Tata Consultancy Services (TCS), India’s largest IT company, has reportedly paid a sum of Rs 77 lakh to its parent firm, Tata Group, for the usage of the Tata logo.
This payment was permitted as a business deduction by the income-tax appellate tribunal.
TCS has faced similar tax disputes concerning this matter in the past, all of which were resolved in the company’s favor.
Other Tata Group companies, including Tata Chemicals, have also encountered similar tax litigation.
The income-tax appellate tribunal’s Mumbai bench recently sanctioned TCS’s payment of Rs 77 lakh for the utilization of the ‘Tata’ name and logo to Tata Sons as a legitimate business deduction.
When an expense is allowed as a business deduction, it reduces taxable profits, subsequently affecting the income tax paid.
It’s important to note that TCS is not the sole entity required to make this payment.
Under the Tata brand agreement, all firms within the Tata Group must pay an annual fee, often referred to as subscription fees, to Tata Sons.
Tata Sons is the official owner of the ‘Tata’ name.
As part of the Tata Brand Equity and Business Promotion (TBEBP) scheme, Tata Group companies using the Tata brand are obligated to pay 0.25% of their annual revenue or five percent of their profit before tax.
Furthermore, the royalty payment is determined based on generated revenues rather than profits, even if an entity using the Tata brand name is operating at a loss.
The income-tax department had initially treated the Rs 77 lakh payment by TCS as capital expenditure and allowed a 25% depreciation on it.
As a result, a significant portion of the payment was denied as a business deduction.
TCS contended before the ITAT bench that the subscription fees provided access to various shared resources within the Tata Group.
Tata Sons is responsible for safeguarding and promoting the collective image and reputation of the Tata Group, managing corporate identity, coordinating significant campaigns for Tata’s name promotion and development, and employing specialists and professional consultants to enhance the Tata name.
These actions, in turn, contribute to the improved image and increased sales of group companies like TCS.
Tata Sons declined to comment on the matter when contacted.
