CIT appeal against Nestle dismissed

The Delhi high court last week dismissed the appeal of the Commissioner of Income Tax in a dispute over the deduction claimed by Nestle India Ltd in respect of remuneration/royalty paid by it to other subsidiaries and holding companies. The assessing officer disallowed the claim and the tax appellate tribunal held that the revenue authorities were wrong, leading to the appeal. The company, which makes food products and beverages, had debited a huge amount on account royalty payable to two overseas companies, namely Nestec SA and Societe Des Produits Nestle SA, Switzerland. These payments were claimed as business expenditure on account of technical assistance rendered by the two companies to the Indian company. The authorities felt that the deduction was excessive. The high court upheld the ruling of the tribunal, which stated that the revenue authorities have not specified as to how much ordinary profit was supposed to be and the basis of its determination, before treating royalty payment as excessive and unreasonable.