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TMI Blog1970 (12) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... nnection with the business of the assessee-company. Out of the total claim of Rs. 36,937 a sum of Rs. 15,939 was said to have been spent by the managing director between October 4, 1959, and November 21, 1959, and the balance of Rs. 20,998 was stated,to have been spent by him between April 10, 1960, and July 9, 1960. The purposes for which the managing director undertook the first tour from October 4, 1959 and November 21, 1959, are stated to be as under : (a) To conclude negotiations with Messrs A. E. Craig & Co. Ltd., for the manufacture of sugar machinery and for supplyof imported components for sugar plants to be manufactured by the assessee; (b) Negotiating the collaboration agreement with Messrs. John Thompson Ltd., Ettingsball Wolverhampton U. K. ; and (c) To place orders for machine tools, etc. The managing director wrote a letter to the Government of India on September 12, 1959, while submitting the application on the prescribed form for grant of foreign exchange. The reasons for the journey were stated as under : " 1. I visited U. K. earlier in the year for the purposes mentioned in my application dated 12th February, 1959, for grant of foreign exchange. While I was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invest from pound 1,00,000 to pound 3,00,000 for the first stage and much more later on. 6. We have yet to place orders for machine tools valuing about Rs. 15 lakhs for which we hold import licences? I have to negotiate with foreign manufacturers for those machine tools also." Question No. 7 in the application form is to the effect- "If the bject is to arrange for imports into Indian State:- (a) Type of goods to be imported. (b) Details of import licences held." Against this question the reply given was 'yes' and it was further stated-- (a)(1) Machine tools for the expansion of our works. (2) Components and raw materials required for the manufacture of milling and other sugar manufacturing machinery including power plant. (b)(1) Details of licences held for the import of machine tools as mentioned in (a)(1) above are : (i) Licence No. 997537/HQ/CCI-CG dated 26-2-59 for Rs. 8.45 lakhs. (ii) Licence No. 997420/HQ/CCI-CG dated 31-3-59 for Rs. 6 lakhs. (2) A limit of Rs. 20.2 lakhs has been fixed for the imported components and power plant as mentioned in (a)(2) above. We have applied for licence for the part amount of Rs. 16.40 lakhs. The licences for the same are still awa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le accurately to work out the cost which has reference to the activity relating to the manufacturing of boiler and boiler components. In view, however, of the importance accorded to it by the company itself, it appears to me that its splitting-up at 50% would be reasonable allocation of the managing director's expenses, amongst the two different activities. " He, therefore, allowed a sum of Rs. 7,969 out of Rs. 15,939 as a deductible expenditure and disallowed the remaining sum of Rs. 7,970 which he termed as preliminary expenses. This decision of the Income-tax Officer was upheld in appeal by the Appellate Assistant Commissioner as well as by the Appellate Tribunal. The purposes of undertaking the second foreign tour by the managing director of the assessee-company from April 10, 1960, to July 9, 1960, were stated as under in the application made to the Government for sanction of the foreign exchange on February 27, 1960: "When I visited Europe last, I was able to arrive at a provisional agreement with M/s. John Thompson Ltd., Ettingshall, Wolverhampton, England, for manufacture of boilers and allied equipment in our workshop at Yamunanagar, District Ambala, with their collabor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply one machine free of cost from Switzerland, direct, so that the Saraswati Sugar Mills is able to make use of it at least from the start of the next crushing season as Godavari Sugar Mills is not likely to supply the machine without long drawn-out litigation. I will also visit Holland to sort out some outstanding matters with M/s. Stork Werkspoor. I also propose to go to Sweden to check up on the progress for the manufacture of turbines on order with M/s. Svenska Turbinfabriks Aktiebolaget Ljungstron, Pinspong (Sweden), placed through Asea Electric (India) (Private) Ltd." Question No. 7 in the application form was the same as stated above and the answer against this question was " yes " and further it was stated: " (a) Capital machinery for manufacture of boilers and allied equipment by the Indian Sugar & General Engineering Corporation Ltd. (b) Application for the licence will be made after I have selected the machine to be imported. " In the letter dated February 27, 1960, written by the assessee-company to the Reserve Bank of India it was stated as under: " Shri D. D. Puri, managing director, Indian Sugar & General Engineering Corporation Ltd., is going abroad on this co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellate Tribunal was right in holding that the travelling expenses amounting to Rs. 28,967 and the entertainment expenses of Rs. 761 were not allowable as a revenue expenditure?" Income-tax Reference No. 43 of 1969 relates to the expenditure incurred by Shri D. D. Puri, the managing director of the assessee-company, on his foreign tour from November 3, 1960, to December 16, 1960. The purposes of this tour were stated in the application to the Reserve Bank of India, dated October 13, 1960, as under: " The present capacity of the workshops of Indian Sugar & General Engineering Corporation Ltd. is two complete sugar factories per year. It has now been decided to- (a) step up the output from 2 to 4 plants a year; (b) to reduce the imported content progressively; (c) to undertake the manufacture of bigger plants than any made in the country so far. Hitherto, plants of only 1,000/1,200 tons capacity are being manufactured. We wish to manufacture plants up to 3,000 tons per day capacity ; (d) to negotiate the outright purchase of designs and drawings front abroad. This will not only help achieving (b) but also make large savings in royalties we now rent to our foreign collabo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard thereto was appended. Along with the application of the assessee-company to the Reserve Bank of India, dated October 12, 1960, a certificate was sent by the chairman of the company stating that Shri Puri was going abroad on company's business, inter alia, for the following purposes: " (i) To make arrangements, on the basis of collaboration, or otherwise, for the manufacture of fabricated head stocks and gearings and also for the manufacture of steam engine and centrifugals with some firm(s) abroad. (ii) To discuss outstanding matters with M/s. John Thompson Ltd., Wolverhampton, including output programme of boilers and also with a view to make arrangements for the manufacture of stokers in our shops. (iii) To review the work of the collaborations agreement with M/s. A. F. Craig & Co. Ltd. " From these two documents the Income-tax Officer concluded that the cost of the foreign tour of the managing director had to be treated as one acquiring the character of capital expenditure but he disallowed only one half of the expenditure, i.e., a sum of Rs. 8,258, out of Rs. 16,516 claimed by the assessee-company. This order was also upheld in appeal by the Appellate Assistant Commissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure and as it was for the completion of that the expenditure in question was incurred by the assessee-company, it was a part and parcel of the expenditure incurred by it for the expansion of its business and the Tribunal had rightly held that this amount was in the nature of capital expenditure and was not allowable to the assessee-company under section 10(2)(xv) of the 1922 Act. Several judgments of their Lordships of the Supreme Court were considered in that case. In the light of the principle laid down in that judgment it has to he determined in this case whether the expenditure incurred on foreign tours of the managing director related to the acquisition of the capital assets, that is, assets of enduring nature or stock-in-trade of the company. The careful scrutiny of the purposes of foreign tours mentioned above in detail clearly shows that the Income-tax Officer had correctly arrived at the conclusion that all the three tours were mostly concerned with the acquisition of capital assets in the form of collaboration for expansion of the business of the company or the consultation with their former collaborators for expansion of the manufacturing capacity of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for securing the use of money for a certain period, and (c) that it was irrelevant to consider the object with which the loan was obtained. Consequently, in the circumstances of the case, the expenditure was revenue expenditure within section 10(2)(xv). In the instant cases it can be said that the foreign tours undertaken by the managing director of the assessee-company were in connection with the business of the company but they were mostly of capital nature and, therefore, were rightly disallowed to the extent of the disallowance made. The learned counsel for the assessee has, however, vehemently argued that if it was necessary for the managing director of the assessee-company to go abroad in connection with the company's business, the passage-money could not be apportioned. We find no substance in this submission as every expenditure incurred has to be apportioned. If a part of it is to be allowed and the remaining to be disallowed, the onus is on the assessee company to prove the amount of expenditure which can be allowed. But, the assessee-company did not furnish any material to the Income-tax Officer to arrive at the conclusion. He, herefore, exercised his judgment and dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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