TMI Blog2009 (6) TMI 691X X X X Extracts X X X X X X X X Extracts X X X X ..... uted the correctness of the receipt and the date of receipt of the order of the learned CIT(A) by the assessee. We thus find that appeal was filed in time, therefore the parties were heard on merits. 3. The sole ground of the appeal reads as under : The learned CIT(A)-IV Baroda has erred in law and on facts in treating Rs. 13,99,803 paid on account of commission to Pramaki Finvest (P.) Ltd., and accounted as commission in the books of account as capital in nature instead of allowable revenue expenditure. The appellant therefore prays and appeals the amount of commission Rs. 13,99,803 be treated as allowable business expenditure as per section 36 of the Income-tax Act, 1961. 4. The brief facts of the case are that the assessee-company claimed deduction for commission expense of Rs. 13,99,803. The assessee submitted before the Assessing Officer that in consideration of upgradation of TMCS, HMDS and BTSO plants, the company did not agree to pay any technical know-how fees upfront and also with a view to protect the derailment of plant and continued association M/s. Pramaki Finvest (P.) Ltd., was required to place interest-free security deposit in terms of MoU for an amount n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lacs in the previous year to Rs. 4.21 crores in the year under consideration. It is also submitted that commission on sale and expenditure on upgradation of the plant could not be treated as capital expenditure as these payments have direct nexus with the manufacturing activities of the assessee and not on purchase price of any particular asset. Further, on going through the MoU between the appellant and M/s. Pramaki Finvest (P.) Ltd., (PFPL) it is seen that PFPL claims to have developed process technology for various higher grade products which were to be provided by them in terms of technical know-how and necessary support services and facilities. PFPL also proposed to implement the process technology using cost efficient management method and quality control. In the MoU, under the head Obligation to PFPL , at clauses 2, 3 and 4 under the head Obligation to CSPL i.e., appellant, at clauses 2, 3 and 4, it is stated that : 2. Obligation of PFPL. PFPL shall help CSPL in selection of suitable machinery, which can be either fabricated on site, or from reputed manufacturers, as per their specification, design and drawing and suitability for producing desired products. 3. PF ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e date of the contract. 5.3.3 From the above, it is evident/that the payments of Rs. 5,00,000 and the other payment which is linked to the sales are to be paid in connection with acquisition of modern plant and equipment and also on technical know-how, etc. In my view, therefore, the appellant has made these payments in regard to acquisition of the capital assets and the other services are related to the process and machineries. The mere fact that the commission payment is calculated as percentage of sale does not render it a colour of commission. There is no element of service rendered by PFPL in connection with sale of various products manufactured by appellant by using improved technology. The payment amount is linked to the sale but it does not amount to commission on account of sale. Technical know-how and processes evidently provide sustainable benefit to the appellant in terms of improving the efficiency of the plant as well as improving the yield and quality of the products. These objectives are sought to be achieved by investment in modernization/expansion of the equipment and process. The fact that both these payments are to be received over a period of 5-10 years is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, therefore, submitted that this clearly shows that the expenditure incurred for technical know-how fee and for upgradation of various plants was incurred wholly and exclusively ( sic ). The assessee placed reliance on the decision of Hon ble Supreme Court in the case of Eastern Investments Ltd. v. CIT [1951] 20 ITR 1 . Hence, it was submitted that commission could not be treated as "capital expenditure" and it is in the nature of "revenue expenditure" and allowable as "business expenditure." 6. The learned Departmental Representative has relied on the order of the learned CIT(A). 7. We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. The issue raised before us is that the payment of Rs. 13,99,803 which was calculated at the rate of Rs. 10 per kg., on HMDS and TMCS and at the rate of Rs. 20 per kg., on BTSO sold by the assessee and debited under the head "Commission". The facts relevant to the issue are that the assessee entered into an agreement with M/s. Pramaki Finvest (P.) Ltd., on 1-4-2001. In pursuance to the said agreement M/s. Pramaki Finvest (P.) Ltd., was to render various services to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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