TMI Blog1968 (5) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... e of paints, wireropes, hoops and box-strapping. The total expense of the foreign tour came to Rs. 33,009. The respondent claimed it as business expense ; but the Income-tax Officer disallowed the claim mainly on the ground that such expense was not incurred for the purpose of the respondent's business, i.e., the managing agency. The Appellate Assistant Commissioner held that the expenses in question should be borne by the managed companies on whose behalf the respondent had incurred the expenses and, as such, the amount involved could not be charged to the respondent's accounts. The Appellate Assistant Commissioner suo motu considered the question whether the expenditure was of a revenue nature or capital in character. He came to the conclusion that, since the purpose of the foreign trip was to explore the possibilities of technical collaboration and financial assistance, the expenditure incurred was of a capital nature. Before the Tribunal the respondent contended that the foreign tour expenses were not of a capital nature and should have been held to be laid out wholly and exclusively for the purpose of its business. The Tribunal considered the provisions of section 10(2)(xv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the expenditure was incurred, as, aforesaid, this case, according to learned counsel for the Commissioner, cannot come within the scope of section 10(2)(xv) of the Act, that is to say, it cannot be urged that the expenditure was laid out or expended wholly and exclusively for the purpose of the assessee's business. Counsel for the Commissioner referred to the case of Dr. P. Vadamalayan v. Commissioner of Income-tax. Here the assessee was a leading surgeon with a lucrative practice. He spent a sum of Rs. 19,538 towards a tour abroad, in the course of which he visited a number of hospitals and clinics in the U. K. and the U.S.A. to study the latest technique in surgery and treatment. The Appellate Assistant Commissioner allowed deduction of only the sum of Rs. 9,769 which was found to be wholly and exclusively incurred for the purpose of the assessee's profession under section 10(2)(xv), the balance being treated as the assessee's personal expenses. The Tribunal held that this sum was a capital expenditure but did not disturb the finding that it was incurred wholly and exclusively for the purpose of the assessee's profession. The Madras High Court held that the said sum of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a manufacturer of textiles authorised a tour by the director and the superintendent of the company's mills for two purposes, namely, (i) to make an on the spot study of the latest developments in the manufacture, designing and processing of cloth in the United Kingdom and other countries ; and (ii) to make a report on their return on the work done by them as to the latest developments in the manufacturing, designing and processing of textiles seen by the representatives, and, recommend 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. After their visit, the assessee-company did import this new improved and modern machinery for the purpose of being used in running its textile mills. The Tribunal came to the conclusion that the object of this tour was to replace the old and out-of-date or obsolete machinery used in the textile mills of the assessee-company by the more modern ones and that the expenditure incurred in these circumstances related to the fixed framework ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e aim and object of the expenditure would determine the character of the expenditure whether it is a capital expenditure or a revenue expenditure. " Counsel for the revenue has urged that a close examination of the objects for which the tour was undertaken by Sri H. S. Singhania as set out by the Tribunal would reveal that the expenditure was not wholly or exclusively for running the business of the managed companies or working them with a view to produce the profits. The expenditure, therefore, should be treated as a capital expenditure. Lastly, Mr. Mitter relied on the case of Mysore Kirloskar Ltd. v. Commissioner of Income-tax. For manufacturing Capstan and Turret lathes of particular designs, the assessee, M. K., entered into an agreement with H on August 1, 1958. The agreement was to last for 15 years. H was to provide M.K. with manufacturing technique, drawings, specifications, etc., from time to time and also supply special tools at agreed prices. The articles manufactured by the assessee were to be sold under the trade mark H.K. On the execution of the agreement, the assessee, M.K., should pay to H in respect of " know-how " to be supplied, pound 1,000, in respect of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts of this case not to ascertain what the managed companies had gained by the expenses which the managing agent had incurred for their benefit, but to ascertain the object or purpose for which the managing agent was spending these amounts. The object or purpose was obviously to produce the conditions or circumstances for increased income of the managing agent. From the facts recorded by the Tribunal at page 13 of the paper-book it appears that in fact the managing agency commission had gone up considerably in subsequent years. From this point of view we are of opinion that the foreign tour expenses of Shri H. S. Singhania which the assessee had incurred are not expenses of a capital nature. Our view is supported to a certain extent by a judgment of the Bombay High Court in Tata Sons Ltd. v. Commissioner of Income-tax. In this case the assessee was a limited company. It held the managing agency of another company. Under the managing agency agreement the assessee was to be paid a commission at a certain rate which was to be computed upon the net profits of the managed company. During the relevant year the assessee paid voluntarily a certain sum as its share of bonus which the manag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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