & Ors, 2014 SCC OnLine Del 1077.
It would therefore be sensible, in drafting an arbitration agreement, also to make clear what law is to
apply to that agreement.

f no such express designation has been made and it becomes necessary to determine the law applicable
to the agreement to arbitrate, the principal choice—lies between the law of the seat of the arbitration
and the law that governs the contract as a whole.

. In Sulamérica, 132 the English Court of Appeal held that where parties have not expressly agreed on a
governing law for their arbitration agreement, their choice of law for the main contract will be a ‘strong
indication’ that they wished to adopt the same law for the arbitration agreement. Where the contract
does not contain a ‘choice of law’ clause (or the arbitration agreement is not part of a contract), the
court will turn to the parties’ choice of seat in order to determine the law with which the arbitration
agreement has its ‘closest and most real connection’.

ne criterion for attributing a choice of law to the parties, in the absence of any express choice, is that of
a choice of forum by the parties. If the parties make no express choice of law, but agree that any
disputes between them shall be litigated in a particular country, it is generally assumed that they intend
the law of that country to apply to the substance of their disputes. This assumption is expressed in the
maxim qui indicem forum elegit jus (‘a choice of forum is a choice of law’).