TaxTMI 
TaxTMI 
2010 (11) TMI 100
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....mination. The Assessing Officer held the view that the entire expenditure was in the capital field and, therefore, treated is to be the capital expenditure. He thus disallowed the payment of Rs. 47.25 lacs made to the Consultant. The CIT (A) confirmed this order of the Assessing Officer. However, in further appeal, the Tribunal has deleted the addition to the extent of 80%, inasmuch as, it has held that only 20% of the total expenditure would be capital expenditure and remaining 80% amount spent is revenue in nature. In order to ascertain the nature of expenditure, it would be necessary to find out the nature of services rendered by the Consultant for which consultancy fee was paid to them. 3. The assessee company is in the business of manufacture of cement, refractories and manufacture of Ammonium Chloride and Soda Ash at Rajgangapur, Orissa. It wanted a detailed study of cement market in India with a view to improve the cement market by the cement company. For carrying out the study, it hired the services of the aforesaid consultants. As per the explanation given by the assessee, the task assigned to the Consultant was to carry out the detailed study of cement market in India a....
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....and to gain permanently from the expert opinion thus obtained. 7. Before the Income Tax Appellate Tribunal, the assessee again reiterated its submission that the agreement between the assessee and the Consultant delineated the scope of study and was confined to the following major areas:- 1. The existing cement capacities and the production there against giving trend of last few years, giving/projecting likely increase in the capacities separately in green field and brown field projects. 2. The demand of cement giving growth trend in last few years, next ten years, projections considering the consumption pattern in housing/commercial construction, infrastructure and other development projects. 3. Consolidation of industry and future trends 4. Possible mergers and acquisitions in the eastern region 5. Report on expansion in the capacities of our existing cement plant. 8. It was emphasized that on the basis of extensive study extended by the said Consultant the advise which was given by the Consultant to the assessee was on the issue as to whether any change in the product mix is needed, whether the assessee was required to identify the deficit area where the assessee&#....
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....l field and allow the deduction of the rest of the expenses." 11. Before us, both the parties adopted the same path which were treaded before the authorities below. 12. We have already mentioned above the scope of the study. Five major areas were assigned to the Consultant on which these Consultants were to undertake the study and give their reports. 13. We may first spell-out the principles which are to be kept in mind to determine as to whether such expenses are to be treated capital or the revenue expenditure. These are neatly culled out in the case of CIT Vs. J.K. Synthetics Ltd., 222 CTR 339 by this Court, as under:- "BROAD PRINCIPLES WHICH EMERGE ON READING OF VARIOUS AUTHORITIES 38. An overall view of the judgments of the Supreme Court, as well as, of the High Courts would show that the following broad principles have been forged over the years, which require, to be applied to the facts of each case: (i) the expenditure incurred towards initial outlay of business would be in the nature of capital expenditure, however, if the expenditure is incurred while the business is on going, it would have to be ascertained if the expenditure is made for acquiring or bringing int....
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....s, (c) the prohibition, if any, in parting with a confidential information received under the License to third parties without the consent of the licensor, (d) whether the Licence transfers the 'fruits of research' of the licensor, 'once for all', (e) whether on expiry of the Licence the licensee is required to return back the plans and designs obtained under the Licence to the licensor even though the licensee may continue to manufacture the product, in respect of, which 'access' to knowledge was obtained during the subsistence of the Licence. (f) whether any secret or process of manufacture was sold by the licensor to the licensee. Expenditure on obtaining access to such secret process would ordinarily be construed as capital in nature; (vi) the fact that assessee could use the technical knowledge obtained during the tenure of the License for the purposes of its business after the Agreement has expired, and in that sense, resulting in an enduring advantage, has been categorically rejected by the courts. The Courts have held that this, by itself, cannot be decisive because knowledge by itself may last for a long period even though due to rapid change of te....