TPguidelines

Maruti Suzuki India manufactures and sells cars and spare parts. A license agreement had been entered with the group parent for use of licensed information and trademark for the manufacture and sale of the products. Hence, Maruti Suzuki paid royalties to the parent for trademark and technology.

The tax administration made an adjustment where the royalty paid for use of the trademark was disallowed and where a reimbursement with mark-up for non-routine advertising, marketing and promotion of the brand name was imputed.

The High Court, referred the case back to the tax administration with observations.

• If there is an agreement between the group parent and the taxpayer which carries an obligation on the taxpayer to use the trademark owned by the group parent. Such agreement should be accompanied either by an appropriate payment by the group parent or by a discount provided to the taxpayer.
• Appropriate payment should be made on account of benefit derived by the group parent in the form of marketing intangibles obtained from such mandatory use of the trademark.
• However, if the agreement between the group parent and Maruti Suzuki for the use of the trademark is discretionary, no payment is required to the foreign entity.