The Income Tax Appellate Tribunal (ITAT), Mumbai Bench deleted the addition of sum paid to Tata Sons Limited towards subscription paid for Brand Equity and Business Promotion Agreement.
During the course of assessment proceedings, the assessee, Tata Chemicals Limited submitted before the AO stating that the Company has 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 is made annually on a recurring basis, the assessee explained before the AO that the same be allowable as a revenue expense.
However, the AO was not convinced with the above explanation of the assessee on the ground that the Company is a well known Tata group Company since 1939 having its own reputation as a household name the assessee had its own well-established logo which also discloses the Tata linkage of the company, the payment for premium is being made under a mandatory direction from the holding company and is for non-business consideration and the agreement as referred 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 is not allowable as an expense relating to the business of the Company.
The coram headed by the Vice President Mahavir Singh noted that while allowing the appeal the Tribunal deleted the addition of Rs.3,73,88,538 made by the AO.
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