ITAT Grants Reckitt Relief in Marketing Intangibles Transfer Pricing Dispute

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) on 14 May 2026 ruled in favour of Reckitt Benckiser Healthcare India Pvt. Ltd., holding that higher Advertising, Marketing, and Promotion (AMP) expenditure by an Indian subsidiary cannot automatically be treated as creation of a “marketing intangible” for its foreign parent company. A bench comprising Vice President Dr. BRR Kumar and Judicial Member Shri Siddhartha Nautiyal deleted the AMP-related transfer pricing adjustments as well as royalty disallowances made by the tax authorities. The Tribunal noted that

“Simply spending more than the industry average on advertising does not mean a subsidiary is providing a service to its parent.”

The assessee, Reckitt Benckiser Healthcare India Pvt. Ltd., is engaged in the manufacturing and sale of well-known healthcare and consumer brands in India. During AYs 2014-15 to 2017-18, the Transfer Pricing Officer (TPO) alleged that the company had incurred excessive AMP expenses, which resulted in the creation of brand value and marketing intangibles for its associated enterprise abroad. Based on this reasoning, transfer pricing adjustments were proposed. The Assessing Officer (AO) also disallowed royalty payments made towards use of trademarks, technology, and technical know-how.

The Revenue authorities relied upon the Brightline Test to compare the assessee’s AMP expenditure with comparable companies and treated the excess spend as a separate international transaction. The assessee challenged the additions before the Tribunal, contending that the AMP expenses were incurred wholly for boosting its own sales in India and there was no arrangement with the foreign parent for brand promotion.

“The primary beneficiary of local marketing is the local entity that makes the sales.”

The Tribunal observed that the Brightline Test has already been rejected by higher judicial forums and has no statutory recognition under Indian transfer pricing law. It held that merely because the assessee incurred higher AMP expenditure, it could not be presumed that a service was rendered to the foreign associated enterprise. The Bench noted that the Revenue failed to establish the existence of any agreement or understanding for creation of marketing intangibles on behalf of the parent entity.

On the issue of royalty, the Tribunal held that the payment was made for use of established brands and technical know-how, which were integral to the assessee’s business operations in India. It reiterated that the tax authorities cannot step into the shoes of a businessman to determine whether sufficient benefit was derived from such expenditure.

The ITAT further followed its own orders passed in the assessee’s earlier years and deleted the additions made on account of AMP expenses and royalty payments. Thus, the appeals filed by the assessee were allowed, while the Revenue’s appeals were dismissed.

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