TMI Blog2010 (11) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... egic Consultancy Services Pvt. Ltd., treating the same as in capital field and allowing balance 80% as revenue expenses? " Since both the counsel for the parties were ready to argue the matter finally, we heard the counsel for the parties and reserved the judgment on the same day. 2. The payments made by the assessee to M/s Feedback Strategic Consultancy Services Pvt. Ltd. (hereinafter referred to as „the Consultant‟) for detailed study on cement market in India etc. is to be treated as revenue expenditure or the capital expenditure, is the question posed for determination. The Assessing Officer held the view that the entire expenditure was in the capital field and, therefore, treated is to be the capital expenditure. He thus disallowed the payment of ₹ 47.25 lacs made to the Consultant. The CIT (A) confirmed this order of the Assessing Officer. However, in further appeal, the Tribunal has deleted the addition to the extent of 80%, inasmuch as, it has held that only 20% of the total expenditure would be capital expenditure and remaining 80% amount spent is revenue in nature. In order to ascertain the nature of expenditure, it would be necessary to find out the natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by witnessed growth both in terms of quality and profits. Looking from this angle, the Assessing Officer held that the assessee had got the benefits of enduring nature lasting for future years and, consequently it was to be treated as capital expenditure. 6. The CIT (A) while confirming the aforesaid order of the Assessing Officer further added that the projection of trends for future years, in demand consumption patterns indicate a benefit, that would be enduring in nature as the same pertains to future trends up to a number of years as well as the fact that the assessee would stand to gain permanently from the expert opinion thus obtained. 7. Before the Income Tax Appellate Tribunal, the assessee again reiterated its submission that the agreement between the assessee and the Consultant delineated the scope of study and was confined to the following major areas:- 1. The existing cement capacities and the production there against giving trend of last few years, giving/projecting likely increase in the capacities separately in green field and brown field projects. 2. The demand of cement giving growth trend in last few years, next ten years, projections considering the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is based on the following discussion:- "The next question arises for our consideration is how much expenses are relatable towards the capital field. On due consideration of the facts and circumstances, we find that the assessee has sought study report on five issues from Ms/ Feedback Consultancy Services Pvt. Ltd. Out of those five issues only two are relating to expansion or starting of new projects. Therefore, in our opinion if we allocated 20% of the total expenses towards obtaining these report then ends of justice would meet. We direct the AO to treat 20% of the expenses in the capital field and allow the deduction of the rest of the expenses." 11. Before us, both the parties adopted the same path which were treaded before the authorities below. 12. We have already mentioned above the scope of the study. Five major areas were assigned to the Consultant on which these Consultants were to undertake the study and give their reports. 13. We may first spell-out the principles which are to be kept in mind to determine as to whether such expenses are to be treated capital or the revenue expenditure. These are neatly culled out in the case of CIT Vs. J.K. Synthetics Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an indefinite period. To that extent, the test of enduring benefit or advantage could be considered as having broken down; (v) expenditure incurred for grant of License which accords 'access' to technical knowledge, as against, 'absolute' transfer of technical knowledge and information would ordinarily be treated as revenue expenditure. In order to sift, in a manner of speaking, the grain from the chaff, one would have to closely look at the attendant circumstances, such as: (a) the tenure of the Licence. (b) the right, if any, in the licensee to create further rights in favour of third parties, (c) the prohibition, if any, in parting with a confidential information received under the License to third parties without the consent of the licensor, (d) whether the Licence transfers the 'fruits of research' of the licensor, 'once for all', (e) whether on expiry of the Licence the licensee is required to return back the plans and designs obtained under the Licence to the licensor even though the licensee may continue to manufacture the product, in respect of, which 'access' to knowledge was obtained during the subsistence of the Licence. (f) whether any secret or pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
