The income-tax appellate tribunal has allowed Tata Consultancy Services (TCS) to deduct the payment made to Tata Sons for the use of the ‘Tata’ name and logo as a business deduction. This move helps TCS lower its taxable profits and decrease the income-tax outgo. The payment of Rs 77 lakh, known as subscription fees, is part of the Tata brand agreement in which group companies, including TCS and Tata Chemicals, make annual payments to Tata Sons. In the past, TCS has faced tax litigation, but this recent order is in its favor.

The income-tax department treated the Rs 77 lakh payment as a capital expenditure for TCS in the financial year 2014. As a capital expenditure, a depreciation of 25% was allowed, resulting in a substantial amount being disallowed as a business deduction. However, TCS argued that this payment is recurring in nature and should be considered as a business expense rather than a capital expenditure.

TCS submitted to the income-tax appellate tribunal bench that the subscription fees paid to Tata Sons provide access to various shareable resources of the Tata Group. Tata Sons is responsible for protecting and enforcing the collective image and goodwill of the Tata Group. They also coordinate major campaigns to enhance the Tata name and engage the services of specialists and professional consultants. This cooperation helps to boost the image of group companies like TCS and improve sales.

Tata Sons, the registered owner of the ‘Tata’ name, organizes the corporate identity of the Tata Group and engages in activities that promote and develop the Tata brand. When contacted, Tata Sons declined to comment on the matter.

The tax litigation over the payment of the Tata brand name has not been limited to TCS alone. Other group companies, such as Tata Chemicals, have also faced similar tax disputes in the past. However, this recent order by the income-tax appellate tribunal sets a precedent that allows the payment to be treated as a business deduction.

By approving the deduction for TCS, the income-tax appellate tribunal recognizes that the payment made for the use of the Tata brand name is a legitimate business expense that helps in enhancing the overall Tata name and promoting the sales of the group companies. This decision provides relief to TCS and other group companies, allowing them to lower their tax liability and improve their financial performance.