TMI Blog1963 (8) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... carries on business of manufacturing textiles. It maintains accounts according to the mercantile system. The expenses for wages to the employees engaged for carrying on the business of the company were shown in the accounts as liabilities as and when they accrued. In other words, irrespective of the payment of the wages, the assessee-company used to take into account the wages due to the employees and labourers and the entire sum so due was shown as a deduction in its accounts and also allowed as such in the income- tax assessments made on the company. It sometimes happened that all the workers did not turn up to collect their dues and consequently, a portion of the wages in each year remained unpaid and such unpaid wages used to be transferred to an account called unpaid wages account . As and when the workers turned up to take their unclaimed wages, such amounts used to be paid to them and debited to the unpaid wages account. A separate account used to be maintained for each year in respect of such unclaimed wages. The unclaimed wages relating to the calendar years 1947 to 1949 were transferred to the general reserve fund and the amounts so transferred were brought to tax. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to ₹ 13,783, there was no possibility of these amounts being paid to the floating labourers, and he applied the same reasoning to the amounts of unpaid wages for the subsequent years 1952 and 1953 and treated them as taxable income. When the case went before the Appellate Assistant Commissioner, it was contended on behalf of the assessee-company that the balances of unclaimed wages had been carried forward in the balance-sheets as liabilities from year to year and that they constituted therefore a debt due from the company to its employees, that the assessee-company had neither obtained any remission in respect of these liabilities nor had these liabilities ceased in any manner and that, therefore, there was no justification in treating these unpaid wages as income of the assessee-company under section 10(2A). This contention was negatived by the Assistant Commissioner on the ground that the liability of the assessee-company in respect of these amounts had become time barred as more than three years had already elapsed since those wages became due and he concluded that when the creditors' legal remedies for recovery have ceased, the legal liability also ceased and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of section 10(2A), and once such an amount became so impressed, it was immaterial whether by a subsequent and a separate transaction, the assessee-company chose to pay that amount to the labourer by acknowledging ex gratia its indebtedness publicly through its balance-sheet. The Tribunal, upon this reasoning, dismissed the assessee's appeals in respect of all the three assessment years. At the instance of the assessee-company, the Tribunal referred on this part of the case the following questions common to all the three assessment years: (1) Whether on the facts and in the circumstances of the case, the sums of ₹ 13,783, ₹ 1,305 and ₹ 2,643 are assessable under section 10(2A) of the Income-tax Act in the assessments for 1955-56, 1956-57 and 1957-58 respectively? (2) Whether on the facts and in the circumstances of the case, the decision of the Tribunal that the debts are time-barred is correct in law? The question therefore is whether the liability in respect of the unpaid wages payable during the calendar years 1950 to 1953 had become timebarred during the assessment years and consequently extinguished, as assumed by all the three tax authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nual acknowledgments made by the assessee-company. The conclusion of the Tribunal that these debts become time-barred was incorrect as it obviously overlooked the acknowledgments in the balance-sheets for the years 1951 and 1952 in respect of wages due in those years and the subsequent years. These acknowledgments were not in respect of time-barred debts and would not, therefore, require a fresh promise to pay under section 25(3) of the Contract Act. It is well settled that a debt shown in a balance-sheet is an acknowledgment within the meaning of section 19 of the Limitation Act, and in order to be so a balance-sheet in which such acknowledgment is made need not be addressed to the creditor. The learned Advocate-General conceded that in these circumstances the debts could not be said to have been time barred and, therefore, the unclaimed wages could not be added back under section 10(2A). In view of that concession, it does not become necessary for us to go into the second contention raised by Mr. Kaji, namely that even if these debts were time-barred, section 10(2A) was not applicable. In view of the concession made by the learned Advocate-General, we would first answer question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... places in different European countries including the United Kingdom, and then describes several new trends in the textile industry in those countries and new machinery manufactured there as also the latest and up-to-date processes. The Income-tax Officer, the Assistant Commissioner as also the Tribunal were of the view that this expenditure as also the expenditure incurred in the next year by another director, could not be said to be revenue expenditure and was, therefore, not allowable under section 10(2)(xv). The contention of Mr. Kaji was that this conclusion was not correct because the tour undertaken in 1955 by one of the directors and the superintendent of the company's mills was essentially a study tour and did not bring into existence any capital asset, nor could it be said that the expenditure was incurred with a view to bring in any capital asset. The study tour was merely for investigation as to how the methods of processing of the assessee-company's mills could be improved upon and how thereby the profits of the assessee-company could be maintained or increased. He argued that as a result of this tour the company's director might recommend introduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. The test laid down in that case by the High Court was whether the expenditure incurred brought into existence any new asset or whether the expenditure was merely calculated to increase the profits of the company. If it was the former, the allowance could not be claimed under section 10(2)(xv). Mr. Kaji also relied upon the cases Vadamalayan v. Commissioner of Income-tax [1960] 40 I.T.R. 501., Commissioner of Income-tax v. Royal Calcutta Turf Club [1961] 41 I.T.R. 414; [1961] 2 S.C.R. 729 and Seshasayee Brothers Ltd. v. Commissioner of Income-tax [1961] 42 I.T.R. 568 which are practically decided on the same lines as the case in Chemical Industrial and Pharmaceutical Laboratories v. Commissioner of Income-tax and, therefore, it does not become necessary for us to consider them in any detail. From these decisions, it was argued by Mr. Kaji that the expenditure incurred for the improvement in the standards of business would not amount to bringing into existence a capital asset. He pointed out that during this tour the director did not go alone to Europe but was accompanied by the superintendent of the mills, and that that fact indicated that the two of them had proceeded on a stud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of fact given by the Tribunal was not founded upon any evidence or that it was otherwise perverse or unreasonable. Mr. Kaji relied upon two decisions, one of the High Court of Calcutta and the other of the Supreme Court in Bhikamchand Bagri v. Commissioner of Income-tax [1962] 44 I.T.R. 746 and Liquidators of Pursa Ltd. v. Commissioner of Income-tax [1954] 25 I.T.R. 265; [1954] S.C.R. 767., and pointed out to us from these decisions that even without the question having been referred to in these cases, the court had interfered with the finding of fact on the ground that the finding of fact given by the Tribunal had lost its sanctity for the reasons stated in those decisions. Assuming that we have jurisdiction, and we wish to make it clear that we are not deciding in this reference the question as to whether we have or we have not the jurisdiction to disturb such a finding, the question would still remain whether it is possible to say that the finding given by the Tribunal as to the purpose and object of the tour undertaken in 1955, is perverse or unreasonable or a mere conjecture without any foundation in evidence. In other words, can it be said that the finding given by the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... developments in the manufacturing, designing and processing of textiles seen by the representatives, and (2) their recommendations as to whether the latest developments should be adopted and for that purpose, to purchase new machinery which would bring an enduring benefit to the assessee-company and which also would bring about a change in the methods of manufacturing, designing and processing. This can be seen from the report dated September 3, 1955, which describes the various factories visited by these representatives of the assessee-company. The factories they visited were of two kinds: (1) where new machinery was manufactured, and (2) where such new machinery was actually used and new processing with the aid of such machinery was adopted. One of the places they visited was Zurich where they visited Rieter's factory and had discussions with the technical staff regarding a machine called Auto Mixer in the Blow Room Line. They also visited a spinning mill to see the working of this Auto Mixer and their conclusion was that the Auto Mixer is found to be quite effective . During their stay in the United Kingdom they visited, amongst other places, the Card Clothing Factory of H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... um and other countries to have a complete study of the plant and to select the most suitable machinery and to submit his report to the board on his arrival. The report of the director dated August 31, 1956, shows the various factories he visited and his conclusion that the plants which he saw were more modern and capable of producing better and finer yarn than so far manufactured in our country and that the waste plants inspected were modern equipment in line with the latest development incorporated and capable of producing better and finer yarn. His conclusion was that out of this yarn a much better type of fabrics could be produced than what was produced so far in our country. It is clear from this report that after having inspected the machinery for a waste plant and having actually seen it in work, the director recommended that the company should go in for it. It is clear from the resolution as also the report that the object of the tour was for selection of machinery for an additional plant. Even Mr. Kaji could not attack the finding of the Tribunal in respect of this mission, either on the ground that it was unreasonable or that it was not founded upon evidence. That being so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtook of the character of such capital. It might or might not be of superior quality or calibre than that of the old boiler, but it certainly had resulted in a substantial extension of the period of the service ableness of the machinery and in the creation of an asset of lasting advantage or enduring benefit to the company in the nature of a fresh fixed capital asset, and, therefore, the expenditure was of a capital nature. Apart from the difference of opinion between the two learned judges, it is clear that what appears to have impressed considerably Satyanarayana Rao J. was the fact that the case before him was one of replacement of an old and obsolete boiler by a new one which, however, was of the same type. It was relying upon this fact that he appears to have come to the conclusion that by the replacement of the new boiler no new capital asset was being added nor the strength of the productivity of the factory was being increased. But even Satyanarayana Rao J. appears to have relied upon the test laid down by Viscount Cave in British Insulated and Helsby Cables Ltd. v. Atherton [1926] A.C. 205, where the learned Lord Chanceller laid down that when an expenditure is made, not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, entertainment, etc., and a further sum of ₹ 89,000 and odd represented salary, dearness and other allowances, postage etc., and included certain travelling expenses and the question was whether the assessee was entitled to deduct these two sums under section 10(2)(xv) of the Act. The High Court held that both the amounts, being expenditure incurred wholly and exclusively for the purpose of the business, were in the nature of revenue expenditure and were admissible deductions under section 10(2)(xv). Mr. Kaji contended relying upon this decision, that though opening of new branches of the bank constituted expansion of the business of the bank even then, the expenditure incurred in doing so was not considered to be capital expenditure, though there could be no doubt that some benefit of an enduring nature must have been derived by the bank. It is no doubt true that the High Court held that this expenditure was revenue expenditure and not capital expenditure, but it must be remembered that they did so on the footing that opening of new branches merely gave further facilities to the customers of the bank but that did not bring in an advantage of an enduring benefit of trade to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with it. That being the position, it is not possible for us to say that the two tours were undertaken as study tours merely to get acquaintance with new methods of production and new machinery or only for adding to the knowledge of the assessee-company's representatives, and, therefore, the expenses incurred were revenue expenditure. A tour undertaken for the purpose of a preliminary survey of new methods of 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 one for the purpose of bringing into existence a capital asset and such expenditure would, therefore, be capital expenditure. It is true that the line of distinction between the two kinds of expenditures, particularly where it happens to be an expenditure of a preliminary type, is this one, but none the less, it is a perceptible one. No hard and fast rule can be laid down for universal applications and each case must depend upon its own facts and circumstances. It would therefore be the duty of the court to find out from a scrutiny of facts and circumstances the true and proper nature of such expenditure. In our view, the Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X
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