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TMI Blog1968 (10) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... 62 for travelling, lodging. and other expenses of the employees. A further sum of Rs. 3,489 was spent in the same connection by the assessee-company so far as the assessment year 1962-63 was concerned; and the company claimed the amounts of Rs. 71,625 and Rs. 56,302 as items of revenue expenditure for the assessment year 1961-62, and the sum of Rs. 3,489 as revenue expenditure for the assessment year 1962-63. The Income-tax Officer disallowed the sum of Rs. 71,625 paid by the assessee-company as training fee to Thatcher Glass Mfg. Co. and out of the sum of Rs. 56,302 incurred by the assessee-company for travelling expenses, lodging charges, etc., for the employees, a sum of Rs. 50,000 was disallowed by the Income-tax Officer while assessing the income of the assessee-company for 1961-62. He disallowed the entire sum of Rs. 3,489 in connection with the assessment year 1962-63. Thereafter, the assessee-company went in appeal before the Appellate Assistant Commissioner and that officer dismissed both the appeals confirming the view of the Income-tax Officer that the sums which had been disallowed were items of capital expenditure. Thereafter, the assessee-company took the matter in fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue expenditure ? (2) For the assessment year 1962-63. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 3,489 was revenue expenditure ? " The law applicable to the assessment for the assessment year 1961-62 is the Income-tax Act, 1922, and the relevant section of that Act is section 10(2)(xv), which provided as follows : " 10. (1) The tax shall be payable by an assessee under the head 'Profits and gains of business, profession or vocation' in respect of the profits or gains of any business, profession or vocation carried on by him. (2) Such profits or gains shall be computed after making the following allowances, namely : ... (xv) any expenditure (not being an allowance of the nature described in any of clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses of the assessee) laid out or expended wholly and exclusively for the purposes of such business, profession or vocation. " The proviso to clause (xv) is not relevant for the purposes of this judgment. Under the Income-tax Act of 1961, which came into force from April 1, 1962, i.e., for the assessment year 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries and to forward to the assessee as far as possible all scientific and bibliographic information, pamphlets or drafts, which might be useful to introduce licensed preparations and to promote their sale in India. It granted to the assessee full and sole right and licence under the patents listed in the agreement to make use, exercise and vend the inventions specified therein in India and also a licence to certain specified trade marks in the territory subject to any existing licence which third parties held at the date of the agreement, or which the Swiss company might grant to third parties thereafter. In consideration of the right to receive scientific and technical assistance, the assessee agreed to make contributions of 5%, 3% and 2% respectively of the net sale price of the products sold by the assessee towards, (i) technical consultancy and technical service rendered and research work done, (ii) cost of raw materials used for experimental work ; and (iii) royalties on trade marks used by the assessee. The assessee further agreed, (a) not to divulge to third parties without the consent of the Swiss company any confidential information received under the agreement ; (b) witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Swiss company did not part with any asset of its business, nor did the assessee acquire any asset or advantage of an enduring nature for the benefit of its business. In that case Shah J., delivering the judgment of the Supreme Court, pointed out at page 701: " In the case of Rolls Royce Ltd. payment received for licensing a foreign Government to manufacture aero-engines with the accumulated technical knowledge of the taxpayer and for supplying the necessary information and drawings, and for advising the foreign Government as to improvements and modifications in manufacture and design, instructing the licensee's personnel in their works and for releasing members of their own staff to assist in the manufacture of engines by the licensee was held to be received on revenue account of the taxpayer's trade. In English Electric Company's case the taxpayer contracted with Admiralty to design and develop a turbine and to license its manufacture by a limited number of companies in the United Kingdom, Australia and Canada and also contracted with the Government of Australia and an American aircraft manufacturing corporation to license the manufacture of a bomber which the taxpayer had desi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctical knowledge from M/s. Thatcher Glass Mfg. Co., Inc. of U. S. A. which has a great name in this line in the international market ; and it is on these facts that the Tribunal proceeded to decide the question whether the expenses incurred were on capital or revenue account. In the affidavit of Chandubhai Gordhanbbai Amin it has been pointed out that the company had arranged with Thatcher Glass Mfg. Co., Inc. of U. S. A. to train the employees of the assessee-company in their practical method of manufacturing glass which had a great heat-resisting quality. Accordingly, Mr. P. M. Parikh, an engineer in the employment of the assessee-company, Mr. S. M. Jaiswal, also an engineer of the assessee-company, and Chandubhai, himself the holder of a degree of Master of Science in Glass Technology of the University of Toledo, U. S. A., were deputed by the assessee-company to go to the works of Thatcher Glass Mfg. Co., U. S. A., to stay there and to study and obtain practical knowledge in the manufacture of heat-resisting glass. The affidavit of Chandubhai has also pointed out that the method of making such glass employed by Thatcher Mfg. Co. was the pressing method, which was the method alre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into existence an asset or an advantage of enduring nature to the business but was made for running the business with a view to produce more profits and with a view to run the business more efficiently so as to produce higher profits. Thus, no asset or advantage of enduring benefit to the business was acquired or brought into existence. What was being done by the assessee-company, on the facts as found by the Tribunal, was that the expenditure was incurred with a view to acquire practical knowledge of the business of manufacturing better heat-resisting glassware. It would be correct to say, on the facts as found by the Tribunal, that the expenditure was incurred with a view to better utilize all the processes and methods already known to the company and already employed by the company. Under these circumstances, on the facts of this case and applying the principles deductible from the cases cited above, it is clear that the expenditure was incurred by the company with a view to earn profits from the same methods and processes as before. This is not a case where the expenditure was incurred with a view to enlarge the goodwill of the company or to permanently improve the assets of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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