1993 (10) TMI 21 - HC - Income Tax

Capital Expenditure Capital Or Revenue Expenditure Development Allowance Income Tax Act Weighted Deduction

Summary

Issues:
1. Allowability of foreign tour expenses as revenue expenses.
2. Allowability of weighted deduction under section 35B.

Analysis:

Issue 1:
The case involves the question of whether foreign tour expenses amounting to Rs. 1,61,827 were allowable as revenue expenses. The assessee, a company, claimed the deduction for expenses incurred on foreign tours undertaken for establishing joint venture units in various countries. The Income-tax Officer and the Appellate Assistant Commissioner disallowed the claim. The Income-tax Appellate Tribunal also disallowed the claim, considering the expenses to be of capital nature as they were incurred for setting up new joint venture units. The Tribunal's decision was based on the collaboration between the assessee-company and the Government or other entities in establishing these units. The court upheld the Tribunal's decision, citing a similar case where expenses for foreign travel for exploring joint venture possibilities were deemed capital in nature. The court concluded that the foreign tour expenses were not allowable as revenue expenses, ruling in favor of the Revenue and against the assessee.

Issue 2:
The second issue pertained to the allowability of weighted deduction under section 35B of the Income-tax Act. The eligibility for export markets development allowance under this section is contingent on the expenditure not being of capital nature. Since the court had already determined the foreign tour expenses to be capital expenditure, the assessee was not entitled to the weighted deduction under section 35B. Consequently, the Tribunal's decision to disallow the deduction was upheld, ruling in favor of the Revenue and against the assessee. The court disposed of the reference accordingly, with no order as to costs.

In conclusion, the court's judgment addressed the issues of the allowability of foreign tour expenses as revenue expenses and the weighted deduction under section 35B, ultimately ruling in favor of the Revenue and against the assessee on both counts.