COMMISSIONER OF INCOME TAX Vs. OCL INDIA LTD.

JUDGEMENT

(1.) "Whether Tribunal was correct in law in sustaining addition only to the extent of 20 per cent out of total payment of Rs. 47,25,000 made by the assessee to M/s Feedback Strategic Consultancy Services (P) Ltd., treating the same as in capital field and allowing balance 80 per cent as revenue expenses - Since both the counsel for the parties were ready to argue the matter finally, we heard the counsel for the parties and reserved the judgment on the same day.

(2.) THE payments made by the assessee to M/s Feedback Strategic Consultancy Services (P) Ltd. (hereinafter referred to as 'the Consultant') for detailed study on cement market in India etc. is to be treated as revenue expenditure or the capital expenditure, is the question posed for determination. The AO held the view that the entire expenditure was in the capital field and, therefore, treated 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 AO. However, in further appeal, the Tribunal has deleted the addition to the extent of 80 per cent, in as much as, it has held that only 20 per cent of the total expenditure would be capital expenditure and remaining 80 per cent 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 and to advise the assessee company whether any change in the product mix is needed, keeping in view the capacities available, expansions plans of the competitors and the potential demand scenario. The Consultants were also to identify the deficit area where assessee's product can be diverted and sold more profitably.