2019 (7) TMI 232 - HC - Income Tax

Allowability of consultancy fees - financial advisory services for restructuring of its loan - capital expenditure OR revenue expenditure - Assessee was able to reduce the interest rate on its loan for the remaining period of the relevant loan agreement - HELD THAT - In the present case, the Tribunal has come to a conclusion, as a matter of fact, that the expenditure incurred by the Assessee in payment of fees to ICICI Ltd. had nothing to do with the expansion of the capital base of the company and that the Assessee had clearly made out a case that it was for restructuring of its loan and was by way of a revenue expenditure - no question of law arises - the appeal of revenue is dismissed.

Summary

Issues: Determination of whether consultancy fees paid by the Assessee to a company were a capital or revenue expenditure.

Analysis:
1. Assessee's Claim: The Assessee contended that the consultancy fees paid for financial advisory services were for loan restructuring, resulting in a reduced interest rate on the loan. The Assessee claimed the expenses as a revenue expenditure.

2. IT Officer's Decision: The Income Tax Officer (ITO) disallowed the expenditure as a revenue expenditure, citing a lack of evidence to support the claim that the fees were for loan restructuring. The ITO inferred from a letter that the payment was for capital restructuring, not loan restructuring.

3. CIT (Appeals) Decision: The Commissioner of Income Tax (CIT) (Appeals) rejected the revenue's argument that the fees were related to an increase in the capital base of the Assessee. The CIT (Appeals) found the Assessee's explanation satisfactory, showing how the payment led to a reduction in interest liability on the loan.

4. ITAT's Ruling: The Income Tax Appellate Tribunal (ITAT) upheld the CIT (Appeals) decision, stating that no evidence was presented to prove that the fees helped increase the Assessee's capital base. The ITAT referenced Supreme Court judgments to support its decision.

5. Supreme Court Precedents: The Supreme Court judgments cited by the ITAT emphasized that expenses directly related to capital expansion retain the character of a capital expenditure. However, in the present case, the Tribunal concluded that the fees paid to ICICI Ltd. were for loan restructuring, not for capital expansion.

6. Conclusion: The Court dismissed the appeal, stating that no question of law arose as the Tribunal had determined the expenditure as a revenue expenditure for loan restructuring, not for capital expansion. The Court found that the Assessee had adequately demonstrated that the consultancy fees were by way of a revenue expenditure, not a capital expenditure.