Professional Fees paid to Advocate for drafting Share Purchase Agreement is Revenue Expenditure : ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Delhi bench, has ruled that professional fees paid to an advocate for drafting a share purchase agreement to facilitate the acquisition of shares are considered revenue expenditure.

SSP Pvt. Ltd, engaged in the business of manufacturing engineering goods, paid fees of Rs 2,01,000/- to an advocate during the relevant year for drafting a share purchase agreement related to the acquisition of 100% shares of Prosoya Inc. Canada.

The Assessing Officer (AO) contended that since the share purchase agreement pertained to the acquisition of shares of a company in Canada, the professional fee paid to the advocate would be of a capital nature and hence not allowable as a deduction.

Displeased with this decision, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], who dismissed the appeal. Subsequently, the assessee appealed to the tribunal.

Somil Agarwal, Counsel for the assessee, argued that the CIT(A) made a grave error in stating that the assessee had acquired a new source of business income, as the acquired company was also in the same line of business as that of the assessee company. The counsel further contended that the acquisition of shares of Prosoya Inc. Canada was only for the furtherance of the existing business and to improve the profitability of the assessee company. Therefore, the professional fees paid to the advocate for drafting the share purchase agreement should not be considered as capital in nature but squarely allowable as revenue expenditure.

Anuj Garg, Counsel for Revenue, supported the order of the lower authorities. The tribunal observed that the assessee had simply acquired shares of a Canadian company in the same line of business. For facilitating this acquisition, a share purchase agreement was drafted by the advocate, to whom fees were paid by the assessee. Consequently, the tribunal concluded that this advocate fee should be considered as revenue expenditure.

After reviewing the facts and records, the two-member bench of M. Balaganesh (Accountant Member) and Kul Bhara (Judicial Member) held that professional fees paid to an advocate for drafting a share purchase agreement to facilitate the acquisition of shares are indeed revenue expenditure.

To Read the full text of the Order CLICK HERE

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