TMI Blog1972 (8) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer disallowed the expenditure on the ground that it was capital in nature. There was an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that as a result of the recommendations made by the technicians of Messrs. Reynolds Metal Co., the assessee had gained an advantage of a permanent and an enduring nature. It will be necessary to set out the relevant portion of the order of the Appellate Assistant Commissioner : " 7. The next ground relates to the disallowance of a sum of Rs. 20,065 being the fare and other expenses of three technicians of Messrs. Reynolds Metal Company sent out to India for the purpose of examining the appellant's plant. These technicians have submitted very elaborate reports which I will discuss below. Sri Bagadthey argues that these expenses were incurred only to improve the existing plant and that no extension of the plant was involved. In reply to my query Sri N. L. V. Subramaniam stated that the production of the plant rose from 1,700 tons to 2,400 tons per annum as a result of the implementation of the recommendations made by the technical experts. He also stated that the recovery from the reject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technique of manufacture. The technical know-how which the appellant-company undoubtedly acquired in consequence of the recommendations made by the technicians cannot, therefore, be regarded as an enduring asset of the appellant-company. We were informed that the output of the appellant's plants rose from 1,700 to 2,400 tons per annum upon the implementation of the recommendations and we have no doubt that the entire expenditure of Rs. 20,065 must be considered as having been laid out wholly and exclusively for the purpose of business and allowable under section 10(2)(xv). " After an application had been made, the Tribunal has referred the following question under section 66(1) of the Indian Income-tax Act, 1922 : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenditure incurred by the assessee amounting to Rs. 20,065 on account of the travelling and other expenses of the three technicians of Messrs. Reynolds Metal Company was not capital in nature and was allowable under section 10(2)(xv) of the Indian Income-tax Act, 1922, as a deduction ? " Counsel for the revenue contended that whether an expenditure resulted in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal held that the instalments were capital sums and that they did not lose their capital nature because the company had undertaken to pay them under its lease and they were not admissible deductions for income-tax purposes. At page 459 of the report Lord Greene M.R. observed: "The thing that is paid for is of a permanent quality although its permanence, being conditioned by the length of the term, is short-lived. " At page 462 of the report, du Parcq L.J. observed as follows: " It is true that the period for which the right was acquired in this case was three years and no more, and a doubt may be raised whether such a right is of 'enduring benefit' or 'of a permanent character'. These phrases, in my opinion, were introduced only for the purpose of making it clear that the 'asset' or 'right' acquired must have enough durability to justify its being treated as a capital asset. This is borne out, so far as Lord Clyde's judgments are concerned, by the fact that in Adam's case, the duration of the right acquired was eight years, and that his Lordship there spoke of its 'relaively permanent character'. 'Permanent' is indeed a relative term, and is not synonymous with 'everlasting' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e permanency. In this context the Tribunal has also noted the fact, which cannot be ignored that in these days of swift changing methods in technology these ways and methods, suggested by the technicians who had come over from abroad, would, in course of time, become out of date. It has been held by courts that whether a particular expenditure is a capital expenditure or a revenue expenditure should be judged by applying the correct legal principles from a commercial point of view. In the case of Commissioner of Income-tax v. Alembic Glass Industries Ltd., the Division Bench of the Gujarat High Court had also occasion to deal with more or less a similar case. There the assessee, a company manufacturing glassware, deputed three of its technicians to the United States of America to enable them to obtain practical training in the manufacture of heat-resisting glassware. The training was imparted by Thatcher Glass Manufacturing Co. incorporated in the U. S. A. and in connection with this practical training, the assessee-company paid a sum of Rs. 71,625 by way of fee to Thatcher Glass Manufacturing Co. and a further sum of Rs. 56,302 was spent by the assessee-company for the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
