2004 (9) TMI 53 - HC - Income Tax

Whether Tribunal is correct in law in allowing the deduction of Rs. 1,20,000 paid to Southern Technical Services (P.) Ltd. as consultancy fee under section 37? - Tribunal has come to the conclusion that the Southern Technical Services (P.) Ltd., was giving advice on legal, financial and industrial matters even locally, orally or through news bulletins/information bulletins and it cannot be said to be outside the purview of the business of the company - contention of the assessee cannot be rejected merely on the reason that the very same service can be obtained from various sources easily as contended by learned counsel for the Department - The reasoning given by the Tribunal is perfectly in conformity with the provisions of section 37 of the Income-tax Act, which provides for the expenditure to be allowed.

Summary

Issues involved: Appeal by Revenue against ITAT order allowing deduction of consultancy fee under section 37 of the Income-tax Act, 1961.

Analysis:
The High Court of Madras heard an appeal filed by the Revenue challenging the order of the Income-tax Appellate Tribunal (ITAT) regarding the deduction of consultancy fee paid to Southern Technical Services (P.) Ltd. The substantial question of law formulated was whether the ITAT was correct in allowing the deduction of Rs. 1,20,000 as consultancy fee under section 37 of the Income-tax Act, 1961. The Department argued that the directors of the assessee-company and Southern Technical Services (P.) Ltd. were almost the same, and the services provided were merely compiling information from newspapers and journals into bulletins, which should not be considered as consultancy services. However, the Tribunal, as the ultimate fact-finding authority, concluded that Southern Technical Services (P.) Ltd. provided advice on legal, financial, and industrial matters, locally and through bulletins, falling within the business purview of the company.

The High Court opined that the Department's argument that similar services could be easily obtained from various sources did not warrant rejecting the assessee's contention. The Tribunal's reasoning aligned with section 37 of the Income-tax Act, which allows for expenditure if it is incurred for business purposes. Seeking advice on industrial, financial, and legal matters and spending on it was deemed to be laid out for the purpose of the business. The Court found no irregularity in the Tribunal's conclusion and saw no reason to deviate from it. Consequently, the appeal by the Revenue was dismissed, affirming the ITAT's decision to allow the deduction of the consultancy fee paid to Southern Technical Services (P.) Ltd.