Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1963-64 - Assessee company was carrying on business of manufacturing electric hoists of a particular lifting capacity - Two directors and production manager went abroad for purposes of finding out whether it would be profitable for company to adopt a new design of hoists with increased lifting capacity, which they intended to manufacture - Whether expenditure on foreign tour was incurred ultimately with view to increase profits of company as it was already engaged in manufacturing hoists of a particular capacity - Held, yes - Whether, therefore, expenditure in question be allowed as revenue expenditure - Held, yes. FACTS The assessee was a private limited company carrying on the business of manufacturing, among other items, electric hoists of a particular lifting capacity. It, however, intended to manufacture electric hoists with a different design so as to increase the lifting capacity. In order to acquire the technical know-how and also for the purposes of studying and obtaining training for the manufacture of conveyor leaders, two directors and the production manager went to Germany. The assessee-company claimed that the expenditure incurred in connection with the foreign tour of the two directors and the production manager was in the nature of revenue expenditure. However, the ITO rejected this claim as he was of the opinion that this was incurred in connection with a new line. The AAC upheld the order of the ITO. The Tribunal held that the assessee wanted to manufacture altogether a different item which would result in expansion of its activities and, therefore, the expenditure in question was in the nature of capital expenditure. On reference: HELD The two directors and the production manager went abroad for purposes of finding out whether it would be profitable for the company to adopt a new design of hoists with increased lifting capacity, which they intended to manufacture. The expenses were incurred 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…

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