2002 PLP 1657 (PTD)
COMMISSIONER OF INCOME-TAX Versus CROMPTON ENGINEERING CO. LTD. (now Best and Crompton Engineering Ltd.)
| Citation | 2002 PLP 1657 (PTD) |
| Forum / Court | 242 I T R 317 |
| Bench Members | R. Jayasimha Babu and N. V. Balasubramanian, JJ |
| Parties | COMMISSIONER OF INCOME-TAX Versus CROMPTON ENGINEERING CO. LTD. (now Best and Crompton Engineering Ltd.) |
| Primary Law | Income-tax |
Q1: What are the key laws and sections cited in 2002 PLP 1657 (PTD)?
This judgment primarily cites: Income-tax as referenced in Pakistani case law index.
Q2: Which judicial bench decided the case 2002 PLP 1657 (PTD)?
The case was heard and decided by the 242 I T R 317 bench comprising: R. Jayasimha Babu and N. V. Balasubramanian, JJ.
Q3: What is the official citation format for this judgment on Pakistan Law Portal?
Cite this legal precedent as: 2002 PLP 1657 (PTD) (COMMISSIONER OF INCOME-TAX Versus CROMPTON ENGINEERING CO. LTD. (now Best and Crompton Engineering Ltd.)). Read the full summary and cross-referenced laws free on Pakistan Law Portal.
Laws Cited
Headnotes / Summary
Capital or Revenue expenditure
Professional fees paid to consul tants for obtaining reports for re-organizing business so that efficiency of business could be increased
Is expenditure of Revenue character. It is not only permissible but is also necessary for any business to update its own knowledge and adopt better ways of organizing its business if it is to survive in the market. The expenditure incurred for such purpose cannot be regarded as capital expenditure and' is only a Revenue expenditure. The assessee with the intention of bringing about improvements in the way it did its business had sought and obtained reports of the consultants,' so that efficiency of the business could be increased by employing better methods and re-organising the business itself to the extent required. The fees paid to the consultants was disallowed by the departmental officers as capital expenditure. The Tribunal allowed it as Revenue expenditure. On a reference: Held, that merely obtaining a report from a management consultant and paying fees, therefore, could not be regarded as capital expenditure, as such report was not obtained as part of documentation packages but was obtained in a contract covering comprehensive restructuring of the business involved. No new line of business was started on the strength of the report of the consultants. The report was not regarded as essential part for any new business that the assessee commenced thereafter. In the circumstances of the case, the expenditure incurred by the assessee in obtaining that report was clearly an expenditure of Revenue character. C.V. Rajan for the Commissioner. S.A. Balasubramanian for the Assessee.
Judgment & Decree
R. JAYSIMHA BABU, J.
The question referred to us at the instance of the Revenue is as to whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sum of Rs.70,000 paid to A.F. Ferguson & Company, Chartered Accountants, Bombay, was an admissible deduction in computing the income of the assessee for the assessment year 1974-75? This tax case is of the year 1982 and has been lying undisposed of on the board of this Court. It is most unfortunate that the matter should have been pending in this Court for such a long time. The question referred to us is really as to whether the amount paid to the, consultant is to be regarded as capital expenditure or Revenue expenditure. The Income-tax Officer who called for the reports and perused the reports submitted by the consultants formed the opinion that far reaching and revolutionary changes for the reorganization of the company have been suggested and, therefore, the cost of that report should be regarded as capital expenditure and should not be allowed revenue expenditure. That view has been dissented from and overruled by the Tribunal and to our opinion, rightly so. The assessee with the intention of bringing about improvements in the way it did its business had sought and obtained reports of the consultants, so that efficiency of the business could be increased by employing better methods and reorganizing the business itself to the extent required. The fact that it sought such advice did not imply that it would accept all the advice that was tendered and would implement it in the manner recommended. Merely obtaining a report from a management consultant and paying fees, therefore, cannot be regarded as capital expenditure, as such report was not obtained as part of documentation packages, but in a contract covering comprehensive restructuring of the business involved. No new line of business was started on the strength of the report of the consultants. That report was not regarded as essential part for any new business that the assessee commenced thereafter. In the circumstances of the case, the expenditure incurred by the assessee in obtaining that report was clearly an expenditure of Revenue character. It is not only ` permissible but is also necessary for any business to update its own knowledge and adopt better ways of organizing its business if it is to survive in the market. The expenditure incurred for such purpose cannot be regarded as capital expenditure and is only a Revenue expenditure. The question, therefore, referred to us is answered in favour of the assessee and against the Revenue. The assessee shall be entitled to costs in the sum of Rs.1,000 (Rupees one thousand only). M.B.A/697/FC Order accordingly.