TMI Blog2023 (9) TMI 614X X X X Extracts X X X X X X X X Extracts X X X X ..... Cars India Ltd [ 2017 (6) TMI 524 - SUPREME COURT] the appeals are allowed and impugned orders are set aside. The appellant (s) company shall be entitled to treat the travelling expenses of the Director's wives as well as fees paid to M/s Kinsey and Co Ltd for professional service for the relevant assessment year as revenue expenditure. - HON'BLE MS. JUSTICE RITU BAHRI And HON'BLE MRS. JUSTICE MANISHA BATRA Mr. Akshay Bhan, Sr. Advocate with Mr. Shantanu Bansal, Advocate Mr. Nishant Mishra, Advocate for the appellant (s). Ms. Pridhi Jaswinder Sandhu, Standing counsel for the respondent-department. ORDER Ritu Bahri, J. This judgment shall dispose of the above mentioned five appeals together, as common questions of law and facts are involved therein. However, for facility of reference, the facts are being taken from ITA-244-2005. Appellants have filed the above mentioned appeals under Section 260-A of the Income Tax Act, 1961 (for short 'Act 1961') challenging order dated 03.02.2005 (A/Y 96-97 in ITA No. 244-2005), order dated 31.01.2005 (A/Y 98-99 in ITA No. 281-2005), order dated 28.12.2004 (A/Y 96-97 in ITA No. 283-2005) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant-company is entitled for the deduction on account of expenditure paid to M/s Mckinsey and Company Ltd for professional serviced rendered by it., learned senior counsel has shown agreement dated 10.11.1995 between M/s Mckinsey and Company and M/s Rockman Cycle Industries which shows that the company was to assist in developing a growth strategy and profit improvement programme for the appellant-Company. M/s Mckinsey and Company has also to render service which includes a market survey etc for the purpose of improvement efficiency. The agreement dated 10.11.1995 is taken on record as Annexure A-1. Reference has been made to Section 35 AB of Act 1961 and the relevant portion of Section 35AB is extracted below: 35AB. Expenditure on know-how.- (1) Subject to the provisions of Sub-section (2), where the assessee has paid in any previous year any lump sum consideration for acquiring any knowhow for use for the purposes of his business, one-sixth of the amount so paid shall be deducted in computing the profits and gains of the business for that previous year, and the balance amount shall be deducted in equal instalments for each of the five immediately succeeding prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ike published by a political party. The agreement dated 10.11.1995 (A-1) falls under Section 37 of Act 1961. Moreover, as per Section 35AB of Act 1961, the deduction has to be given in one financial year and with respect to remaining deduction, it has to be claimed equally in next five years. Hence, this expenditure is to be treated as revenue expenditure. Learned senior counsel for the appellant has now referred to a judgment of Delhi High Court in a case of Indo Rama Synthetics India Ltd vs. Commissioner of Income Tax, 2011 (133) ITR 18 wherein the appellant-company had engaged the services of McKinsey and Co., an international firm of consultants for carrying out a detailed study on the various aspects relating to the operations of the appellant-company and to suggest measures for improving the operational efficiency and profitability of the appellant-company. The contract terminated before expiry of one year and a sum of Rs 74.04.128/- was paid by the appellant to the said McKinsey and Co and this payment was claimed for previous years as deduction but the said benefit of deduction was denied by the Tribunal on the ground that the appellant had failed to establish that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following substantial question of law was framed:- Whether the Tribunal was justified in law in disallowing the foreign travel expenditure of the spouses of the appellant's Managing Directors and Deputy Managing Directors who accompanied their husbands on business visit and its purported findings that the accompaniment of the spouses was not for business expedience/purpose of the business/direct or indirect benefit to the appellant and disallowing the expenditure of Rs.7,92,058/- for the assessment year 2000-01 are arbitrary, unreasonable and perverse? Hon'ble Calcutta High Court partly allowed the appeal of the assessee and observed as under:- In the Act itself the word business expenditure' has not been defined but Sections 30 to 37 deal with the claim of deduction on business expenditure. According to those provisions, if any expenditure is made in the nature mentioned in Sections 30 to 36 of the Act, those must be in tune with those provisions, but if any other expenditure is made which is not in the nature prescribed in Sections 30 to 36 of the Act those can be allowed as business expenditure provided those are not of the nature of personal expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eness of the expenditure has to be judged from the point of view of the businessman and not of the Revenue. In the said case, the Income-tax Officer was of the view that there was no adequate Increase in the earnings of the assessee, for the increase in remuneration was not reflected in the increase in profits of the assessee and that it appeared that as compared to the previous years, the business profits disclosed by the assessee had fallen by Rs.2 lac and, therefore, the increase in expenditure could not be justified as laid out wholly and necessarily for the purposes of the business. The Supreme Court, however, disapproved the said reason and held that an employer in fixing the remuneration of his employees is entitled to consider the extent of his business, the nature of the duties to be performed, and the special aptitude of the employee, future prospects of extension of the business and host of other related circumstances. The rule that increased remuneration can only be justified if there be corresponding increase in the profits of the employer was erroneous. Applying the aforesaid principle to the facts of our case, we hold that when the Board of Directors of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia. The very purpose of Agreement between the two companies was to set up a joint venture company with aim and objective to establish a unit for manufacture of automobiles and part thereof. As a result of this agreement, assessee company was incorporated which entered into TCA in question for technical collaboration. This technical collaboration included not only transfer of technical information, but, complete assistance, actual, factual and on the spot, for establishment of plant, machinery etc. so as to bring in existence manufacturing unit for the products. Thus, a new business was set up with the technical know-how provided by HMCL, Japan and lumpsum royalty, though in five instalments, was paid therefore. 23) No doubt, this technical know-how is for the limited period i.e. for the tenure of the agreement. However, it is important to note that in case of termination of the Agreement, joint venture itself would come to an end and there may not be any further continuation of manufacture of product with technical know-how of foreign collaborator. The High Court has, thus, rightly observed that virtually life of manufacture of product in the plant and machinery, establishe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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