New Delhi: Foreign firms may now be wary of letting Indian companies use their brand names as the income from providing technical solutions under overseas companies’ brands could invite tax liability, according to a recent tribunal ruling.
Tax issues: The North Block, which houses the income-tax department headquarters, in New Delhi. Foreign firms are liable to pay tax on income from letting Indian arms use their brand names. Ramesh Pathania / Mint
The Income Tax Appellate Tribunal (ITAT) has, in a recent ruling, said the Indian arm of German company Hutarew and Partner is liable to pay tax deducted at source (TDS) on the licence fee paid to the parent company for technical services.
“If services have been used by the assessee within India, then it is immaterial whether the non-resident has a residence or place of business or business connection in India as the sum paid to the non-resident would be included in the income, which will be deemed to have accrued to the non-resident, and it will be subject to TDS provisions,” the tribunal ruled.
The Indian arm of Hutarew provides consultancy services for setting up power projects and had paid licence fee for using the Hutarew brand name and data-processing charges.
However, the Indian company, which availed of the data-processing services, failed to deduct TDS on both types of payments. The tribunal, in its order, dismissed the appeal of the company that the fees paid to the German company were not for technical services.