TMI Blog1998 (6) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... nt equipment. Discount of Rs. 1,18,530 incurred on foreign travel was also claimed. It was the case of the assessee that the said expenses were incurred for a foreign tour of certain officials of the assessee, the details of which were as under : Rs. 1. Shri N.N. Tangri, Addl. Chief Engineer, FCI (Trip to USA) 20,262 2. Shri O.P. Khungar, Chief Engineer, PCI (Trip of USA) 20,262 3. Shri G.G. Gogate, Manager (Co-ordination) of the company (Trip to USA) 20,826 4. Shri C.K. Mehta, Mg. Director of the company (Trip to USA) 57,180 Admittedly, the visit was to the United States of America (USA) and the question was as to whether the expenses incurred for the said foreign tour were admissible as revenue expenditure. The Income-tax Officer was of the opinion that the expenditure could not be said to be revenue expenditure. In view of the provisions of section 143, however he referred the matter to the Commissioner. The Commissioner, vide his order dated November 19, 1981, held that the visit to the USA was for ascertain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to explore the feasibility to get supply of ammonia (raw material) continuously and uninterruptedly and also to explore the possibility of setting up of a separate plant. The Tribunal, after considering the rival contentions of the parties and in the light of various decisions cited before it, held that the dominant purpose of the visit was to explore the feasibility of obtaining supply of liquid ammonia in view of the likelihood of termination of the contract by the GSFC and for that purpose, an exploratory tour was undertaken to organise the supply of ammonia which was the basic raw materials for its products. According to the Tribunal, therefore, it could not be said that the trips were undertaken for setting up of a new plant which would result in acquisition of capital and the expenses incurred by the assessee could not be said to be capital expenditure but business expenditure. The Tribunal concluded that the authorities had committed an error of law in holding that the expenditure was not deductible. The Tribunal, therefore, allowed the appeal filed by the assessee. An application was made by the Revenue under sub-section (1) of section 256 of the Income-tax Act, 1961 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d findings said to have been arrived at by the Tribunal, cannot be said to be legal findings or findings in the eye of law which are binding on this court and the jurisdiction of this court is not excluded. According to counsel, in these circumstances, the order passed by the Tribunal cannot be said to be in accordance with law and the question referred to this court is required to be answered in the negative by holding that the Tribunal has committed an error of law in treating the expenditure as revenue expenditure. Mr. Shah, on the other hand, supported the order passed by the Tribunal, According to him, under section 256 of the Act, this court exercises advisory jurisdiction and it must proceed to decide the reference by answering the question referred to it either in the affirmative or in the negative, on the basis of the finding of fact recorded by the Tribunal. It has no jurisdiction to interfere with a finding of fact arrived at by the Tribunal nor can reappreciate the evidence with a view to interfere with such a finding. He further submitted that if it was the case of the Revenue that certain findings have been recorded by the Tribunal without any evidence or that they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, this court would proceed to answer questions referred to it on the basis of those findings. In his submission, this court has no jurisdiction to enter into the correctness or otherwise of the findings of fact recorded by the Tribunal. According to Mr. Nayak, though this court will proceed to decide the question referred to it an the basis of a finding of fact recorded by the Tribunal, there must be a finding of fact and such finding must have been recorded by the Tribunal on the basis of evidence which can be said to be legal evidence. A finding should not be without any material on record or it should not be based on extraneous or irrelevant considerations nor should it be perverse. According to him, in such circumstances, the so called finding cannot be said to be a finding in the eye of law and this court is not bound by such so-called finding. Our attention, in this connection, was invited by this counsel to various decisions of the Supreme Court as well as of this court. We may refer to only a few of them. In CIT v. Calcutta Agency Ltd. [1951] 19 ITR 191, the Supreme Court considered the nature and scope of power and jurisdiction of the High Court under section 66 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be challenged. Questions of law, on the other hand, are open to challenge. and the High Court can exercise jurisdiction by deciding those questions. In between the domains occupied, respectively, by questions of fact and of law, there is a large area in which both these questions run into each other, forming so to, say, enclaves within each other. The questions falling within that category are known as mixed questions of law and fact. Those questions involve first the ascertainment of facts on the evidence adduced and then a determination of the rights of the parties on an application of the appropriate principle of law to the facts ascertained. After referring to several decisions on the point, the court observed that certain principles can be deduced from decided cases: "I. When the point for determination is a pure question of law such as construction of a statute or document of title, the decision of the Tribunal is open to reference to the court under section 66(1). II. When the point for determination is a mixed question of law and fact, while the finding of the Tribunal on the facts found is final, its decision as to the legal effect of those findings is a question of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " In that case, the Tribunal held that certain amounts were liable to be included in the income of the company on the basis of a provision which came into force subsequently. The provision was not in the statute on the day on which the liability to pay tax was crystallised. In reference before the High Court, it was contended by the assessee that the Tribunal erroneously assumed that the amending Act was in force and because of such misconception, the Tribunal decided the matter against the assessee. The court observed that the question on which the parties were at issue which was referred for the opinion of the High Court, was whether a particular sum was liable to be included in the taxable income of the assessee. According to the Supreme Court, the High Court had jurisdiction to entertain such question. it was argued before the Supreme Court that the effect of allowing the contention of the assessee would be to do away with limitations which the Legislature had advisedly imposed on the litigant to require reference under section 66(1). A question cannot be allowed to be framed in general terms so as to take within it the questions which were never raised. In ICI (India) P. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lume, there is another decision of the Supreme Court in CIT v. S. P. Jain [1973] 87 ITR 370. In that case, purchase of certain shares was held by the income-tax authorities to be benami and the amount paid for such purchase was held to be from undisclosed sources of the assessee. The Tribunal recorded a, finding that the transaction was not benami. The said finding, however, was recorded without taking into account the relevant material and by relying on inadmissible evidence and basing its conclusions on conjectures and surmises, it was held that since the Tribunal failed to take into consideration the relevant material on record and in arriving at a finding it had acted on inadmissible evidence and based its conclusions on conjectures and surmises, it was open to the High Court to ignore the findings of the Tribunal and to re-examine the issues arising out of the decision on the basis of the material on record. The court summed up the principle thus : "In our view, the High Court and this court have always the jurisdiction to intervene if it Appears that either the Tribunal has misunderstood the statutory language, because the proper construction of the statutory language is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to the Supreme Court, if the Tribunal proceeded upon an assumption which was erroneous in law, it could not be said that the High Court was bound by the terms of the questions referred and could not correct the erroneous assumption of law. The court stated : "If such power is not conceded to the High Court, the result would be that the answer given by the High Court may equally be erroneous in law. Such a situation cannot certainly be countenanced. It would not be in the interest of law or justice." In the opinion of the Supreme Court, it was not as if the High Court had asked for any further investigation and the High Court did not possess such powers, but the High Court could certainly ask the Tribunal to do what it was required to do in law. Recently, in Jaiswal (S. P.) v. CIT [1997] 224 ITR 619 (SC), there was a transaction of certain assets. As per book entries, it was in favour of the assessee's children. The Tribunal held that the transaction was not benami and the interest therein could not be said to be income of the assessee. The High Court, however, held that the transaction was not genuine. The asses see approached the Supreme Court against the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed. In further appeal, the Tribunal, while narrating the facts in para. 5, also observed that the personnel named in the said para. visited the USA for ascertaining the suitability of setting up a plant to manufacture ammonia, The Tribunal noted that the Income-tax Officer proposed disallowance of the said expenditure on the ground that it was incurred for the purpose of a new product and for installation of a new plant and the said expenditure could not be revenue expenditure. The appellate authority agreed with the view taken by the Income-tax Officer and held that the foreign tour was undertaken with, a view to implement installation of a separate plant. As a result of the on-the-spot study a separate company was incorporated from which it could be said that the trips were undertaken with the object to establish a new plant for the assessee's own use and captive consumption. At the time of arguments before the Tribunal, however, counsel for the assessee submitted that facing the difficulty of obtaining continuous supply of raw material, i.e., ammonia, the assessee thought of various alternatives. One of the alternatives considered was of setting up a new plant for ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... court. Such a purported finding cannot close the doors of this court to the Revenue in raising a contention that the Tribunal has committed an error of law in recording a finding and that the order passed by the Tribunal was, therefore, vitiated. In this connection, we may advert to Calcutta Agency Ltd.'s case [1951] 19 ITR 191 (SC) referred to above. In that case, the assessee-company was the managing agent of a mill. Under an agreement, the assessee was entitled to a monthly allowance and a certain commission on all gross sales of goods manufactured by the mill. Certain hundis were drawn by one of the directors of the company acting as managing agent of the mill in the name of the mill-company and were negotiated to others. The bank claimed payment of those hundis. The mill-company, however, repudiated its liability. The bank thereafter instituted suits against the mills. The mill was advised to settle those suits and the assessee entered into an agreement with the mill under which the mill was entitled to deduct from the commission payable to the assessee under the managing agency agreement, a portion of the amount which the mill might have to pay under the decree. On the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated, the facts were very much before the authorities. In no uncertain terms, the Commissioner (Appeals) recorded a finding that it was admitted on behalf of the assessee that the company had decided to install its own plant which would produce adequate ammonia for the assessee's captive use and it was in pursuance of an implementation of the assessee's scheme for installation of a separate plant that the managing director and three other senior executives decided to visit the USA for making an on-the-spot study of the suitability of establishing such a plant in India. Thus, when the matter was before the Tribunal, the said finding was very much on record. Before the Tribunal, it was an argument on behalf of the assessee that the trips were exploratory in nature and that one of the alternatives was to set up a new plant and incidentally it was to be considered whether it was feasible. The said argument was unfortunately treated by the Tribunal as an assumption of fact and on that basis, the Tribunal held that since the foreign trips were not for acquisition of asset, the expenditure could not be said to be of capital nature and the assessee was entitled to deduction. As there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." In CIT v. Century Spg. Wvg. and Mfg. Co. Ltd. [1947] 15 ITR 105 (Bom), the question was whether expenditure for registration of an old trade mark could be said to be revenue or capital expenditure. It was observed that expenditure could be attributed to revenue and it was exempt from payment of income-tax. The court then quoted with approval, the celebrated test by Lord Cave L. C. in British Insulated and Helsby Cables Ltd. v. Atherton [1925] 10 TC 155, 192 ; [1926] AC 205, 213 (HL), which is considered as the leading authority on the point : " . . . when an expenditure is made, not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade, I think that there is very good reason (in the absence of special circumstances leading to an opposite conclusion) for treating such an expenditure as properly' attributable not to revenue but to capital." Reference was also made to the observations of Lord Justice Romer in Anglo-Persian Oil Co. Ltd. V. Dale [1932] 1 KB 124 after referring to Usher's Wiltshire Brewery Ltd. v. Bruce [1915] AC 433 (HL), wherein his Lordship stated : "In these circumstances, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue in the light of the general principles, which are followed in such cases." In CIT v. Alembic Glass Industries Ltd. [1976] 103 ITR 715 (Guj), the assessee was a company manufacturing glass at Baroda from 1947 which incurred expenditure for establishing a new glass manufacturing unit at Bangalore. The unit did not go for production during the two assessment years 1965-66 and 1966-67. The Income-tax Officer did not allow payment of interest for those two years on the borrowings. He also held that the Bangalore unit was not a branch of the assessee's factory and it was a new business. Since the new unit had not started 'production, the payment of interest could not be said to be revenue expenditure and, accordingly was not allowable. The Tribunal, however, allowed the appeal of the assessee, holding that the expenditure was of revenue nature and ought to be allowed. When the matter reached this court, the court held that the Tribunal was right when it held that the expenditure was of revenue nature and, therefore, allowable. It observed that since the borrowing was made for business, the assessee was eligible to deduction but if it was for acquiring an asset of enduring na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stated by the court that even applying the test of acquisition of assets, it could not have been said that by the agreement, the assessee acquired any, capital asset. What was acquired under the agreement was the right to use technical know-how and the expenditure incurred for such knowledge could not be said to be capital expenditure. The court also quoted the following observations of the Supreme Court in Alembic Chemical Works Co. Ltd.'s case [1989] 177 ITR 377, 386 wherein the test laid down by Lord Pearce in B. P. Australia Ltd. v. Commissioner of Taxation of the Commonwealth of Australia [1966] AC 224, 264 (PC) had been reiterated : "The solution to the problem is not to be found by any rigid test or description. It has to be derived from many aspects of the whole set of circumstances some of which may point in one direction, some in the other. One consideration may point so clearly that it dominates other and vaguer indications in the contrary direction. It is a commonsense appreciation of all the guiding features which must provide the ultimate answer." If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clauses of the report submitted to the assessee by foreign company, the court came to the conclusion that the purpose of calling for the feasibility report was to enable the company to decide for the establishment and development of a shipyard. Negativing the contention of the assessee that after the receipt of the feasibility report no shipyard was established at Sikka and, hence the expenditure could not be said to be capital expenditure, the court held that what was material was the purpose which prompted the assessee-company to call for such report and not whether a shipyard was in fact established. In the opinion of the court, the expenses had been incurred with a view to decide as to whether an advantage or asset of almost permanent nature could be brought into existence or not. Since the aim and object of the expenditure was to establish and develop a shipyard, even though it was not set up in the light of the feasibility report, the nature of the expenditure did not change. The court observed that it was the object alone that was material and it could not successfully be contended that the ship building yard was to facilitate the assessee's trading operation or was to enabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be capital expenditure. Applying the above principles to the facts of the present case, we are clearly of the view that the Tribunal has committed an error of law in coming to the conclusion that the expenditure was of revenue nature. As stated above, it was not the case of the assessee that the foreign tours were exploratory in nature. In fact, the case of the assessee was to the contrary. It was specifically stated on behalf of the assessee, which is reflected in the order of the Commissioner (Appeals), that in view of the disputes between the assessee-company and the GSFC, it was not possible to get raw material (ammonia) from the GSFC after the contract period was over and it was absolutely necessary to make suitable arrangements for procurement of ammonia. The company, therefore, decided to install its own plant which would produce adequate ammonia for the assessee's own captive consumption. It was in pursuance of an implementation of the scheme for installation of a plant that the managing director and three other senior executives were sent to foreign country for making an on-the-spot-study of suitability of establishment of such plant in India. Such a plant was therea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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