ITAT deletes Additions against McDonald’s [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) on Monday deleted additions against the American fast food Company McDonald’s.

The Company, McDonalds India had paid Rs. 27.27 crore as royalty payment and Rs. 6.83 crore as franchisee fee to its parent Company, McDonald s Corporation. The assessee also paid Rs. 1.70 crore as R&D Cess on such royalty and franchisee fee. The TPO determined Nil ALP in respect of royalty fee and franchisee fee. The Assessing Officer also disallowed R&D Cess on royalty and franchisee fee amounting to Rs. 1.70 Crore, which was subsequently deleted by the DRP. Against the order, the Revenue approached the Tribunal.

Granting partial relief to the assessee, the bench comprising R.S Syal (Vise President) and K.N Chary (Judicial Member) observed that the payment of R&D Cess on royalty and franchisee fee paid to the Government of India is not dependent upon the arm s length price of royalty and franchisee fee paid by the assessee to its associated enterprise.

“Notwithstanding the fact that the TPO determined nil ALP of royalty payment and franchisee fee, the amount paid as R&D Cess on these payments has to be allowed as deduction since it is a statutory payment to the Government,” the bench said.