The Principal Commissioner Of Income Tax, Panaji. … v. Sesa Industries Ltd. …

1 IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO.2 OF 2019 The Principal Commissioner of Income Tax, Panaji.…. Appellant V/sSesa Industries Ltd.…. Respondent Ms. Susan Linhares, Standing Counsel for the Appellant.Mr. R.G. Ramani, Advocate for the Respondent. Coram :- S. C. GUPTE & NUTAN D. SARDESSAI, JJ. Date:- 25[th] June, 2019 ORAL ORDER : (Per S.C. Gupte, J.) This Income Tax Appeal challenges an order passed by the Income Tax Appellate Tribunal, Panaji Bench, Panaji.The sole issue involved is whether the amount of₹76,65,000/- (Rupees seventy six lakhs sixty five thousandonly) paid as consultancy fees by the respondent Assessee toM/s. ICICI Ltd. was a capital expenditure and not a revenueexpenditure. 2.It is the case of the Assessee that it had paidconsultancy fees of ₹76,65,000/- (Rupees seventy six lakhssixty five thousand only) for financial advisory services forrestructuring of its loan, through which the Assessee was ableto reduce the interest rate on its loan for the remaining period 2 of the relevant loan agreement. The Assessee claimeddeduction of the expenses as a revenue expenditure. TheITO, in his assessment order, did not accept the Assesee'ssubmission that the expenditure was incurred for restructuringof loan. Based on a reference found in one of the lettersaddressed by the General Manager of ICICI Ltd. to theAssessee to capital restructuring of the Assessee's group andalso to the payment of ₹76,65,000/- (Rupees seventy sixlakhs sixty five thousand only) towards advisory servicesprovided by ICICI Ltd., the ITO found that the expenditurewas for restructuring of capital. The ITO held that nowhere inthe letter it was specified that the payment of fees foradvisory services was for loan restructuring of the Assessee.In the absence of any material evidence, the payment of₹76,65,000/- (Rupees seventy six lakhs sixty five thousandonly) was disallowed by the ITO as revenue expenditure. 3. The case of the revenue in the Assessee's appeal before CIT (appeals) was that the fees towards advisoryservices were in connection with increase in capital base orshare capital of the Assessee. The CIT (Appeals), in his orderpassed in appeal, did not accept the revenue's case. The CIT 3 (Appeals) held that the Assessing Officer had not mentionedanywhere in the assessment order as to how the advice takenby the Assessee, for which it had made payment to ICICI Ltd.,had helped in increasing the capital base or share capital ofthe Assessee. The CIT (Appeals) held that on the other hand,the Appellant Assessee had given satisfactory explanation asto how the payment had helped in reduction of interestliability from 15.75% to 13% on a loan of ₹25,00,00,000/-(Rupees twenty five crores) with effect from 16/09/2001. 4.When the matter was carried by the Departmentbefore the ITAT, the ITAT observed that the departmentalrepresentative could not point out any specific error in theorder of the CIT (Appeals). The Tribunal held that no materialwas brought before them to show that the advisory fees hadhelped the Assessee to increase its capital base. The ITATconsidered the judgments of the Supreme Court in the casesof Brooke Bond India Ltd. V/s. Commissioner of Income Tax,West Bengal-III, Calcutta[1] and Punjab State IndustrialDevelopment Corporation Ltd. V/s. Commissioner of IncomeTax, Patiala[2]. It observed that based on these decisions, no 11997(2) Supreme 728 2 Tax Reference Case No.1 of 1990 decided on 04/12/1996 4 submissions were made during the course of the hearing. TheTribunal, accordingly, held that there was no material broughton record to show that the fees in question were paid either toincrease the capital base of the company or towardsacquisition of fresh capital. 11997(2) Supreme 728 2 Tax Reference Case No.1 of 1990 decided on 04/12/1996 4 submissions were made during the course of the hearing. TheTribunal, accordingly, held that there was no material broughton record to show that the fees in question were paid either toincrease the capital base of the company or towardsacquisition of fresh capital. 5.The department's reliance on the decision of the SupremeCourt in Brooke Bond India Ltd. (supra) and Punjab State IndustrialDevelopment Corporation Ltd. (supra), in support of the presentappeal has no merit. In Brooke Bond India Ltd. (supra), theexpenditure was incurred as part of an exercise for issue ofordinary shares with a view to increase the Assessee's sharecapital. The Court relied on its observations in the case of PunjabState Industrial Development Corporation Ltd. (supra). In thatcase, fees were paid to the Registrar for expansion of capital baseof the company. The Court held that it was directly related tocapital and though it would help the business of the company asalso its profit making, it still retained the character of a capitalexpenditure, since it was directly related to expansion of the capitalbase of the company. The Court in Brooke Bond India Ltd. (supra),held that the decision in Punjab State Industrial DevelopmentCorporation Ltd. (supra), directly covered the question that fell forconsideration of Supreme Court. 5 6.These observations have no bearing on the facts of thepresent case. In the present case, the Tribunal has come to aconclusion, as a matter of fact, that the expenditure incurred bythe Assessee in payment of fees to ICICI Ltd. had nothing to dowith the expansion of the capital base of the company and that theAssessee had clearly made out a case that it was for restructuringof its loan and was by way of a revenue expenditure. 7.Accordingly, no question of law arises in the present appealfor determination of this Court. The appeal is accordinglydismissed. NUTAN D. SARDESSAI, J. S. C. GUPTE, J. NH