Subscription paid towards Brand Equity & Business Promotion was allowable as revenue expense

Tata Chemicals Limited Vs DCIT (ITAT Mumbai)

Conclusion: Addition of sum paid to Tata Sons Limited towards subscription paid for Brand Equity and Business Promotion Agreement was not justified as the said payment was made annually on a recurring basis for business purpose and the same was allowable as a revenue expense.

Held:  During the course of assessment proceedings, assessee submitted before AO stating that the Company had entered into an agreement titled “Tata Brand Equity & Business Promotion Agreement” vide which it had to pay 0.25% of its annual profits to M/s Tata Sons Ltd. as premium for using the TATA logo. Explaining that the said payment was made annually on a recurring basis, assessee explained before AO that the same be allowable as a revenue expense. However, AO was not convinced with the above explanation of assessee on the ground that (i) the Company was a well known Tata group Company since 1939 having its own reputation as a house hold name; assessee had its own well-established logo which also disclosed the Tata linkage of the company, (ii) the payment for premium was being made under a mandatory direction from the holding company and was for non-business consideration and (iii) the agreement as referred was nothing but an arrangement to share profits with the holding company at a pre­determined rate and any payment in perseverance to the said agreement was not allowable as an expense relating to the business of the Company. It was held that similar issue arose before the Tribunal in assessee’s own case for AY 2002-03 in ITA No. 3383/Mum/2015, wherein it was noted that the same issue had been decided in favour of the assessee in its own case for AY 2000-01 (ITA No. 5446/M/2014, dated 21.06.2017) and AY 2001-02 (ITA No. 6366/M/2014, dated 15.09.2017) by the Tribunal. Also in the case of its subsidiary company i.e. Rallis (India) Ltd., the same issue had been decided in favour of the assessee by the Tribunal in ITA No. 5257/M/2008 vide order dated 30.08.2001. Therefore, the Tribunal in AY 2002-03 affirmed the order of CIT(A) deleting the addition made by the AO.

FULL TEXT OF THE ITAT JUDGEMENT

The captioned cross appeals- one by the assessee and other by the Revenue – are directed against the order of the Commissioner of Income Tax (Appeals)-6, Mumbai [in short CIT(A)] and arise out of the assessment completed u/s 143(3) of the Income Tax Act 1961 (the ‘Act’). As common issues are involved, we are proceeding to dispose them off by this consolidated order for the sake of convenience.

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