TMI Blog1971 (10) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ies on business as a dealer in motor vehicles. During the relevant period it was a dealer of Tata Engineering and Locomotive Co. Ltd. (Telco), under an agreement with that company, for the sale of Mercedes Benz trucks. The agreement required the assessee to maintain at its own expense an organisation for the sale of vehicles, providing for maintenance of show rooms, service centres, repair shops, etc., and an adequate staff of trained salesmen and a staff of trained technical service personnel. According to the statement of the case, the training was actually imparted by Telco which charged the assessee on that account. It is said that under the training scheme, Telco proposed to build a hostel for the apprentices and to recover the entire cost of the hostel from its several dealers. The assessee paid Telco a sum of Rs. 7,242 during the accounting year ending December 31, 1960, and claimed that amount as a deduction from its assessable, profits for the assessment year 1961-62. The Income-tax Officer was of the view that the payment was made as the assessee's contribution towards the construction of the hostel, that the hostel would be the property of Telco and that, therefore, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was an essential condition of the agreement. It considered that the best training for the purpose could be had by its personnel from Telco itself. It therefore, agreed to pay to Telco for the services rendered by it. No doubt, the amount so received by Telco was intended to meet the cost of construction of the hostel, and the hostel was to be Telco's property. And when the assessee made the payment, it was aware that it would Pe so applied by Telco. But so far as the assessee was concerned, it paid to Telco for the training imparted to the apprentices sent by the assessee. It paid the amount as training charge, and so far as the assessee is concerned, it remained a training charge, even though Telco applied it to the construction of the hostel and the assessee knew that it would be so applied. This aspect of the case was presented before the Tribunal and reference was made to a debit note dated January 6, 1961, prepared by Telco mentioning that the expenses were " in respect of training dealer's apprentices calculated at Rs. 34 per chassis ". A copy of the document is annexure " E " to the original statement of the case. The Appellate Assistant Commissioner had held that the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowable as a deduction under section 10(2)(xv). The transaction of acquisition of the assets was closely related to the commencement and carrying on of the assessee's business, and interest paid on the outstanding balance of the consideration for the assets acquired had, in the normal course, to, be regarded as expended for the purpose of the business which was carried on. The Supreme Court observed : " Whether a particular expenditure is revenue expenditure incurred for the purpose of business must be determined on a consideration of all the facts and circumstances, and by the application of principles of commercial trading. The question must, be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure is so related to the carrying on, or conduct of the business, that it may be regarded as an integral part of the profit-earning process and not for acquisition of an asset or a right of a permanent character, the possession of which is a condition of the carrying on of the business, the expenditure may be regarded as revenue expenditure .... The assessee-company had undoubtedly acquired the assets by pledging its credits. The assessee-com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd not to acquire a new asset. So also in Commissioner of Income-tax v. Dr. M. S. Shroff the Delhi High Court treated expenditure incurred by a surgeon, who went on tour in order to keep himself up-to-date in the techniques of his profession and visited several hospitals in various countries, as an admissible deduction under section 10(2)(xv). From all these decisions, the proposition which emerges is that if expenditure is incurred for the purpose of increasing the profits while carrying on the business it must be treated as revenue expenditure. In the case before us, the assessee made payment to Telco on account of the training imparted by Telco to the assessee's apprentices. Trained personnel were necessary for the purpose of the assessee's business. It was necessary because a condition of the agency agreement with Telco required the assessee to have trained personnel. It was necessary also because the staff of trained personnel obviously induces better sales. There is no question here of the assessee acquiring any asset or advantage of an enduring nature. There is nothing to show that the personnel so trained were under bond to serve the assessee for a long term of years. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a manufacturer and dealer of pharmaceutical products, upon the technical knowledge of the Swiss company for a limited period and that by making that technical knowledge available the Swiss company did not part with the assets of its business nor did the assessee acquire any asset or advantage of any enduring nature for the benefit of its business. On behalf of the Commissioner, reliance has been placed on Mysore Kirloskar Ltd. v. Commissioner of Income-tax. In that case, the Mysore High Court held that an amount paid by the assessee in respect of " know- how " to be supplied to it when the " know-how " in question was to be utilised not for the purpose of manufacturing any machine that the assessee was already manufacturing but for the purpose of bringing into production new types of machines solely on the basis of the " know-how " supplied, and which " know-how " became the property of the assessee at the end of the period of agreement, was to be treated as capital expenditure. It seems to us that the facts of that case are clearly distinguishable in the instant case, there is no question of the assessee acquiring any " know-how " from Telco which would become its property s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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