TMI Blog1978 (6) TMI 21X X X X Extracts X X X X X X X X Extracts X X X X ..... n concluded by the decision in the case of Tata Iron Steel Co. Ltd. v. D. V. Bapat, ITO [1975] 101 ITR 292 (Bom). In view of the said decision, we answer the question in the affirmative. The facts, so far as the second question is concerned, may be shortly stated. Ballarpur Industries Ltd., the assessee, is a company carrying on business of manufacture and sale of paper, etc. It keeps its accounts according to the year ended June 30 which is also adopted as the previous year for assessments to income-tax. In the accounts for the year ended June 30, 1970, the assessee debited to the account relating to " raw materials con- sumed " a sum of Rs. 1,00,000 being expenditure described by it as "survey expenses ". The said amount was paid to Industrial Aid International of Trivandrum, which had been entrusted with the work of conducting a survey of providing technical operational data on the utilisation of hard wood for the manufacture of chemical pulp which is a basic raw material for paper manufacture. In the assessment year 1971-72, it claimed a deduction in the sum of Rs. 1,00,000 relating, to survey expenses. Before the ITO, it was urged, on behalf of the assessee, that it was ut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and had not questioned the purpose for which the expenditure was incurred. The Tribunal ultimately decided the point in favour of the assessee. It is from this order of the Tribunal that the second question arose for determination. Mr. Joshi, on behalf of the revenue, submitted that, having regard to the provisions of s. 37 of the I. T. Act, 1961, before any expenditure can be allowed in computing the income chargeable under the head "Profits and gains of business or profession ", it is obligatory on the part of the assessee to prove that the expenditure was not of the nature described in ss. 30 to 36 and s. 80VV, that such expenditure was not in the nature of capital expenditure or personal expenses of the assessee and finally the expenditure was expended wholly and exclusively for the purpose of the business or profession. His submission was that before any deduction in tax can be permitted by the taxing authority and the Tribunal all the three ingredients ought to be fulfilled and the onus is on the assessee to establish each one of the said ingredients. In the present case, his contention was that the assessee had failed to discharge the onus that the sum of Rs. 1,00,000 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee to lead fresh evidence and material on this aspect of the matter. The material provisions of the Act which may have to be considered to determine the rival contentions of the parties are under s. 37(1) of the Act. Its provisions are as under : Any expenditure (not being expenditure of the nature described in sections 30 to 36 and section 80VV and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head ' Profits and gains of business or profession'. " Having regard to this provision, before any item of expenditure can be allowed in computing the income chargeable to tax, three ingredients are required to be fulfilled : (1) The item of expenditure must not be of the nature described in ss. 30 to 36 ; (2) The item of expenditure must not be of the nature of capital nature or personal expenses of the assessee ; and (3) The expenditure must be laid out and expended wholly and exclusively for the purposes of the business or profession. The onus is upon the assessee to prove each one o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missible as a deductible expenditure. That contention on behalf of the revenue was rejected by the Tribunal even though the assessee did not supply to the ITO certain material including a copy of the report of the Industrial Aid International on the ground that the ITO had not doubted the genuineness of the payment nor the purpose for which the expenditure was undertaken. The Tribunal found that it was clear that the expenditure was incurred with the object of trying to explore the feasibility of reducing the cost of the raw material and thereby effecting economy in the cost of production. Since this was the object or the purpose of the expenditure, the Tribunal confirmed the finding of the AAC. It was urged by Dr. Pal that since there is a clear finding of the Tribunal that the object or the purpose of incurring the expenditure was to explore the feasibility of reducing the cost of raw material and thereby effecting economy in the cost of production, a fortiori it follows that the expenditure is in the nature of revenue expenditure and cannot be regarded as a capital expenditure. It is settled position in law that before any item of expenditure can be regarded as expenditure of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remanded to the Tribunal with a view to enable the assessee to produce the relevant material so that a proper finding may be given by the Tribunal on the question whether the sum of Rs. 1,00,000 which was admittedly paid to the Industrial Aid International was an item of expenditure of capital or revenue nature. Reliance was placed by him upon the decision of the Supreme Court in the case of CIT v. Indian Molasses Co. P. Ltd. [1970] 78 ITR 474. In that case, the question that arose for consideration before the Supreme Court was whether a particular item of expenditure was such that the requirements of s. 10(2)(xv) of the Indian I.T. Act, 1922, were satisfied. Dr. Pal has relied upon the observations made by the Supreme Court at page 482. On the facts before the Supreme Court, the Supreme Court took the view that two courses were open to them, either to call for a supplementary statement of the case from the Tribunal or to decline to answer the question raised by the Tribunal and to leave the Tribunal to take appropriate steps to adjust its decision under s. 66(5) in the light of the answer of the court. It was also felt by the Supreme Court that if it directed the Tribunal to submi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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