1972 (8) TMI 35 - HC - Income Tax

Assessee had claimed deduction in respect of Rs. 20, 065 spent on account of the travelling expenses etc. of three technicians of Messrs. Reynolds Metal Company of America who came to India for the purpose of examining the assessee s manufacturing plants. The Income-tax Officer disallowed the expenditure on the ground that it was capital in nature. held that expenditure was allowable under s. 10(2)(xv) of Indian Income-tax Act 1922

Summary

Issues Involved:
1. Nature of expenditure (capital or revenue)
2. Enduring benefit or permanent nature of the expenditure
3. Allowability of the expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922

Issue-wise Detailed Analysis:

1. Nature of Expenditure (Capital or Revenue):
The primary issue was whether the expenditure of Rs. 20,065 incurred by the assessee for the travelling and other expenses of three technicians from Messrs. Reynolds Metal Company was capital or revenue in nature. The Income-tax Officer disallowed the expenditure, treating it as capital in nature. The Appellate Assistant Commissioner upheld this view, stating that the recommendations by the technicians resulted in a permanent and enduring advantage for the assessee, thereby treating the expenditure as capital. However, the Tribunal disagreed, stating that the improved methods suggested by the technicians did not confer any permanent or enduring benefit and could become obsolete with the evolution of better techniques. The Tribunal concluded that the expenditure was laid out wholly and exclusively for the purpose of business and was allowable under section 10(2)(xv).

2. Enduring Benefit or Permanent Nature of the Expenditure:
The revenue argued that the improved methods of manufacture recommended by the technicians led to a substantial increase in production, thereby providing a benefit of an enduring or permanent nature. They cited the case of Henriksen (H. M. Inspector of Taxes) v. Grafton Hotel Ltd., where payments for monopoly value were considered capital sums due to their enduring benefit. The Tribunal, however, noted that the recommendations were for better methods of operating the existing plant and not for its expansion. The Tribunal emphasized that in the context of rapidly changing technology, the suggested methods would soon become outdated, thus lacking the permanence required to be considered a capital asset.

3. Allowability of the Expenditure under Section 10(2)(xv):
The Tribunal allowed the expenditure under section 10(2)(xv) of the Indian Income-tax Act, 1922, which permits deductions for expenses incurred wholly and exclusively for the purpose of business. The Tribunal's decision was based on the view that the expenditure was for running the existing business more efficiently and not for acquiring an asset or advantage of an enduring nature. The Tribunal's decision was supported by the Gujarat High Court's ruling in Commissioner of Income-tax v. Alembic Glass Industries Ltd., where similar expenses for training technicians were considered revenue expenditure as they were aimed at running the business more efficiently.

Conclusion:
The High Court affirmed the Tribunal's decision, holding that the expenditure was not capital in nature and was allowable as a deduction under section 10(2)(xv). The Court emphasized that the purpose of the expenditure was to improve the efficiency of the existing business operations and not to acquire a permanent or enduring asset. The Court also noted that in the context of rapidly changing technology, the benefits derived from the expenditure were not of a permanent nature. Therefore, the question referred to the Court was answered in the affirmative, and the Tribunal's decision was upheld. There was no order as to costs.