COMMISSIONER OF INCOME TAX Vs. CARBURANDUM UNIVERSAL LIMITED

JUDGEMENT

(1.) THESE appeals are filed by the revenue against the order of the Income Tax Appellate Tribunal Madras 'A' Bench dated dated 24.8.2007 passed in I.T.A.No.797/Mds/2003 and 542/Mds/2005 respectively. The relevant assessment years are 1998-99 and 1999-2000. The substantial question of law formulated in these appeals are as follows:- "1. Whether on the facts and in the circumstances of the case the Income-tax Appellate Tribunal was right in law in deleting the addition in respect of payments made to M/s. McKinsey & Co., Management Consultant and the same should be allowed as revenue expenditure is valid in law"

(2.) WHETHER on the facts and in the circumstances of the case the Income-tax Appellate Tribunal was right in law in deleting the addition made towards interest paid on borrowed capital is valid"" 2. The facts of the case are as follows:-

(3.) IT is well settled that it is not only permissible, but is also necessary for any business to update its own knowledge and adopt better ways of organising its business, if it is to survive in the market. The expenditure incurred for such purpose cannot be regarded as capital expenditure and it is only a revenue expenditure. The assessee, with an intention of bringing about improvements in the way it did its business, had sought for and obtained reports of the consultant for assessment of market attractiveness in terms of gaining global market, reputise on dealing with global markets, evaluation of assessee's business ability to compete, analysis of the future growth trend of the business, development detailed business strategies for the assessee to grow in the dynamic business environment. The fees paid to the consultant was disallowed by the revenue officials as capital expenditure on the premise that the benefits derived from such consultancies would enure to the future years also. According to the learned counsel for the revenue, this question of law is covered against the revenue by the decision of this Court in the case of CIT vs. Crompton Engineering Co. Ltd., (2000) 242 ITR 317), in which it was held as follows: