ITAT: Royalty Not Chargeable, As Fees Paid By Tata Consultancy Towards Brand to Tata Sons, Not Capital In Nature
The Mumbai Bench of the Income Tax Appellate Tribunal has held that the fee paid by the assessee, Tata Consultancy Services
ITAT: Royalty Not Chargeable, As Fees Paid By Tata Consultancy Towards Brand to Tata Sons, Not Capital In Nature
The transfer pricing officer had applied a 2.9 percent royalty on the revenue earned by associate enterprises
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that the fee paid by the assessee, Tata Consultancy Services, towards the brand to Tata and Sons Ltd is not capital in nature because the brand is not owned by the assessee.
The bench of Vikas Awasthy (Judicial Member) and Padmavathy S. (Accountant Member) observed that no royalty could be charged to the brand since Tata Consultancy was not the owner of the brand. There could not be any TP adjustment towards the amount that should have been received by it towards brand royalty.
The assessee/respondent is in the business of exporting computer software, providing e-solutions, BPO activities, and management consultancy activities.
The Transfer Pricing Officer (TPO) viewed that the assessee was a powerful brand recognized as one of the big four in information technology for the Financial Year 2013–14.
The assessee submitted before the TPO that the brand was legally owned by Tata Sons, so the assessee had no right to charge the fees for the brand. It submitted that the revenue-sharing model followed by the AE also included brand royalty remuneration, and no additional fees or royalties were needed.
However, the TPO did not accept the assessees’ submissions. He held that the assessee was the actual value contributor and maintained, practiced, and evidenced the value of the brand through its service delivery credentials.
Thus, the TPO stated that the assessee was entitled to an appropriate return for the brand value. He applied a 2.9 percent royalty on the revenue earned by associate enterprises (AEs) using TCS services to arrive at an adjustment of Rs.1187.06 crores.
However, on appeal, the Commissioner of Income Tax (Appeals) deleted the TP adjustments made towards the provision for software and consultancy and brand royalty fees.
The assessee contended that the officer erred in making any TP adjustment towards the notional fees on the brand not owned by it.
The ITAT upheld the order of the CIT(A) and deleted the TP adjustments made towards the provision for software and consultancy and the adjustment made towards brand royalty fees.