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TMI Blog1998 (6) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... t equipment. Discount of Rs. 1,18,530 incurred on foreign travel was also claimed. It was the case of the assessee that the said expenses were incurred for a foreign tour of certain officials of the assessee, the details of which were as under : Rs. 1. Shri N.N. Tangri, Addl. Chief Engineer, FCI (Trip to USA) 20,262 2. Shri O.P. Khungar, Chief Engineer, PCI (Trip of USA) 20,262 3. Shri G.G. Gogate, Manager (Co-ordination) of the company (Trip to USA) &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulties in getting raw material from the GSFC, the assessee thought of various alternatives and one of the alternatives which was considered proper was to think of the feasibility or otherwise of setting up a new plant for manufacturing ammonia. In order to get a continuous supply of raw material by setting up a plant, it was necessary for the assessee to send some of its personnel abroad on a fact-finding mission. Thus, according to the assessee, the dominant purpose of the foreign tour was to secure the raw material for the manufacturing activity which the assessee was carrying on and to achieve that objective, foreign trips were undertaken. The expenditure, therefore, had no nexus with acquisition of a capital asset but was undertaken in order to explore the feasibility to get supply of ammonia (raw material) continuously and uninterruptedly and also to explore the possibility of setting up of a separate plant. The Tribunal, after considering the rival contentions of the parties and in the light of various decisions cited before it, held that the dominant purpose of the visit was to explore the feasibility of obtaining supply of liquid ammonia in view of the likelihood of termi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han on evidence and findings. He fairly conceded that the Tribunal is the final fact-finding authority and a finding of fact arrived at by the Tribunal is final and conclusive and this court cannot reappreciate the evidence and substitute its own finding for the finding recorded by the Tribunal. He, however, submitted that, in the instant case, the Tribunal has committed an error of law in recording certain findings without there being, any material or evidence. He also stated that certain conclusions have been recorded by the Tribunal which were inconsistent with and contrary to the evidence on record and in ignorance of the admissions made before the authorities on behalf of the assessee. According to Mr. Nayak, therefore, the so-called findings said to have been arrived at by the Tribunal, cannot be said to be legal findings or findings in the eye of law which are binding on this court and the jurisdiction of this court is not excluded. According to counsel, in these circumstances, the order passed by the Tribunal cannot be said to be in accordance with law and the question referred to this court is required to be answered in the negative by holding that the Tribunal has committ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t such question has arisen, it can draw up a statement and refer the case for the opinion of the High Court. Sub-section (2) enacts that when the Tribunal refuses to state the case on the ground that no question of law arises, an assessee or the Revenue, as the case may be, may approach the High Court and if the High Court is not satisfied with the correctness of the decision of the Tribunal, it may require the Tribunal to state the case and refer it for the opinion of the High Court. Section 260 declares that the High Court upon hearing of a case will decide the questions of law raised therein. The argument of Mr. Shah, on behalf of the assessee, is that the Tribunal is the final fact-finding authority and while dealing with reference, this court would proceed to answer questions referred to it on the basis of those findings. In his submission, this court has no jurisdiction to enter into the correctness or otherwise of the findings of fact recorded by the Tribunal. According to Mr. Nayak, though this court will proceed to decide the question referred to it an the basis of a finding of fact recorded by the Tribunal, there must be a finding of fact and such finding must have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion entirely different from that of the Tribunal. The court laid down a principle much more explicitly by stating that such a finding could be reviewed on the ground that there was no evidence to support it or that the finding was perverse. Again, a finding ought to have been arrived at by assessing the cumulative effect of all the facts and circumstances and the facts and circumstances cannot be considered in isolation. The court observed that there may be questions of fact, questions of law and mixed questions of law and fact. So far as the questions of fact are concerned, the fact-finding authority would record conclusions on the basis of evidence on record. Neither those findings nor inferences of facts from the findings can be challenged. Questions of law, on the other hand, are open to challenge. and the High Court can exercise jurisdiction by deciding those questions. In between the domains occupied, respectively, by questions of fact and of law, there is a large area in which both these questions run into each other, forming so to, say, enclaves within each other. The questions falling within that category are known as mixed questions of law and fact. Those questions invol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rea with approaches leading to different points therein. Such a question might involve more than one aspect, requiring to be tackled from different standpoints. All that section 66(1) requires is that the question of law which is referred to the court for decision and which the court is to decide must be the question which was in issue before the Tribunal. Where the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been urged before the Tribunal. It will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of section 66(1) of the Act." In that case, the Tribunal held that certain amounts were liable to be included in the income of the company on the basis of a provision which came into force subsequently. The provision was not in the statute on the day on which the liability to pay tax was crystallised. In reference before the High Court, it was contended by the assessee that the Tribunal erroneously assumed that the amending Act was in force and because of such misconception, the Tribunal decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, arises. The same principle applies where a court of fact bases its decision partly on conjectures, surmises and suspicions and partly on evidence and material on record. The court quoted with approval the following observations of Viscount Simonds in Edwards (Inspector of Taxes) v. Bairstow [1955] 28 ITR 579, 586 (HL) : ". . . it is universally conceded that, though it is a pure finding of fact, it may be set aside on grounds which have been stated in various ways but are, I think, fairly summarised by saying that the court should take that course if it appears that the Commissioners have acted without any evidence or upon a view of the facts which could not reasonably be entertained ..." In the same volume, there is another decision of the Supreme Court in CIT v. S. P. Jain [1973] 87 ITR 370. In that case, purchase of certain shares was held by the income-tax authorities to be benami and the amount paid for such purchase was held to be from undisclosed sources of the assessee. The Tribunal recorded a, finding that the transaction was not benami. The said finding, however, was recorded without taking into account the relevant material and by relying on inadmissible evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Having regard to the nature of the issue that was before the Tribunal and having regard to what we have stated above, we think it proper to set aside the order of the Tribunal and direct the Tribunal to consider the case on all the points that require consideration of the question whether additional surcharge was attracted. The reference is returned unanswered." The aggrieved assessee approached the Supreme Court. It was strenuously argued before the Supreme Court by the assessee that the High Court exceeded its jurisdiction under section 256 in giving the above directions. The Supreme Court negatived the contention of the assessee and observed that the High Court was right in issuing the directions. According to the Supreme Court, if the Tribunal proceeded upon an assumption which was erroneous in law, it could not be said that the High Court was bound by the terms of the questions referred and could not correct the erroneous assumption of law. The court stated : "If such power is not conceded to the High Court, the result would be that the answer given by the High Court may equally be erroneous in law. Such a situation cannot certainly be countenanced. It would not be in the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonable man" on the facts and in the circumstances of the case. In the light of the above principles, if the case on hand is examined, in our considered opinion, the Tribunal could not have reached the finding which has been arrived by it. In the order passed by the Commissioner (Appeals), it has been categorically stated that it was an "admitted fact" that the visit to the USA was for ascertaining the suitability of creating a plant to manufacture ammonia. The Commissioner, therefore, observed that it was clear that the proposed visit was to establish a new industrial undertaking. He was, therefore, of the view that the expenditure could not be said to be business expenditure and hence could not be allowed. In further appeal, the Tribunal, while narrating the facts in para. 5, also observed that the personnel named in the said para. visited the USA for ascertaining the suitability of setting up a plant to manufacture ammonia, The Tribunal noted that the Income-tax Officer proposed disallowance of the said expenditure on the ground that it was incurred for the purpose of a new product and for installation of a new plant and the said expenditure could not be revenue expenditure. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at since the officials of the assessee-company undertook an exploratory tour to organise supply of ammonia which incidentally included a plant for setting up a new project by acquiring machinery, the expenditure could not be said to be capital expenditure. In our opinion, the above finding cannot be said to be a finding of fact based on evidence or material on record but a mere argument of the assessee. If a finding of fact is not based on evidence on record or has been arrived at in disregard of evidence which was in the nature of the admission on behalf of the assessee, such a so-called finding cannot be said to be a finding in the eye of law which can be treated as final and binding on this court. Such a purported finding cannot close the doors of this court to the Revenue in raising a contention that the Tribunal has committed an error of law in recording a finding and that the order passed by the Tribunal was, therefore, vitiated. In this connection, we may advert to Calcutta Agency Ltd.'s case [1951] 19 ITR 191 (SC) referred to above. In that case, the assessee-company was the managing agent of a mill. Under an agreement, the assessee was entitled to a monthly allowance a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that argument. Nowhere in the statement of the case prepared by the Tribunal and filed in the High Court, the Tribunal had come to the conclusion that the payment was made by the assessee-company to avoid any danger of public exposure or to save itself from scandal or in order to maintain the managing agency of the appellant-company. The whole conclusion of the High Court is based on this unwarranted assumption of facts which are taken only from the argument of counsel for the present respondents before the High Court." In our opinion, the principle laid down by the Supreme Court in Calcutta Agency Ltd.'s case [1951] 19 ITR 191, applies with equal force to the case on hand. As already stated, the facts were very much before the authorities. In no uncertain terms, the Commissioner (Appeals) recorded a finding that it was admitted on behalf of the assessee that the company had decided to install its own plant which would produce adequate ammonia for the assessee's captive use and it was in pursuance of an implementation of the assessee's scheme for installation of a separate plant that the managing director and three other senior executives decided to visit the USA for making an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstellation of facts may be dissimilar and other factors may be present which may give a different hue to the case. The court stated : "Whether it is capital expenditure or revenue expenditure would have to be determined having regard to the nature of the transaction and other relevant factors." In IRC v. British Salmson Aero Engines Ltd. [1938] 22 TC 29 (CA), Lord Greene M. R. said : "There have been since, many cases where this matter of capital or income has been debated. There have been many cases which fall upon the borderline : indeed, in many cases it is almost true to say that the spin of a coin would decide the matter almost as satisfactorily as an attempt to find reasons." In CIT v. Century Spg. Wvg. and Mfg. Co. Ltd. [1947] 15 ITR 105 (Bom), the question was whether expenditure for registration of an old trade mark could be said to be revenue or capital expenditure. It was observed that expenditure could be attributed to revenue and it was exempt from payment of income-tax. The court then quoted with approval, the celebrated test by Lord Cave L. C. in British Insulated and Helsby Cables Ltd. v. Atherton [1925] 10 TC 155, 192 ; [1926] AC 205, 213 (HL), which is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the tests is either exhaustive or universal. Each case depends on its own facts, and a close similarity between one case and another is not enough, because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases (as said by Cardozo) by matching the colour of one case against the colour of another. To decide, therefore, on which side of the line a case falls, its broad resemblance to another case is not at all decisive. What is decisive is the nature of the business, the nature of the expenditure, the nature of the right acquired, and their relation inter se, and this is the only key to resolve the issue in the light of the general principles, which are followed in such cases." In CIT v. Alembic Glass Industries Ltd. [1976] 103 ITR 715 (Guj), the assessee was a company manufacturing glass at Baroda from 1947 which incurred expenditure for establishing a new glass manufacturing unit at Bangalore. The unit did not go for production during the two assessment years 1965-66 and 1966-67. The Income-tax Officer did not allow payment of interest for those two years on the borrowings. He also held that the Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect report for the manufacture of raw materials for the assessee's product. It was held that the expenditure incurred for the feasibility report could be said to be revenue expenditure and was, therefore, deductible. In CIT v. Suhrid Geigy Ltd. [1996] 220 ITR 153 (Guj), this court was called upon to consider the deductibility or otherwise of the expenditure incurred by the assessee for acquiring know-how to produce raw material needed for the product manufactured by the assessee. Considering several cases, it was held that the purpose was to carry on business with more profitability and was not entering into a new adventure for operating in a new area of business. It was stated by the court that even applying the test of acquisition of assets, it could not have been said that by the agreement, the assessee acquired any, capital asset. What was acquired under the agreement was the right to use technical know-how and the expenditure incurred for such knowledge could not be said to be capital expenditure. The court also quoted the following observations of the Supreme Court in Alembic Chemical Works Co. Ltd.'s case [1989] 177 ITR 377, 386 wherein the test laid down by Lord Pearce in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses, one must avoid the temptation to match the colour of one case with another : "What is decisive is the nature of the business, the nature of the expenditure, the nature of the right acquired, and their relation inter se, and this is the only key to resolve the issue in the light of the general principles, which are followed in such cases." According to the court, the object of the expenditure was to obtain a feasibility report for setting up a shipyard with a view to enable the asset to develop. Considering the feasibility report in the light of certain suggestions made in the report, it was held that the expenditure was to acquire an asset. Reading various clauses of the report submitted to the assessee by foreign company, the court came to the conclusion that the purpose of calling for the feasibility report was to enable the company to decide for the establishment and development of a shipyard. Negativing the contention of the assessee that after the receipt of the feasibility report no shipyard was established at Sikka and, hence the expenditure could not be said to be capital expenditure, the court held that what was material was the purpose which prompted the assessee-c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot possible to say that the tour was undertaken as study-tour merely to get acquaintance with new methods of production and new machinery and only for adding to the knowledge of the company's representatives and, therefore, the expenditure incurred could be termed as revenue expenditure. A tour which was undertaken for a preliminary survey of new methods for manufacturing, designing or processing and of new machinery with a view to purchase them, even if not immediately but at a later stage, would be for bringing into existence a capital asset. Since one of the purposes to bring into existence a capital asset was clearly established, the expenditure must be held to be capital expenditure. Applying the above principles to the facts of the present case, we are clearly of the view that the Tribunal has committed an error of law in coming to the conclusion that the expenditure was of revenue nature. As stated above, it was not the case of the assessee that the foreign tours were exploratory in nature. In fact, the case of the assessee was to the contrary. It was specifically stated on behalf of the assessee, which is reflected in the order of the Commissioner (Appeals), that in view ..... X X X X Extracts X X X X X X X X Extracts X X X X
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