Fee Paid By TCS Towards The Brand To Tata And Sons Ltd. Is Not Capital In Nature, Royalty Not Chargeable: ITAT

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that the fee paid by the assessee, Tata Consultancy Services (TCS), towards the brand to Tata and Sons Ltd. is not capital in nature for the reason that the brand is not owned by the assessee.

The bench of Vikas Awasthy (Judicial Member) and Padmavathy S. (Accountant Member) has observed that there cannot be any royalty that needs to be charged on the brand since the assessee is not the owner of the brand, and there cannot be any TP adjustment towards the amount that ought to have been received by the assessee towards brand royalty.

The assessee/respondent is in the business of exporting computer software, providing e-solutions, BPO activities, and other management consultancy activities.

The Transfer Pricing Officer (TPO) was of the view that the assessee has been recognised as one of the big four in information technology for FY 2013–14 and is a very powerful brand.

The assessee submitted before the TPO that the brand is legally owned by Tata Sons Limited, and so the assessee has no right to charge fees for the brand.

The assessee submitted that the revenue-sharing model it follows with the AE also includes brand royalty remuneration, and no additional fees or royalty is needed. The TPO did not accept the submissions of the assessee.

The TPO held that the assessee is the actual value contributor and maintains, practices, and evidences the value of the brand through its service delivery credentials.

The TPO was of the view that it is the assessee who is entitled to an appropriate return for the brand value. The TPO applied 2.9% royalty on the revenue earned by AEs using TCS services to arrive at an adjustment of Rs. 1187.06 crore.

On appeal, the CIT(A) deleted the TP adjustments made towards the provision for software and consultancy and the adjustment made towards brand royalty fees.

The assessee contended that the TPO is not correct in making any TP adjustment towards the notional fees on the brand that is not owned by the assessee, which the TPO held to be received by the assessee.

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.

Counsel For Appellant: Prakash Kishinchandani

Counsel For Respondent: R.D. Khona

Case Title: Tata Consultancy Services Versus DCIT

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