TMI Blog2014 (3) TMI 1016X X X X Extracts X X X X X X X X Extracts X X X X ..... sel for assessee, the agents would get vested right to receive the commission only when they fulfill the obligations under the agreement for commission. We find that the CIT(A) has properly appreciated the issue before deleting the addition made by the AO. In view of the same, we do not see any reason to interfere with the finding of the CIT(A) on this issue - Decided against revenue. Addition made on account of consultancy charges - according to the Revenue, this expenditure is capital in nature and has to be allowed u/s 35D while CIT(A) has allowed it as revenue expenditure - Held that:- The consultancy fees paid by the assessee to M/s.Mckinsey & Co., is to cause a study and prepare a strategy to reduce the cost of production by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 6,46,11,000/- for failure to deduct TDS on such commission. Ground No.5 relates to the deletion of addition made on account of consultancy charges of ₹ 11,56,22,560/- treating it as capital expenditure. According to the Revenue, this expenditure is capital in nature and has to be allowed u/s 35D of the Act while CIT(A) has allowed it as revenue expenditure. 3. Brief facts of the case are that the assessee-company is into the business of manufacturing, purchase and sale of excavators, loaders, cranes, dumpers and spare parts etc. For the relevant assessment year, the assessee filed its return of income declaring income of ₹ 282,44,84,066/-. During the assessment proceedings u/s 143(3) of the Income-tax Act,1961 [he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision and not actual payment of commission to the party and till the amounts are credited to the respective party's account, it cannot be said that the same have become finally quantified and hence, the provisions of sec.194H are not attracted. He also followed the decision of the jurisdictional High Court in the case of ACIT vs. Motor Industries Co. (249 ITR 141). He accordingly deleted the addition made by the AO. Against the deletion made by the CIT(A), the Revenue is in appeal before us. 5. Ms.Priscilla Singsit, learned Departmental Representative, supported the order of the AO and submitted that u/s 194-H, whenever a commission or brokerage is credited by the assessee, the assessee is required to make TDS. In support of her c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provision account and therefore there was no requirement of making TDS u/s 194H and consequently no disallowance u/s 40a(ia) can be made. In support of this contention, he placed reliance upon the decision of the jurisdictional High Court in the case of Motor Industries Co. (supra) and submitted that in the said case, the Hon'ble High Court was dealing with the applicability of sec.195 and it has been held that liability u/s 195 of the Act would begin to operate only with effect from the date when the collaboration agreement was concluded and not earlier because the foreign collaborator can enforce his right to receive payment only on conclusion of the collaboration agreement and that the mere fact that the assessee was crediting am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we do not see any reason to interfere with the finding of the CIT(A) on this issue. This ground of appeal is accordingly rejected. 7. Coming to the second issue of disallowance of consultancy charges of ₹ 11,56,22,560/- as revenue expenditure, the learned DR has relied upon the order of the AO wherein the AO has held that the consultancy charges paid by the assessee to M/s.Mckinsey Co., was in respect of study report to relocate its sources and to increase the profitability of the company. The AO held that the assessee was getting enduring benefit and therefore it is to be treated as capital expenditure and he has amortized the expenditure for a period of five years. On appeal, the CIT(A) has deleted the addition holding that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d costing or improved sale would always yield enduring benefit. Though enduring benefit is one of the criterion to hold an expenditure to be capital in nature, it is not the only criterion to hold it to be so. While considering the nature of expenditure to be capital or revenue, the test to be applied is also whether there is any new asset being created and whether it is giving enduring benefit. As rightly pointed out by the CIT(A), no new asset has come into existence and the study is only for improving the sales and profitability of the assessee. Therefore, in our opinion, the expenditure is clearly revenue in nature and hence, there is no reason to interfere with the order of the CIT(A) on this issue also. 10. In the result, the Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X
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