TMI Blog1973 (9) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances. The relevant assessment year is 1963-64. The assessee is a private limited company carrying on the business of manufacturing, among other items, electric hoists of a particular lifting capacity. It, however, intended to manufacture electric hoists with a different design so as to increase the lifting capacity. In order to acquire the technical know-how and also for the purposes of studying and obtaining training for the manufacture of conveyor leaders, two directors and the production manager went to Berlin, Germany. It appears that the assessee entered into an agreement with M/s. Limex Ltd., Berlin, East Germany, who were the agents of M/s. VEB Maschinenfabrik and Eisengieseerei Dessan. The two directors and the production manager went to Berlin in accordance with the said agreement. Before the Income-tax Officer in the course of assessment proceedings, the assessee-company claimed that the expenditure of Rs. 21,232 incurred in connection with the foreign tour of the two directors and the production manager was in the nature of revenue expenditure. However, the Income-tax Officer rejected this claim as he was of the opinion that this was incurred in connection with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in Commissioner of Income-tax v. Ciba of India Ltd. was concerned with a question, whether the contribution made by the assessee-company, in that case, for purposes of scientific research to be carried out by the principal parent-company, Ciba, Basle, was admissible as deduction under sections 10(2)(xii) or 10(2)(xv) of the Indian Income-tax Act, 1922. The parent-company, Ciba Basle Ltd., was engaged in the development, manufacture and sale of medicinal and pharmaceutical preparations and it carried on business in India of selling its products through a subsidiary company called Ciba (India) Ltd. After the incorporation of the assessee-company, the activities of the parent-company in India were bifurcated and the pharmaceutical section was taken over by the assessee-company, viz., Ciba of India Ltd., which was originally floated in the name of Ciba Pharma Ltd. The other lines of the business relating to dyes and chemicals were continued by the subsidiary company, viz., Ciba (India) Ltd., the name whereof was later on changed to Ciba Dyes Ltd. The Supreme Court, on a consideration of the fact that the assessee-company acquired merely a right to draw for the purposes of carrying o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business profits of the assessee. There were certain striking similarities between certain clauses in the agreement in the instant case and that in the case in Commissioner of Income-tax v. Ciba of India Ltd., wherein the Supreme Court held that the contribution made by the Indian company to the foreign company was allowable as expenditure under section 10(2)(xv), namely, (1) the agreement was for a definite term liable to be terminated before the end of the term in certain eventualities, (2) the object was to enable it to commence and continue the manufacture in India of all types of Simplex products, (3) the licence was granted subject to the rights actually granted or which may be granted after the date of the agreement to other persons, (4) it shall treat as secret and confidential and not disclose or permit the disclosure of, any matter provided or made available by Simplex, (5) there was no transfer of the fruits of research, but Simplex should make available to it the 'know-how' and give advice and assistance in the manufacture of the products, and (6) the stipulated payment of royalty was recurrent and entirely dependent on Simplex products actually manufactured by it. " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inting of cheques, drafts, fixed deposit receipts and like papers for Indian banks. As this type of manufacturing was never being done before in India, the managing director, one Mr. M.C.K. of a company carrying on business of press in India, conceived the idea of executing these printing jobs in India in collaboration with a London company and, accordingly, he entered into an agreement with the London company to float a private company in this country. The assessee-company was, accordingly, floated. According to the agreement between the assessee-company and the London company, it was agreed that a representative of the London company would be appointed as director of the assessee-company to look after the security arrangements, and, accordingly, one Mr. M. C. M. was appointed as a director. The said Mr. M. C. M. was appointed as the director of the assessee-company representing the Indian group of shareholders. In the assessment year 1958-59, the assessee-company claimed deduction of a sum of Rs. 70,437 comprised, inter alia, of travelling expenses of the said Mr. M. C. K. for trip to England to study techniques of security printing. The claim was disallowed by the Income-tax Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company's working expenses ?---is it expenditure laid out as part of the process of profit-earning ?-or, on the other hand, is it a capital outlay ?--is it expenditure necessary for the acquisition of property or of rights of a permanent character, the possession of which is a condition of carrying on its trade at all ? " : As held by the Supreme Court in Commissioner of Income-tax v. Ciba of India Ltd. having regard to the terms and conditions contained in the contract in the case before the court, no permanent rights or benefits came into existence as a result thereof as the parent-company did not agree to part with any of its properties in favour of the assessee-company. Mr. Shah was, therefore, right that even according to the terms and conditions of the contract, which was ultimately not acted upon by the consent of the parties thereto, there was no transfer of property intended, nor conferment of rights or benefits of permanent endurance on the assessee-company herein and, therefore, on the ratio of Commissioner of Income-tax v. Ciba of India Ltd., even if it is held that the expenses were incurred by going abroad in pursuance of the said agreement, it could not have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits of the company. In any case, the trip, in this particular reference before us, was for purposes of getting an idea as to the new designs which were to be adopted and the manufacturing process involved therein. Ultimately, the agreement entered into between the assessee-company and Messrs. VEB was not acted upon by the parties. It is, therefore, clear to us that the trip which was undertaken by the two directors and the production manager was in effect and substance for purposes of finding out as to whether they should adopt new designs or not. In that view of the matter, therefore, we are of the opinion that the Tribunal was not justified in disallowing the proportionate claim of the assessee-company for the expenses incurred in connection with the trip abroad by its two directors and the production manager in connection with acquainting themselves with the technical know-how for manufacturing electric hoists on the ground that it was in the nature of capital expenses. We, therefore, answer the question as under : On the facts and in the circumstances of the case, the Tribunal was not right in holding that out of the sum of Rs. 22,233, the expenditure incurred in connection ..... X X X X Extracts X X X X X X X X Extracts X X X X
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