Law:

Section:

Section 37(1) of the Income-tax Act, 1961 (Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922) - Business expenditure - Allowability of - Assessment year 1955-56 - Whether expenditure incurred by assessee-company on account of travelling of foreign technicians for purpose of examining assessee's manufacturing plant would not be capital in nature and, therefore, allowable under section 10(2)(xv) of 1922 Act - Held, yes FACTS For the assessment year 1955-56, the assessee had claimed deduction in respect of amount spent on account of the traveling expenses of technicians of one foreign company who came to India for the purpose of examining the assessee's manufacturing plants. The ITO disallowed the expenditure on the ground that it was capital in nature. On appeal AAC upheld the order of ITO holding that as a result of the recommendations made by the technicians the assessee had gained an advantage of a permanent and an enduring nature. On second appeal, the Tribunal held that the technical know-how which the assessee company acquired in consequence of the recommendations made by the technicians was not an enduring asset of the assessee company and the entire expenditure was wholly and exclusively for the purpose of business, and therefore allowable under section 10(2)(xv). On reference: HELD In the instant case, it appeared from the report of technical expert, which was placed before the AAC that it had merely recommended a better method of operating or economic method of operating the existing plant. It had been stated in the said report that the technicians went through the various aspects of the manufacturing process and made recommendations for the substantial increase of the production as well as for the economic running of the plant. For carrying out those objectives he had recommended certain methods or modes of operations. These were adopted. It was not a case of expansion of any plant. What was done was that the existing method was improved or bettered. It any improved or better method was introduced in the running of the existing plant and some recommendations were accepted with that object in view then, in view of the nature of the…

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