Tata Chemicals gets ITAT relief in logo fee case – Times of India
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MUMBAI: The Mumbai bench of Income Tax Appellate Tribunal (ITAT) has allowed Rs 3.7 crore paid by Tata Chemicals for using the ‘TATA’ logo as a business deduction.
Under the ‘Tata brand equity and business promotion agreement’, which dates back to January 1999, this company, like others in the Tata fold, have to pay a certain percentage of their annual profits to Tata Sons, as a ‘premium’ for using the TATA logo. Accordingly, in FY03 (the year in dispute), Tata Chemicals paid 0.25% of its profits (Rs 3.7 crore) to Tata Sons.
In the course of assessment, the income tax officer denied a deduction for this payment, on the grounds that Tata Chemicals has its own well-established logo, which also discloses the Tata linkage, and that the payment for the premium is under a mandatory direction from the holding company and is for a non-business consideration.
Further, the I-T officer held that the agreement is nothing but an arrangement to share profits with the holding company at a predetermined rate and any payment in perseverance to the said agreement should not be allowed as an expense as it does not relate to the business of Tata Chemicals.
The commissioner (appeals) upheld this course of action. A disallowance of an expenditure, results in enhancing the taxable profits of the company. This led to Tata Chemicals filing an appeal with the ITAT.
Tata Chemicals submitted to the ITAT that the agreement was entered into by companies in order to pool resources and make a co-operative effort to promote a unified Tata brand. Collectively, the Tata Brand would match the brand equity of well-known international names. In 2020, TATA was worth $20 billion, securing the No.1 position as India’s most valuable brand.
The ITAT bench, comprising Mahavir Singh, vice-president and N K Pradhan, accountant member, in its order issued on Friday, noted that in the earlier years, decisions in favour of the group company had been passed by the tribunal. It continued with the same, and struck off the disallowance made by the I-T officer.
“The license fee paid to Tata Sons is a business expense for a group company and is allowed as a deductible expense. It is a fairly settled issue. This order affirms and agrees with the conclusion of earlier ITAT orders,” said a lawyer, who advises the Tatas. In FY13, Tata Sons had capped a group company’s contribution to the brand equity and business promotion fund at Rs 75 crore.
Under the ‘Tata brand equity and business promotion agreement’, which dates back to January 1999, this company, like others in the Tata fold, have to pay a certain percentage of their annual profits to Tata Sons, as a ‘premium’ for using the TATA logo. Accordingly, in FY03 (the year in dispute), Tata Chemicals paid 0.25% of its profits (Rs 3.7 crore) to Tata Sons.
In the course of assessment, the income tax officer denied a deduction for this payment, on the grounds that Tata Chemicals has its own well-established logo, which also discloses the Tata linkage, and that the payment for the premium is under a mandatory direction from the holding company and is for a non-business consideration.
Further, the I-T officer held that the agreement is nothing but an arrangement to share profits with the holding company at a predetermined rate and any payment in perseverance to the said agreement should not be allowed as an expense as it does not relate to the business of Tata Chemicals.
The commissioner (appeals) upheld this course of action. A disallowance of an expenditure, results in enhancing the taxable profits of the company. This led to Tata Chemicals filing an appeal with the ITAT.
Tata Chemicals submitted to the ITAT that the agreement was entered into by companies in order to pool resources and make a co-operative effort to promote a unified Tata brand. Collectively, the Tata Brand would match the brand equity of well-known international names. In 2020, TATA was worth $20 billion, securing the No.1 position as India’s most valuable brand.
The ITAT bench, comprising Mahavir Singh, vice-president and N K Pradhan, accountant member, in its order issued on Friday, noted that in the earlier years, decisions in favour of the group company had been passed by the tribunal. It continued with the same, and struck off the disallowance made by the I-T officer.
“The license fee paid to Tata Sons is a business expense for a group company and is allowed as a deductible expense. It is a fairly settled issue. This order affirms and agrees with the conclusion of earlier ITAT orders,” said a lawyer, who advises the Tatas. In FY13, Tata Sons had capped a group company’s contribution to the brand equity and business promotion fund at Rs 75 crore.
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