I-T department may challenge order against TCS tax claim
Tata Consultancy Services (TCS), disallowing a tax demand of more than Rs 600 crore, sources aware of the development told ET.
The department had earlier probed TCS on Transfer Pricing (TP) adjustments to check if the transactions with its associated enterprises were at arm's length and whether TCS was liable for taxes on brand fees. The assessing officer (AO) for the assessment year FY14-15 had arrived at the assessed income of '18,752 crore.
The transfer pricing officer (TPO) was of the view that the assessee is recognized as one of the big 4 in the technology industry and is a very powerful brand.
The value of the brand was quantified at $8.2 billion, as per the annual report. Accordingly, the TPO applied 2.9% royalty on the revenue earned by AEs using TCS services to arrive at an adjustment of '1,187.06 crore.
However, TCS contested that the brand is legally owned by Tata Sons and that it has no right to charge fees for the brand.
TCS also submitted that the revenue sharing model it follows with the AE also includes the brand royalty remuneration and no additional fees or royalty is needed, court filings assessed by ET showed.
Later, TCS went into appeal before the commissioner of income tax (CIT) Appeals, who deleted the TP adjustments made toward the provision for software and consultancy, and the adjustments made toward brand royalty fees.
Email sent to TCS remained unanswered until the publication of this report.
«The fee paid by the assessee toward the brand to Tata Sons is not capital in nature for the reason that the brand is not owned by the assessee. Accordingly, there cannot be any royalty that needs to be charged on the brand...We, therefore, see no infirmity in the order of the CIT(A).
