1981 (4) TMI 39 - HC - Income Tax

Summary

Issues:
1. Disallowance of travelling expenses incurred by the assessee for a foreign tour.
2. Computation of capital for determining relief under section 84 of the Income-tax Act, 1961.

Issue 1: Disallowance of Travelling Expenses
The case involved the disallowance of travelling expenses of Rs. 19,300 incurred by the assessee for a foreign tour by one of its directors. The Income Tax Officer (ITO) disallowed the claim, considering the expenditure as of a capital nature due to its connection with establishing a new undertaking. The Appellate Authority and Tribunal upheld the ITO's decision. The question was whether the expenses were rightly treated as capital expenditure. The High Court observed that the purpose of the expenditure was to increase the assessee's earnings or commission from the managed company. The court held that the expenses were revenue in nature as they were incurred for the business's benefit without acquiring any capital asset. The court cited the principle from Tata Sons Ltd. v. CIT, emphasizing that if an expenditure assists in making or increasing profits, it is considered wholly and exclusively for the business's purpose. Therefore, the foreign tour expenses were held to be revenue expenditure under section 37(1) of the Income-tax Act, 1961.

Issue 2: Computation of Capital for Relief under Section 84
Regarding the computation of capital for determining relief under section 84 of the Income-tax Act, 1961, the court referred to a previous decision in CIT v. Elecon Engineering Co. Ltd. The court stated that the issue was directly covered by the mentioned decision, and following it, the court answered the question in the affirmative and against the revenue. This part of the judgment did not require further analysis as it was based on a precedent.

In conclusion, the High Court ruled in favor of the assessee regarding the disallowance of travelling expenses, considering them as revenue expenditure. The court also upheld the decision against the revenue concerning the computation of capital for relief under section 84. The judgment provided detailed reasoning based on legal principles and precedents, ensuring a thorough analysis of the issues involved.