Disallowance on Professional/Technical Fee to GEL: Delhi HC allows Deduction under the Income Tax Act [Read Order]

The Delhi High Court allowed a deduction under the Income Tax Act, 1961 on Professional /technical Fees to Gherzi Eastern Ltd (GEL).

M/S Asian Hotels Ltd, the petitioner challenged the order dated 28.04.2006 passed by the Income Tax Appellate Tribunal [ “Tribunal”] in ITA No.5489/Del/97. 

The fees paid to Gherzi Eastern Ltd [“GEL”] was Rs.44,00,000/-, whereas, in AY 1992-93, GEL was paid fees amounting to Rs.23,18,695/-.  The AO via the assessment order dated 27.03.1997 had disallowed Rs.3,48,92,811/- incurred by the appellant/assessee on account of “renovation and refurbishment”. Likewise, Rs.44,00,000/- paid by the appellant/assessee as a professional fee to GEL was also disallowed. 

The Commissioner of Income Tax (Appeals) [ “CIT(A)”] via order dated 14.07.1997 deleted the disallowance concerning “renovation and refurbishment” and remanded the issue to the AO for fresh examination, except Rs. 3,94,113/- concerning the construction of mock-up room and provision of green marble in the lobby, which was disallowed, as capital expenditure. 

Insofar as the payment of fees to GEL amounting to Rs.44,00,000/- was concerned, the CIT(A) sustained the disallowance made by the AO. 

The Tribunal disallowed the entire expenditure on “repairs and renovation” amounting to Rs.13,30,93,811/- [Rs.3,48,92,811/- + Rs.982,01,000/-] (which included expenses that had been initially capitalized by the appellant/assessee and were claimed for the first time before the Tribunal as revenue expenditure). 

Furthermore, the Tribunal in consonance with the view taken by the AO and CIT(A), disallowed the deduction claimed by the appellant/assessee concerning Rs.44,00,000/- paid as fees to GEL. 

A division bench of Justice Rajiv Shakdher and Justice Tara Vitasta Ganju held that “The appellant/assessee will be entitled to claim the following deductions, as, in our opinion, they are like revenue expenditure, Rs.44,00,000/- incurred on payment of fees to GEL.”

The question of law was answered in favour of the appellant/assessee and against the revenue. 

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates