1971 (10) TMI 20 - HC - Income Tax

Assessee is a registered firm. It carries on business as a dealer in motor vehicles - assessee paid Telco (supplier) a sum of Rs. 7, 242 under training scheme of apprentices and the amount was utilised by the supplier company for construction of hostel for apprentices - Whether sum of Rs. 7, 242 paid by the assessee to the Tata Locomotive Engineering Co. Ltd. was rightly held to be a capital expenditure in the hands of the assessee held that payment was made wholly and exclusively for the purposes of business and was allowable under section 10(2)(xv) as revenue expenditure

Summary

Issues Involved:
1. Whether the sum of Rs. 7,242 paid by the assessee to Tata Locomotive Engineering Co. Ltd. was a capital expenditure.
2. Whether the payment should be allowed as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922.

Issue-wise Detailed Analysis:

1. Nature of Expenditure (Capital vs. Revenue):
The primary issue was whether the payment of Rs. 7,242 made by the assessee to Tata Locomotive Engineering Co. Ltd. (Telco) for the training of its apprentices should be classified as capital expenditure or revenue expenditure. The Income-tax Officer initially treated the payment as capital expenditure, reasoning that it was a contribution towards the construction of a hostel, which would be Telco's property. The Appellate Assistant Commissioner, however, allowed the claim as a revenue expense, stating it was incurred in connection with the business of the assessee. The Income-tax Appellate Tribunal reversed this decision, reinstating the Income-tax Officer's view that it was capital expenditure.

2. Deduction under Section 10(2)(xv):
The court examined whether the payment should be allowed as a deduction under section 10(2)(xv) of the Indian Income-tax Act, 1922. The court noted that the payment was made by the assessee to Telco for training its apprentices, which was essential for the assessee's business operations. The court emphasized that the payment was made for training charges and not for acquiring any asset of an enduring nature. The court cited several precedents, including Bombay Steam Navigation Co. (1953) (Pte.) Ltd. v. Commissioner of Income-tax, Commissioner of Income-tax v. Kirkend Coal Co., and Commissioner of Income-tax v. Royal Calcutta Turf Club, to support its view that such expenditures, aimed at increasing business efficiency and profits, are revenue in nature.

The court also referred to Commissioner of Income-tax v. Ciba of India Ltd., where payments made for access to technical knowledge were considered revenue expenditure, and distinguished the case from Mysore Kirloskar Ltd. v. Commissioner of Income-tax, where the expenditure was for acquiring "know-how" for new production, thus capital in nature.

Conclusion:
The court concluded that the payment made by the assessee to Telco was wholly and exclusively for the purpose of its business and was not of a capital nature. Therefore, the payment should have been allowed as a deduction under section 10(2)(xv) of the Act.

Final Judgment:
The court answered the question referred in the negative, stating that the sum of Rs. 7,242 paid by the assessee to Tata Locomotive Engineering Co. Ltd. was not a capital expenditure and should be allowed as a deduction. The assessee was entitled to its costs, assessed at Rs. 200.