Tribunal rejects taxman’s claim on Pepsi sponsorship

The income-tax authorities have been clean-bowled by an appellate tribunal, which rejected a claim related to PepsiCo’s sponsorship of the ICC World Cup during in 2008. The tribunal allowed the sponsorship amount as a deduction while calculating income tax for the year. The tax department had held that since the expenditure benefitted other Pepsi group entities across the globe, the expenditure could not be said to have been incurred wholly and exclusively for the business of Pepsi-Co India Holdings Private Ltd.

Proving that an expense has been incurred wholly and exclusively for the purpose of business has been a matter of dispute for long between taxpayers and tax authorities.

There have been a number of cases on advertising, marketing and promotion expenses of an Indian entity being attributed to overseas group company’s brand-building activity, with tax authorities challenging the ‘armslength price’ of the transaction.

The Delhi I-T Appellate Tribunal has held that PepsiCo’s sponsorship fee of .`3.8 crore paid to the International Cricket Council be allowed as a deduction under section 37 (1) of the Income-Tax Act, 1961.

This amount was for sponsoring cricketing events during 2008.

The tribunal observed that companies use sports events as a platform to advertise their range of products as it has a very high viewership and any such expenditure incurred is ostensibly for promotion of business only and hence, no disallowance is called for.

“What is relevant for an expense to be allowable as revenue expense is that whether it has been incurred during the course of business and is for the purpose of business.

Benefit factor to other related parties is relevant under transfer pricing provision and not while allowing business expense under u/s 37 (1),” it said.

Source:-https://retail.economictimes.indiatimes.com/news/food-entertainment/grocery/tribunal-rejects-taxmans-claim-on-pepsi-sponsorship/66996458

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