Technical consultancy payments and borrowed capital were both accepted, favouring the assessee's tax claims.

Consultation fees paid for technical assistance were treated as commercially justified where the consultant's services were actually used, the work required specialised expertise, and the recipient had relevant professional experience; on that basis, disallowance as excessive under section 40A(2)(b) was deleted. For relief under section 80J, borrowed capital was included in computing capital employed because the expression was not confined to owned funds; this interpretation supported the assessee's claim. The note therefore records that both disputed adjustments were decided in favour of the assessee.

---

---

Issues: (i) Whether the disallowance of consultation fee under section 40A(2)(b) of the Income-tax Act, 1961 was justified. (ii) Whether borrowed capital was to be included while computing relief under section 80J of the Income-tax Act, 1961.

Issue (i): Whether the disallowance of consultation fee under section 40A(2)(b) of the Income-tax Act, 1961 was justified.

Analysis: Services by the consultant were accepted in part by the assessing authority, and the assessee was required to obtain technical assistance for sophisticated work. In such circumstances, the remuneration paid could not be treated as excessive merely because the recipient was related to the assessee, particularly when the recipient had relevant professional experience and had been assessed to tax on the amount received.

Conclusion: The disallowance of Rs. 6,000 was deleted and the assessee succeeded on this issue.

Issue (ii): Whether borrowed capital was to be included while computing relief under section 80J of the Income-tax Act, 1961.

Analysis: For the purpose of computing capital employed under section 80J, borrowed capital was held to be includible, following the view that the expression "capital employed" is not confined only to owned funds.

Conclusion: Borrowed capital was directed to be taken into account for section 80J relief, in favour of the assessee.

Final Conclusion: The appeal was allowed in full, with both disputed additions decided in favour of the assessee.

Ratio Decidendi: Where technical services are actually rendered and the payment is commercially justified, disallowance as excessive is not warranted; and borrowed capital is includible in the computation of capital employed for relief under section 80J.

---