TaxTMI 
TaxTMI 
2023 (9) TMI 614
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....283-2005), order dated 28.12.2004 (A/Y 97-98 in ITA No. 282-2005) & order dated 08.09.2005 (A/Y 1999-2000 in ITA No. 630-2005) whereby the appeals filed by the revenue-department are partly allowed. Brief facts of the case are that the appellant-Company filed its return declaring income at Rs.1,88,79,150/- for the assessment year 1996-97 on 28.11.1996 and the same was processed under Section 143 (1) (a) of Act 1961, vide order dated 21.03.1997. The appellant-Company engaged in the business of manufacturing of cycles. During the relevant assessment year (96-97), the appellant-company claimed deduction on account of travelling expenditure incurred on the director's wife accompanying their husbands on business tours, to the tune of Rs.1,56,076/-. The appellant-company claimed deducted under Section 37 of Act 1961 on account of expenditure of Rs.61,38,000/- paid to M/s Mckinsey and Company Ltd for professional serviced rendered by it. However, the Assessing Officer disallowed both the claims of the assessee-Company, vide order dated 26.02.1999 (A-1). Feeling aggrieved against the above order, the appellant-Company preferred appeal before the Commissioner of Income Tax (Appeals) a....
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....years. (2) xxxxx (3) xxxxx." Explanation.- For the purposes of this section," know- how" means any industrial information or technique likely to assist in the manufacture or processing of goods or in the working of a mine, oil well or other sources of mineral deposits (including the searching for, discovery or testing of deposits or the winning of access thereto). As per the above section, for all intents and purposes, it should be the technical knowledge, which would assist in manufacturing. Further in the present case, as per agreement dated 10.11.1995 (A-1), M/s Mc Kinsey and Company was to assist in developing a growth strategy and profit improvement programme for the appellant-Company. This agreement does not show that any industrial information is being given which will assisst in manufacturing or processing of any goods. It is a consultancy agreement and this agreement would not fall under Section 35AB of Act 1961. Now reference can be made to Section 37 of the Act 1961, which reads as under:- "37.(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36and not being in the nature of capital expenditure or personal expenses of the ....
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....Co. was revenue in nature. However, the Tribunal has accepted the fact that even when there was no formal written agreement with M/s. McKinsey and Co, the report was submitted by the said company for the task assigned. The appeals preferred against the order of Assessing Officer were dismissed. However, Hon'ble Delhi High Court allowed the appeal of the assessee and in para No. 21 and 22, observed as under:- "21. This approach of the Tribunal is not correct in law. Interestingly, the Tribunal has accepted the fact that even when there was no formal written agreement with M/s. McKinsey and Co, the report was submitted by the said company for the task assigned. This report was produced before the Assessing Officer/Commissioner of Income-tax (Appeals). The Tribunal noted that as per the assessee the perusal of the report clearly indicated that the engagement was for the purpose of improving the operational efficiencies of the assessee and enhance the profitability of the existing business. In these circumstances, not much importance could be attached to the fact that there was no written agreement with the said consultants to ascertain the scope of the study when such scope of s....
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....e that amounts spent for the foreign tour of the wife of the Managing Director is not in the nature of capital expenditure. Therefore, the only question is whether the same is in the nature of personal expenditure so as to deprive the assessee of the benefit of Section 37 of the Act. In the case before us, the fact that the Managing Director of the Company visited the foreign country for the purpose of the business of the assessee is not in dispute and the Assessing officer has also accepted such expenditure on the Managing Director for the above purpose as the business expenditure of the assessee. The fact that his wife also accompanied him on such tour is not in dispute. It appears from the resolution of the Board of Directors of the assessee that the wife of the Managing Director accompanied him because of the following decision of the Board: "If on such tours he is accompanied by his wife, it goes a long way to benefit the Company since warm human relations and social mixing promotes better business understanding. Also wife of the Director is sometimes required to accompany him on his tour abroad as a matter of reciprocity in international business. In the circumstances, it ....
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....ying wife of the Managing Director for commercial expediency, the reasons being reflected in its resolution quoted by us, it was not within the province of the Income-tax Authority to disallow such expenditure by sitting over the decision of the Board, in the absence of any specific bar created by the Statute for such expenditure. Heard learned counsel for the parties. The agreement dated 10.11.1995 would fall under Section 37 of the Act, thus, the service rendered relate to the re-arrangment of manufacturing and sale activities. Further Section 35B provides that where the assessee has paid any lump sum consideration for acquiring any know how for use for the purpose of his business, deduction is allowable to the assessee at rate of 1/6 in six consecutive years. This expenditure is to be treated as revenue expenditure. The judgment of Delhi High Court in a case of Indo Rama Synthetics India Ltd is directly applicable to the facts of the present case. Reference at this stage can further be made to a judgment of Hon'ble the Supreme Court of India in a case of Honda Siel Cars India Ltd vs. Commissioner of Income Tax, Ghaziabad, 2017 (8) SCC 170 wherein M/s Honda Motors Company ....
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.... Agreement is framed in a manner so as to given a colour of licence for a limited period having no enduring nature but when a close scrutiny into the said Agreement is undertaken, it shows otherwise. It is significant to note in this behalf that the Agreement provides that in the event of expiration or otherwise termination, whatsoever, licensee, i.e., joint venture company/ Assessee shall discontinue manufacture, sale and other disposition of products, parts and residuary products. All these things then shall be at the option of licensor. In other words, licensee in such contingency would hand over unsold product and parts to licensor for sale by him. In case licensor does not exercise such an option and the product is allowed to be sold by licensee, it would continue to pay royalty as per rates agreed under the agreement. Clauses 19 and 21, in our view, make the Agreement in question, i.e., establishment of plant, machinery and manufacture of product with the help of technical know-how, co-extensive, in continuance of Agreement. The Agreement also has a clause of renewal which, in our view, in totality of terms and conditions, will make the unit continue so long as manufacture of....