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TMI Blog1968 (10) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... In connection with this practical training, the assessee-company paid a sum of Rs. 71,625 (15,000 dollars) by way of fee to Thatcher Glass Manufacturing Co. and a further sum of Rs. 56,302 was spent by the assessee-company for the assessment year 1961-62 for travelling, lodging. and other expenses of the employees. A further sum of Rs. 3,489 was spent in the same connection by the assessee-company so far as the assessment year 1962-63 was concerned; and the company claimed the amounts of Rs. 71,625 and Rs. 56,302 as items of revenue expenditure for the assessment year 1961-62, and the sum of Rs. 3,489 as revenue expenditure for the assessment year 1962-63. The Income-tax Officer disallowed the sum of Rs. 71,625 paid by the assessee-company as training fee to Thatcher Glass Mfg. Co. and out of the sum of Rs. 56,302 incurred by the assessee-company for travelling expenses, lodging charges, etc., for the employees, a sum of Rs. 50,000 was disallowed by the Income-tax Officer while assessing the income of the assessee-company for 1961-62. He disallowed the entire sum of Rs. 3,489 in connection with the assessment year 1962-63. Thereafter, the assessee-company went in appeal before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing two questions have been referred to us by the Tribunal : " (1) For the assessment year 1961-62. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sums of Rs. 71,625 and Rs. 50,000 were revenue expenditure ? (2) For the assessment year 1962-63. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 3,489 was revenue expenditure ? " The law applicable to the assessment for the assessment year 1961-62 is the Income-tax Act, 1922, and the relevant section of that Act is section 10(2)(xv), which provided as follows : " 10. (1) The tax shall be payable by an assessee under the head 'Profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him. (2) Such profits or gains shall be computed after making the following allowances, namely : ... (xv) any expenditure (not being an allowance of the nature described in any of clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48. Under the agreement the Swiss company undertook to deliver to the assessee all processes, formulae, scientific data, working rules and prescriptions pertaining to the manufacture or processing of products discovered and developed in the Swiss company's laboratories and to forward to the assessee as far as possible all scientific and bibliographic information, pamphlets or drafts, which might be useful to introduce licensed preparations and to promote their sale in India. It granted to the assessee full and sole right and licence under the patents listed in the agreement to make use, exercise and vend the inventions specified therein in India and also a licence to certain specified trade marks in the territory subject to any existing licence which third parties held at the date of the agreement, or which the Swiss company might grant to third parties thereafter. In consideration of the right to receive scientific and technical assistance, the assessee agreed to make contributions of 5%, 3% and 2% respectively of the net sale price of the products sold by the assessee towards, (i) technical consultancy and technical service rendered and research work done, (ii) cost of raw materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the agreement merely the right to draw, for the purpose of carrying on its business as manufacturer and dealer of pharmaceutical products, upon the technical knowledge of the Swiss company for a limited period ; by making that technical knowledge available the Swiss company did not part with any asset of its business, nor did the assessee acquire any asset or advantage of an enduring nature for the benefit of its business. In that case Shah J., delivering the judgment of the Supreme Court, pointed out at page 701: " In the case of Rolls Royce Ltd. payment received for licensing a foreign Government to manufacture aero-engines with the accumulated technical knowledge of the taxpayer and for supplying the necessary information and drawings, and for advising the foreign Government as to improvements and modifications in manufacture and design, instructing the licensee's personnel in their works and for releasing members of their own staff to assist in the manufacture of engines by the licensee was held to be received on revenue account of the taxpayer's trade. In English Electric Company's case the taxpayer contracted with Admiralty to design and develop a turbine and to licen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application of the process it would be necessary to have first hand knowledge of the working of the process in a modern factory manufacturing superior variety of heat-resisting glassware. It was for this purpose that the company sent its technicians abroad to obtain practical knowledge from M/s. Thatcher Glass Mfg. Co., Inc. of U. S. A. which has a great name in this line in the international market ; and it is on these facts that the Tribunal proceeded to decide the question whether the expenses incurred were on capital or revenue account. In the affidavit of Chandubhai Gordhanbbai Amin it has been pointed out that the company had arranged with Thatcher Glass Mfg. Co., Inc. of U. S. A. to train the employees of the assessee-company in their practical method of manufacturing glass which had a great heat-resisting quality. Accordingly, Mr. P. M. Parikh, an engineer in the employment of the assessee-company, Mr. S. M. Jaiswal, also an engineer of the assessee-company, and Chandubhai, himself the holder of a degree of Master of Science in Glass Technology of the University of Toledo, U. S. A., were deputed by the assessee-company to go to the works of Thatcher Glass Mfg. Co., U. S. A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch case of Benarsidas Jagannath, In re cannot be applied to the facts of this case. Proceeding, therefore, to the second test laid down by Mahajan J., based on the decision of the House; of Lords in Atherton's case, the expenditure was not made for acquiring or bringing into existence an asset or an advantage of enduring nature to the business but was made for running the business with a view to produce more profits and with a view to run the business more efficiently so as to produce higher profits. Thus, no asset or advantage of enduring benefit to the business was acquired or brought into existence. What was being done by the assessee-company, on the facts as found by the Tribunal, was that the expenditure was incurred with a view to acquire practical knowledge of the business of manufacturing better heat-resisting glassware. It would be correct to say, on the facts as found by the Tribunal, that the expenditure was incurred with a view to better utilize all the processes and methods already known to the company and already employed by the company. Under these circumstances, on the facts of this case and applying the principles deductible from the cases cited above, it is clea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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