1969 (11) TMI 15 - HC - Income Tax

Travelling expenses - foreign tour expenses of engineer - expenditure of a capital nature - not allowable to the assessee-company under section 10(2)(xv)

Summary

Issues:
1. Assessment of profits and gains for a specific year under the Income-tax Act.
2. Classification of expenses as revenue or capital in nature.

Analysis:
1. The first issue revolved around the assessment of profits and gains earned in a particular year for tax purposes. The judgment referred to a Supreme Court case, Dalmia Dadri Cement Company Ltd. v. Commissioner of Income-tax, where it was established that profits and gains should be assessed based on the rates in the Finance Act of the relevant year, rather than any specific agreement clauses. The court concluded that the assessee's profits for the year 1955 were assessable for the assessment year 1956-57 at the rates specified in the Indian Finance Act of 1956, not as per the agreement from 1938.

2. The second issue dealt with the classification of expenses claimed by the assessee-company as revenue or capital in nature. The company claimed Rs. 13,070 as travelling expenses for an engineer who went abroad to inspect machinery intended for purchase. The Income-tax Officer initially disallowed the claim, stating lack of supporting reasons. The Appellate Assistant Commissioner and the Income-tax Appellate Tribunal both upheld the disallowance, considering the expenses as capital in nature due to their connection with the purchase of new plants and machinery for the company's factory extension. The Tribunal found that the expenses directly led to the purchase of machinery worth one crore rupees, establishing a capital nature. The court referred to relevant precedents, including Seshasayee Brothers Ltd. v. Commissioner of Income-tax and Ambica Mills Ltd. v. Commissioner of Income-tax, supporting the capital expenditure classification. Despite the assessee's argument that the expenses were not directly for the purchase, the court held that the expenditure was an integral part of the transaction leading to the acquisition of new assets, making it capital expenditure. Thus, the Tribunal's decision to disallow the claim under section 10(2)(xv) of the Act was upheld.

In conclusion, the judgment clarified the assessment of profits for taxation and provided a detailed analysis of the classification of expenses as revenue or capital in nature, emphasizing the integral connection between expenses and asset acquisition for determining their nature under the Income-tax Act.