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TMI Blog1963 (8) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of manufacturing textiles. It maintains accounts according to the mercantile system. The expenses for wages to the employees engaged for carrying on the business of the company were shown in the accounts as liabilities as and when they accrued. In other words, irrespective of the payment of the wages, the assessee-company used to take into account the wages due to the employees and labourers and the entire sum so due was shown as a deduction in its accounts and also allowed as such in the income- tax assessments made on the company. It sometimes happened that all the workers did not turn up to collect their dues and consequently, a portion of the wages in each year remained unpaid and such unpaid wages used to be transferred to an account called "unpaid wages account". As and when the workers turned up to take their unclaimed wages, such amounts used to be paid to them and debited to the unpaid wages account. A separate account used to be maintained for each year in respect of such unclaimed wages. The unclaimed wages relating to the calendar years 1947 to 1949 were transferred to the general reserve fund and the amounts so transferred were brought to tax. The following were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation in treating these unpaid wages as income of the assessee-company under section 10(2A). This contention was negatived by the Assistant Commissioner on the ground that the liability of the assessee-company in respect of these amounts had become time barred as more than three years had already elapsed since those wages became due and he concluded that when the creditors' legal remedies for recovery have ceased, the legal liability also ceased and the provisions of section 10(2A) would then come into play. The Assistant Commissioner also observed that if the assessee's views were to be accepted, it would mean that an assessee would indefinitely postpone taxation on such amounts by simply not transferring to the profit and loss account such reserve funds and that such a position could hardly be accepted. Upon this reasoning, the Assistant Commissioner dismissed the appeals of the assessee-company. The assessee-company then took the matter in appeal before the Tribunal where two contentions were put forward: (1) that inasmuch as the assessee-company had acknowledged its indebtedness by carrying forward these unclaimed wages as outstanding liabilities in its annual balance- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents for 1955-56, 1956-57 and 1957-58 respectively? (2) Whether on the facts and in the circumstances of the case, the decision of the Tribunal that the debts are time-barred is correct in law?" The question therefore is whether the liability in respect of the unpaid wages payable during the calendar years 1950 to 1953 had become timebarred during the assessment years and consequently extinguished, as assumed by all the three tax authorities. It is only if it was time-barred that the next question would arise, viz., whether under section 10(2A) these amounts treated as expenditure incurred could be said to have been received by the assessee-company either in cash or in any other manner whatsoever. Mr. Kaji's contentions were that it was an admitted fact that the assessee-company used to acknowledge publicly its liability in respect of these unpaid wages in the balance-sheets at the end of each year, that is to say, 1950, 1951, 1952 and 1953, and that therefore, as ? result of such acknowledgment, the debt of the assessee-company in respect of these unclaimed and unpaid wages remained outstanding and the assessee-company continued to be liable to pay those amounts. He also co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances the debts could not be said to have been time barred and, therefore, the unclaimed wages could not be added back under section 10(2A). In view of that concession, it does not become necessary for us to go into the second contention raised by Mr. Kaji, namely that even if these debts were time-barred, section 10(2A) was not applicable. In view of the concession made by the learned Advocate-General, we would first answer question No. (2) on this aspect of the case, and our answer to that question would be in the negative and in view of that answer, our answer to question No. (1) also must be in the negative. As regards the claim for deduction of expenses incurred by the assessee- company for sending the two directors and the superintendent of its mills to foreign countries, as valid deductions under section 10(2)(xv), the question referred by the Tribunal to us is in the following terms: "Whether on the facts and in the circumstances of this case the sums of Rs. 22,247 and Rs? 14,404 being the foreign tour expenses were allowable as revenue expenditure under section 10(2)(xv) in the assessment years 1956-57 and 1957-58 respectively?" Rs. 22,247 were said to have been spent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld it be said that the expenditure was incurred with a view to bring in any capital asset. The study tour was merely for investigation as to how the methods of processing of the assessee-company's mills could be improved upon and how thereby the profits of the assessee-company could be maintained or increased. He argued that as a result of this tour the company's director might recommend introduction of new processes or even purchase of new machinery, but it could not, therefore, be said that he was sent to Europe for purchasing new machinery. He relied upon the report dated September 3, 1955, and argued that the report pointed out new trends so that the assessee-company might decide whether it should go in for them and purchase new machinery for that purpose, but that again would not mean that the director had gone on tour to purchase new machinery and that the report in fact did not afford any such evidence. He further argued that the mere fact that machinery was purchased subsequently in the years 1956 and 1957 did not mean that the director and the superintendent had gone on tour for the sake of purchasing machinery and not merely to investigate and study new processes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them in any detail. From these decisions, it was argued by Mr. Kaji that the expenditure incurred for the improvement in the standards of business would not amount to bringing into existence a capital asset. He pointed out that during this tour the director did not go alone to Europe but was accompanied by the superintendent of the mills, and that that fact indicated that the two of them had proceeded on a study tour which ultimately might result in the purchase of new machinery by the assessee-company, but that would justify the conclusion that the tour was undertaken for the purpose of purchasing new machinery, that is to say, for bringing into existence a new capital asset. The primary object, according to him, of the tour was to investigate whether the new processes should be introduced in t?e textile mills belonging to the assessee-company, irrespective of the fact that such processes might mean purchase of the new machinery, and that the same would still be revenue expenditure. But Mr. Kaji's principal difficulty lies in the fact that this is not the conclusion arrived at by the Tribunal in respect of the tour undertaken by the director and the superintendent in the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference the question as to whether we have or we have not the jurisdiction to disturb such a finding, the question would still remain whether it is possible to say that the finding given by the Tribunal as to the purpose and object of the tour undertaken in 1955, is perverse or unreasonable or a mere conjecture without any foundation in evidence. In other words, can it be said that the finding given by the Tribunal is not even a possible view to take on the facts and circumstances of this case, namely, that the tour was undertaken for a preliminary investigation of methods of new processing adopted in textile industry in Europe and new machinery manufacturing and used for such processing in those ceuntries with a view to adopt in the assessee-company's mills the said processing and instal for that purpose new machinery? If the tour is undertaken with the object of investigating whether new processing should be adopted and for that purpose, new and suitable machinery should be purchased, it is clear that even if the purchase were not to take place then but later, in other words, even if the tour were to be for investigating which new machinery should be suitably and properly pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Zurich where they visited Rieter's factory and had discussions with the technical staff regarding a machine called Auto Mixer in the Blow Room Line. They also visited a spinning mill to see the working of this Auto Mixer and their conclusion was that the Auto Mixer "is found to be quite effective". During their stay in the United Kingdom they visited, amongst other places, the Card Clothing Factory of Horsefell and Bickam and saw different processes of manufacturing card clothing "which was quite interesting". They also visited another factory where they saw a processing plant which they found "to be quite good". As the report shows, the conclusion arrived at by these representatives was: "The trend seems to be for short processing, higher seeds, and introduction of modern appliances of saving power, steam, water etc., is quite prominent. Continuous wet processing seems to be the trend of future development, introduction of different methods of control and appliances whereby the frequent attention by man is being eliminated is adopted more and more." The report ends by the statement that in Europe also renovation of machinery was going on in full swing. These were then the new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ually seen it in work, the director recommended that the company should go in for it. It is clear from the resolution as also the report that the object of the tour was for selection of machinery for an additional plant. Even Mr. Kaji could not attack the finding of the Tribunal in respect of this mission, either on the ground that it was unreasonable or that it was not founded upon evidence. That being so, we would not be justified to disturb the finding as to the object of the tour, arrived at by the Tribunal. But Mr. Kaji's contention was that expenditure incurred by an assessee for the replacement of new machinery for the old would be revenue expenditure and that if such expenditure were to be revenue expenditure, a preliminary expenditure for investigating whether that machinery should be replaced by new one must be held to be revenue expenditure. In support of this proposition, Mr. Kaji relied upon the decision of the High Court of Madras in Commissioner of Income-tax v. Sri Ram Sugar Mills Ltd. [1952] 21 I.T.R. 191. The assessee-company there was carrying on business of manufacturing sugar and had in its factory three boilers. During the crushing season the factory had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion that by the replacement of the new boiler no new capital asset was being added nor the strength of the productivity of the factory was being increased. But even Satyanarayana Rao J. appears to have relied upon the test laid down by Viscount Cave in British Insulated and Helsby Cables Ltd. v. Atherton [1926] A.C. 205, where the learned Lord Chanceller laid down that "when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of trade, I think that there is a very good reason for treating such an expenditure as property attributable not to revenue but to capital". The same test was applied by the Privy Council in Rhodesia Railways Ltd. v. Income-tax Collector, Bechuanaland [1933] A.C. 368, where it was held that if the expenditure was incurred with a view to bring into existence an asset or an advantage for the enduring benefit of a trade, such expenditure would be capital expenditure. In vie of the difference of opinion between the two learned judges and the approval of the dictum of Viscount Cave by Satyanarayana Rao J. we do not think that Mr. Kaji can bring to his aid the decision in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f an enduring nature must have been derived by the bank. It is no doubt true that the High Court held that this expenditure was revenue expenditure and not capital expenditure, but it must be remembered that they did so on the footing that opening of new branches merely gave further facilities to the customers of the bank but that did not bring in an advantage of an enduring benefit of trade to the bank and furthermore, that by the opening of such branches, no new asset was being brought in existence as it was the same business which was being expanded. This is clear from the observations at page 363 of the report that "the mere fact that for the purpose of carrying on the same type of business and to attract more business they opened other branches at different places and incurred expenses which did not produce any new asset, that does not in our minds seem to change the nature of the expenditure. It is not a case where an assessee had started a new line of business or acquired new premises or purchased other assets which could be included as an asset in the profit and loss account. It is merely a case where for the purpose of extending the business new branches had been opened an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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