TMI Blog2009 (9) TMI 989X X X X Extracts X X X X X X X X Extracts X X X X ..... act arrived at by the Tribunal that consultancy charges were paid by the assessee to Mr. Mirza[Non-Executive Director] against actual services rendered, we are of the opinion that no question of law in this regard arises. Payment for Advisory services in regulatory compliance - Classification of expenditure - According to the assessee, the payment was made as a normal business activity for the aforesaid purpose in order to maintain good and cordial relationship with the shareholders and, at the same time, safeguarding the interests of the existing shareholders - as per AO expenses were incurred for the buyback of the shares, which is directly related to the capital of the assessee. Therefore, he treated it as capital expenditure - Tribunal differed with the Assessing Officer and CIT(A) holding that the expenditure in question was not in relation with the share capital of the assessee-company - HELD THAT:- As decided in EMPIRE JUTE COMPANY LIMITED VERSUS COMMISSIONER OF INCOME-TAX [ 1980 (5) TMI 1 - SUPREME COURT] When the expense incurred relates to the issue of fresh shares, which leads to an inflow of fresh funds into the company, such expenditure is to be treated as capita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order before the Income-tax Appellate Tribunal (ITAT), as vide judgment dated 14-8-2008, the ITAT has set aside the order of CIT(A) and allowed the aforesaid deductions, thereby deleting those amounts from the income of the assessee. Revenue is in appeal against that order of the ITAT. 2. Consultancy charges of ₹ 3,15,000 paid by the assessee-company to one Mr. B.M. Mirza were disallowed by the Assessing Officer as he found that the payment to Mr. B.M. Mirza, Non-Executive Director of the company, was not found satisfactory and in his opinion the payment was made just to avoid the tax liability and for non-business purpose. The explanation of the assessee was that it had paid consultancy fee of ₹ 3,15,000 to Mr. B.M. Mirza and ₹ 60,000 to Mr. V.B. Mahajan. After eliciting explanation from the assessee about the type of services rendered by them, he allowed the claim of payment of ₹ 60,000 to Mr. Mahajan, but disallowed the claim of consultancy fee paid to Mr. Mirza. Submission of the assessee was that Mr. Mirza was a leading financial expert. He had been a Fellow of the Institute of Chartered Accountants of England Wales as a senior partner at S.R. Bat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it is also not in dispute that Mr. Mirza was a competent person having fellow Membership of Institute of Chartered Accountants of England Wales and vast experience as a financial expert. We feel that for services rendered as an advisor regarding legal compliance, there may not be some documentary evidence as noted by Ld. CIT(A) but since the need of advisory services is shown by pointing out that new SEBI guidelines are made applicable in this year and it is also shown that Mr. Mirza was capable of rendering such services, the claim of the assessee deserves to be allowed in the facts and circumstances of this case. 4. We are of the opinion that the aforesaid finding of fact is based on cogent material and it cannot be termed as perverse nor such an attempt is made by the learned counsel for the Revenue. Since it is a pure finding of fact arrived at by the Tribunal that consultancy charges were paid by the assessee to Mr. Mirza against actual services rendered, we are of the opinion that no question of law in this regard arises. 5. Insofar as the amount of ₹ 20,40,000 is concerned, it was paid by the assessee to HSBC Securities and Capital Markets (India) (P.) Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an asset or an advantage for the enduring nature of a trade then there is good reason for treating such an expenditure as properly attributable not to revenue but to capital. This is so, in the absence of special circumstances leading to an opposite conclusion. 9. It would be of interest to note that in Empire Jute Co. s case (supra), the Supreme Court considered its earlier two judgments in the case of Brooke Bond India Ltd. v. CIT [1997] 225 ITR 7982 and Punjab State Industrial Development Corpn. Ltd. v. CIT [1997] 225 ITR 792 3. Distinguishing these two judgments, the Supreme Court pointed out that those cases related to the issue of fresh shares which led to an inflow of fresh funds into the company, which expands or adds to its capital employed in the company resulting in the expansion of its profit making apparatus. The expenditure incurred for the purpose of increasing the company s share capital by the issue of fresh shares would be treated as capital expenditure, as held in those cases. Further, when the expense incurred in connection with bonus shares, there is no increase in the capital employed, which remains the same. For this reason, and on this distinction, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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