TMI Blog1984 (8) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... eign tours of the managing director, Shri R. J. Chinai, and the works manager, Shri J. J. Mehta, was allowable as revenue expenditure?" In so far as the first question is concerned, counsel are agreed that its answer is governed by the decision of this court in (CIT v. National Rayon Corporation Ltd. [1983] 140 ITR 143-Income-tax Reference No. 188 of 1971). The identical question was there answered in the affirmative and in favour of the same assessee. Accordingly, without any detailed discussion of facts or law, we answer the first question in the affirmative and in favour of the assessee. The second question arises in unusual circumstances. One Mahant was the chief executive of the assessee. He dismissed an employee of the assessee on July 5, 1963. The dismissal was the subject of a tool-down strike in the department in which the dismissed employee had worked. On July 8, 1963, Mahant requested the office-bearers of the labour union to discontinue the strike because the Labour Commissioner was expected at the assessee's factory. The strike was called off. The Labour Commissioner arrived and a settlement was reached. The order of dismissal was suspended for ten days and the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hether the transaction in respect of which the proceedings were taken arose out of and was incidental to the assessee's business. It was for the assessee to decide how best to protect his own interest. The other judgment which Mr. Mehta cited is a judgment of this court in Hingir Rampur Coal Co. Ltd. v. CIT [1971] 81 ITR 633. The manager of the assessee there suffered stab wounds and died as a result of rioting by the assessee's workmen. The assessee assisted the State in prosecuting the offending workmen by engaging counsel and incurred large expenditure. This expenditure was claimed by the assessee as a deduction. This court upheld the claim. The learned judges observed that if discontent, whether imaginary or real, were to lead to the workmen taking the law into their own hands and going to the extent of a very serious riot during which the highest officer of the assessee received as many as twenty-five stab wounds and was murdered, it would be difficult for the assessee to find a person of the managerial or administrative class to go to its colliery for attending to its work. In helping the State to prosecute the object of the assessee was to inculcate a sense of discipline i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention personally committed by him. The object of spending money on his defence was to save him from being sent to the jail. The emphasis in the Delhi case was on the fact that the partner of the assessee-firm was one of the owners of the assessee and the expenditure incurred by the assessee-firm for the defence of an owner could not be said to be wholly and exclusively a business expenditure. A Full Bench of the Allahabad High Court took the view in Swadeski Cotton Mills Co. Ltd. v. CIT [1975] 100 ITR 59, that expenditure incurred to defend, in a Criminal prosecution, directors and employees of the assessee and outsiders, who were relatives of one of the directors, could not be said to have been incurred for commercial considerations and was not deductible. The court noted that the intention and the motive of an assessee in incurring expenses on a criminal litigation must be gathered from the facts of each case and the attending circumstances. The fact that the assessee incurred expenses on the defence of its employee was relevant circumstance to show that the object of the assessee in incurring expenses was to save its business, reputation and property, but that circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now turn to the third question. On May 31, 1967, the assessee sent to the Reserve Bank applications for release of foreign exchange to meet the travelling and other expenses of its managing director and works manager. The covering letter recorded that the assessee had plants for the manufacture of viscose rayon, tyre cord and heavy chemicals. It had received a letter of intent for setting up a plant to manufacture nylon industrial yarn for tyre cord, fishing nets, ropes, etc. The letter of intent had been issued on the condition that the assessee utilised the technical know-how developed in the country to save foreign exchange as much as possible. The assessee had received a proposal from M/s. Chattillon, Italy, with whom it had been negotiating for the supply of plant and machinery, but the requirement of foreign exchange therein had been found to be too high. The assessee had asked M/s. Chattillon to revise their proposal in an endeavour to reduce the foreign exchange component and M/s. Chattillon had suggested a meeting to discuss ways and means of fabricating some items in India. The position in regard to the proposal for supply of plant and machinery received from M/s. Chemtex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery essential for increasing the assessee's profits. The expenditure was held to be of a revenue nature. The Division Bench of this court stated that it was more inclined to agree with the decision in the latter case. Mr. Dhanuka relied upon a judgment of the Andhra Pradesh High Court in Hyderabad Allwyn Metal Works Ltd. v. CIT [1975] 98 ITR 555. The assessee there was manufacturing steel refrigerators and steel furniture and was building bus bodies. The expenditure that was claimed to be revenue expenditure was that incurred in financing the tour of a director to Japan because the assessee intended to manufacture scooters, motor cycles and light and heavy three-wheelers. The court was of the view that only if expenditure was incurred in connection with a business which was already carried on, could it be considered to be revenue expenditure, as it was intended to bring in more profits; but if it was a new adventure which the assessee was seeking to start, even though it might not have ended successfully at that stage, it was for the initiation of a new business and if the assessee had started it, it would have brought the assessee benefit of an enduring nature. Even intangible i ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
