Under the ‘Tata brand equity and business promotion agreement’, which dates again to January 1999, this firm, like others in the Tata fold, should pay a sure proportion of their annual income to Tata Sons, as a ‘premium’ for utilizing the TATA logo. Accordingly, in FY03 (the yr in dispute), Tata Chemicals paid 0.25% of its income (Rs 3.7 crore) to Tata Sons.
In the course of evaluation, the earnings tax officer denied a deduction for this fee, on the grounds that Tata Chemicals has its personal well-established logo, which additionally discloses the Tata linkage, and that the fee for the premium is underneath a compulsory course from the holding firm and is for a non-business consideration.
Further, the I-T officer held that the settlement is nothing however an association to share income with the holding firm at a predetermined price and any fee in perseverance to the stated settlement shouldn’t be allowed as an expense because it doesn’t relate to the enterprise of Tata Chemicals.
The commissioner (appeals) upheld this plan of action. A disallowance of an expenditure, outcomes in enhancing the taxable income of the corporate. This led to Tata Chemicals submitting an enchantment with the ITAT.
Tata Chemicals submitted to the ITAT that the settlement was entered into by corporations in order to pool assets and make a co-operative effort to advertise a unified Tata model. Collectively, the Tata Brand would match the model fairness of well-known worldwide names. In 2020, TATA was value $20 billion, securing the No.1 place as India’s Most worthy model.
The ITAT bench, comprising Mahavir Singh, vice-president and N Okay Pradhan, accountant member, in its order issued on Friday, famous that in the sooner years, choices in favour of the group firm had been handed by the tribunal. It continued with the identical, 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,” stated a lawyer, who advises the Tatas. In FY13, Tata Sons had capped a bunch firm’s contribution to the model fairness and enterprise promotion fund at Rs 75 crore.