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TMI Blog1973 (9) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... appears that the assessee entered into an agreement with M/s. Limex Ltd., Berlin, East Germany, who were the agents of M/s. VEB Maschinenfabrik and Eisengieseerei Dessan. The two directors and the production manager went to Berlin in accordance with the said agreement. Before the Income-tax Officer in the course of assessment proceedings, the assessee-company claimed that the expenditure of Rs. 21,232 incurred in connection with the foreign tour of the two directors and the production manager was in the nature of revenue expenditure. However, the Income-tax Officer rejected this claim as he was of the opinion that this was incurred in connection with a new line. In the appeal by the assessee before the Appellate Assistant Commissioner, this claim was again negatived. The assessee, therefore, took the matter in further appeal before the Tribunal. However, at the time of hearing, the assessee conceded that the expenditure incurred in connection with the study of technical know-how of conveyor leaders was in the nature of capital expenditure. The assessee pressed his claim in respect of the expenses incurred in connection with the study of technical know-how for the manufacture of ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oducts through a subsidiary company called Ciba (India) Ltd. After the incorporation of the assessee-company, the activities of the parent-company in India were bifurcated and the pharmaceutical section was taken over by the assessee-company, viz., Ciba of India Ltd., which was originally floated in the name of Ciba Pharma Ltd. The other lines of the business relating to dyes and chemicals were continued by the subsidiary company, viz., Ciba (India) Ltd., the name whereof was later on changed to Ciba Dyes Ltd. The Supreme Court, on a consideration of the fact that the assessee-company acquired merely a right to draw for the purposes of carrying on its business as manufacturer and dealer of pharmaceutical products upon the technical knowledge of the parent-company for a limited period under the agreement between the said two companies, held that by making technical knowledge available, the parent-company did not part with any assets of its business nor did the assessee acquire any assets or advantages of an enduring nature for the benefit of its business. It, therefore, held that the contribution was allowable as business expenditure under section 10(2)(xv) and not under section 10( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue the manufacture in India of all types of Simplex products, (3) the licence was granted subject to the rights actually granted or which may be granted after the date of the agreement to other persons, (4) it shall treat as secret and confidential and not disclose or permit the disclosure of, any matter provided or made available by Simplex, (5) there was no transfer of the fruits of research, but Simplex should make available to it the 'know-how' and give advice and assistance in the manufacture of the products, and (6) the stipulated payment of royalty was recurrent and entirely dependent on Simplex products actually manufactured by it. " Mr. Justice Sankar Prasad Mitra (as he then was), speaking for the court, observed as under in his judgment: "Broadly speaking, therefore, it may be observed that one of the primary rules for determining whether a particular expenditure is a revenue or a capital expenditure is that the court from the terms of the agreement between the parties and from the surrounding circumstances has to ascertain the purpose for which it is being incurred. If the expenditure is so related to the carrying on or the conduct of the business that it may be regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -company and the London company, it was agreed that a representative of the London company would be appointed as director of the assessee-company to look after the security arrangements, and, accordingly, one Mr. M. C. M. was appointed as a director. The said Mr. M. C. M. was appointed as the director of the assessee-company representing the Indian group of shareholders. In the assessment year 1958-59, the assessee-company claimed deduction of a sum of Rs. 70,437 comprised, inter alia, of travelling expenses of the said Mr. M. C. K. for trip to England to study techniques of security printing. The claim was disallowed by the Income-tax Officer. However, in appeal the Appellate Assistant Commissioner allowed the said claim. The Tribunal was of the opinion that the expenses incurred by Mr. M. C. K. in connection with his trip to England should be regarded as capital in nature. On a reference to the High Court of Allahabad, the Division Bench held that any expenditure incurred by a director or an agent of a company with his trip abroad to study techniques for the activities to be undertaken before their actual commencement, is expenditure with a view to acquaint oneself with new and m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istence as a result thereof as the parent-company did not agree to part with any of its properties in favour of the assessee-company. Mr. Shah was, therefore, right that even according to the terms and conditions of the contract, which was ultimately not acted upon by the consent of the parties thereto, there was no transfer of property intended, nor conferment of rights or benefits of permanent endurance on the assessee-company herein and, therefore, on the ratio of Commissioner of Income-tax v. Ciba of India Ltd., even if it is held that the expenses were incurred by going abroad in pursuance of the said agreement, it could not have been the expenses in the nature of capital. The expenses were incurred, as rightly contended by Mr. Shah, by the assessee-company for purposes of getting an idea as to what should be the design of new item of hoist to be manufactured and the nature of process involved in the manufacture thereof and not with a view to acquire rights or benefits of a permanent character. It was, as tersely described by Mr. Shah, ultimately with a view " to increase the profits of the assessee-company ", as it was already engaged in manufacturing hoists of a particular c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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