Professional Fee paid for Valuation of Know-How is allowable as Deduction: ITAT [Read Order]

Business Expenditure ITAT - Professional Fee - Business Expenditure - Tax scan

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) has held that the amount paid as professional fee for the purpose of valuation of know-how is a deduction allowable under section 37 of the Income Tax Act, 1961.

The assessee-Company made payment of `7,50,000/- towards professional fees to M/s. M. N. Dastur & Co. for valuation of know-how on cold rolled steel strips and rolled profile sections. However, the assessing officer rejected the claim for deduction for the same by holding that the same is capital in nature.

The Tribunal noted that all expenditure incurred in the course of business of the assessee is allowable except personal expenditure and capital expenditure.

It was also noted that the professional fee has been paid for valuation of know-how of business and, therefore, the same is not in the nature of personal expenditure.

“Now, we need to determine whether the expenditure incurred for valuation of know-how can be treated as in capital field. In this regard, we find that to term the expenditure as capital expenditure we need to find out whether the incurrence of expenditure has resulted into any generation of capital asset or any right or benefit of enduring nature has been created by incurrence of the expenditure. From the nature of expenditure incurred, we find that the expenditure is not incurred for the acquisition of know-how; it is incurred only for the purpose of valuation of the know-how. Admittedly, the expenditure in isolation has not created any asset nor has it added any value in the know-how of the assessee, benefit of which can be said to have accrued to the assessee over a longer period. Further, valuation of know-how was in the course of business of the assessee as know-how pertained to the business of the assessee. Further, assessee has placed before us the detailed valuation report obtained by him for valuation of know-how and the copies of invoices for professional fee paid for carrying out the valuation exercise. Thus, we find that the said expenditure is not in the nature of capital expenditure but is in the revenue field; and, thus is allowable under Section 37(1) of the Act,” the Tribunal said.

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