1998 (6) TMI 4 - HC - Income Tax

Summary

Issues Involved:
1. Whether foreign tour expenditure is allowable as revenue expenditure.
2. Jurisdiction and scope of the High Court under sections 256 and 260 of the Income-tax Act, 1961.
3. Determining whether the expenditure is capital or revenue in nature.

Summary:

Issue 1: Whether foreign tour expenditure is allowable as revenue expenditure.
The Tribunal had to determine if the foreign tour expenditure of Rs. 1,18,530 incurred by the assessee was allowable as revenue expenditure. The assessee argued that the expenditure was for securing raw material (ammonia) and not for setting up a new plant. The Tribunal concluded that the trips were exploratory to organize the supply of ammonia, thus the expenses were business expenditure, not capital expenditure. However, the Commissioner held that the visit was for establishing a new industrial undertaking, making the expenditure capital in nature.

Issue 2: Jurisdiction and scope of the High Court under sections 256 and 260 of the Income-tax Act, 1961.
The High Court examined the scope of its jurisdiction under sections 256 and 260, noting that the Tribunal is the final fact-finding authority. However, the High Court can intervene if findings are based on no evidence, are perverse, or are based on irrelevant considerations. The High Court cited several Supreme Court cases, including CIT v. Calcutta Agency Ltd. [1951] 19 ITR 191 and Sree Meenakshi Mills Ltd. v. CIT [1957] 31 ITR 28, establishing that findings unsupported by evidence or based on conjectures can be reviewed.

Issue 3: Determining whether the expenditure is capital or revenue in nature.
The High Court referred to various precedents to determine whether the expenditure was capital or revenue. It noted that the purpose of the expenditure, whether it was to acquire an asset or for running the business, is crucial. The Court cited Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 and Alembic Chemical Works Co. Ltd. v. CIT [1989] 177 ITR 377, emphasizing the need to consider the nature of the transaction and the enduring benefit to the business. The Court concluded that the foreign tour was to explore setting up a new plant, making it a capital expenditure.

Conclusion:
The High Court held that the Tribunal erred in treating the expenditure as revenue expenditure. The trips were undertaken to explore the feasibility of setting up a new plant, making the expenditure capital in nature. Thus, the question was answered in the negative, in favor of the Revenue and against the assessee. The reference was disposed of with no order as to costs.