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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 ..... g of sugar machinery and its component parts. In its income for the assessment year 1961-62, the assessee claimed allowance for a sum of Rs. 36,937 on account of travelling expenses of its managing director, Shri D. D. Puri. According to the assessee this expenditure was incurred by the managing director in respect of two foreign tours undertaken by him in connection 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 dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted with their representative in India but, as the matter is to be decided by the principals in U. K., I have to discuss the proposition with Messrs. John Thompson Ltd., so that the arrangement is finalised as early as possible to enable us to manufacture the boiler components also for the Palakol order, The basis of negotiations with John Thompson Ltd. is that they 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of this activity, is in the nature of preliminary expenditure and cannot form a charge on the revenue of the company in respect of the activity relating to the former. " No written report was submitted by the managing director to the assessee-company on his return nor was any such report submitted to the Income-tax Officer. The Income-tax Officer, therefore, observed: " It is impossible 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 J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... araswati Sugar Mills free of charge from Godavari Sugar Mills Ltd. Godavari had been supplied that machine by Escher Wyss on approval earlier. In spite of our best efforts, M/s. Godavari Sugar Mills Ltd., have not despatched that machine to us and the non-supply has already affected crushing of the said Saraswati Sugar Mills for the current season. M/s. Escher Wyss have now to be persuaded to supply 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 equipmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further appeal by the Income-tax Appellate Tribunal. During his foreign tour Shri D. D. Puri had claimed Rs. 761 on account of entertainment of company's guests. This expenditure was also held by the Income-tax Officer to be a capital expenditure and was disallowed. The question of law referred to this court for opinion in this case is as under: "Whether, on the facts and in the circumstances of the case, 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; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed content of the sugar factories we are supplying. Some items are falling behind schedule. I must look these up and expedite them or else the supply of the complete plant may be delayed. The first three plants are being supplied to co-operatives in Andhra Pradesh and Punjab." Against question No. 7, similarly worded as question No. 7, set out above, a list of the goods to be imported and the relevant import licenses with regard 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 ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, therefore, held that the expenditure was of a capital nature. On a reference to this court it was held that the expenditure incurred in this connection as travelling expenses of the engineer was an integral part of the whole transaction of the purchase of plant and machinery fo the expansion of its business. Since the purchase of the said machinery by the assessee-company for expansion of its business was in the nature of capital 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he business, the expenditure may be regarded as revenue expenditure. " The case before their Lordships of the Supreme Court related to the expenses incurred on securing the loan for the purpose of the company which was disallowed by the income-tax authorities. After discussing the case law their Lordships expressed the opinion-(a) that the loan obtained was not an asset or an advantage of enduring nature, (b) that the expenditure was made 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 passa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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