1968 (10) TMI 3 - HC - Income Tax

Expenditure was incurred by the company with a view to earn profits from the same methods and processes as before - this is not a case where the expenditure was incurred with a view to enlarge the goodwill of the company or to permanently improve the assets of the concern - allowable as revenue expenditure

Summary

Issues Involved:
1. Whether the sums of Rs. 71,625 and Rs. 50,000 for the assessment year 1961-62 were revenue expenditure.
2. Whether the sum of Rs. 3,489 for the assessment year 1962-63 was revenue expenditure.

Issue-Wise Detailed Analysis:

Issue 1: Assessment Year 1961-62 - Revenue Expenditure
The primary issue was whether the sums of Rs. 71,625 and Rs. 50,000 paid by the assessee-company for training fees and related expenses were revenue expenditures. The assessee, a glassware manufacturing company, had sent three technicians to the USA for practical training in manufacturing heat-resisting glassware. The Income-tax Officer disallowed these expenses, categorizing them as capital expenditures. The Appellate Assistant Commissioner upheld this view. However, the Tribunal, after reviewing the affidavit of Chandubhai Gordhanbhai Amin and considering the nature of the training, concluded that the expenses were of a revenue nature. The Tribunal found that the training was to enhance the existing business operations and efficiency, not to acquire a new asset or advantage of enduring nature. The High Court agreed with the Tribunal, emphasizing that the expenditure was for running the business more efficiently and did not result in a capital asset or enduring benefit. Therefore, the sums of Rs. 71,625 and Rs. 50,000 were rightly considered revenue expenditures.

Issue 2: Assessment Year 1962-63 - Revenue Expenditure
For the assessment year 1962-63, the issue was whether the sum of Rs. 3,489 spent on similar training-related expenses was a revenue expenditure. The Tribunal had allowed this amount as revenue expenditure, following the same reasoning as for the previous assessment year. The High Court affirmed this decision, noting that the expenditure was incurred to improve the efficiency of the existing business processes and did not result in acquiring a new asset or enduring advantage. The expenditure was thus correctly categorized as revenue expenditure.

Conclusion:
The High Court upheld the Tribunal's decision that the sums of Rs. 71,625 and Rs. 50,000 for the assessment year 1961-62 and the sum of Rs. 3,489 for the assessment year 1962-63 were revenue expenditures. The Court emphasized that these expenditures were for enhancing the efficiency of the existing business operations and did not result in acquiring a new asset or enduring benefit. The Commissioner was directed to pay the costs of the reference to the assessee.