Tribunal Decisions on Deductions: Technical Fees, Interest Charges, Depreciation, Consultancy Expenses, and Turnover Calculations

The Tribunal ruled that only 1/6th of the technical know-how fees is deductible under section 35AB. Interest and commitment charges for certain projects were allowed as revenue expenditure under section 36(1)(iii), but depreciation on the capitalized interest was withdrawn. Consultancy fees for a feasibility study were disallowed as capital expenditure. In computing deduction under section 80HHC, excise duty and sales tax were included in total turnover, insurance receipts were included in business profits, but dividend income was excluded.

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Issues involved:
1. Deduction of technical know-how fees.
2. Disallowance of interest and commitment charges.
3. Disallowance of consultancy fees for feasibility study.
4. Deduction u/s 80HHC.

Summary:

1. Deduction of technical know-how fees:
The assessee claimed deduction of technical know-how fees u/s 35AB amounting to Rs. 6,26,70,890. The CIT(A) held that only 1/6th of the fees is admissible, not the full amount. The assessee argued that the fees for Hydrogen Peroxide and Caustic Soda Prills projects should be allowed as revenue expenditure u/s 37(1). The Tribunal concluded that the expenditure on technical know-how for setting up new units is capital in nature and covered u/s 35AB, thus only 1/6th is deductible.

2. Disallowance of interest and commitment charges:
The assessee capitalized interest and commitment charges of Rs. 6,42,11,408 in the books for Phosphoric Acid, Hydrogen Peroxide, and Caustic Soda Prills projects. The AO disallowed the claim treating it as capital expenditure. The Tribunal held that interest and commitment charges are deductible as revenue expenditure u/s 36(1)(iii) since the projects are part of the existing business and not independent ventures. However, depreciation allowed on the capitalized interest would be withdrawn.

3. Disallowance of consultancy fees for feasibility study:
The assessee paid Rs. 9,90,000 to M/s Tata Economic & Consultancy Services for a feasibility study report for power generation. The AO treated it as capital expenditure. The Tribunal upheld the disallowance, stating that the expenditure is connected with the capital structure of the company and is in the capital field.

4. Deduction u/s 80HHC:
The AO included excise duty and sales tax in the total turnover while computing deduction u/s 80HHC, which the assessee contested. The Tribunal upheld the inclusion based on Supreme Court decisions. The AO excluded insurance claim and dividend from the business profits. The Tribunal directed the inclusion of insurance receipts but upheld the exclusion of dividend income from the business profits for computing deduction u/s 80HHC.

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