Law: Income Tax Act, 1922

Section: 10(2) (xv)

Income-tax----Business expenditure - Managing agency company-Expenses incurred by director on foreign tours to explore possibilities of expansion of business of managed companies-Whether allowable as business expenditure of managing agency company-Income-tax Act, 1922, S, 10(2) (xv). The assessee was a private limited company which acted as the managing agent of several public limited companies like the Aluminium Corporation of India Ltd., Bihar Mines Ltd., J. K. Steel Ltd. and Hoyle's Paints Ltd. During the relevant period, one of the directors of the assessee-company was sent to Europe to explore the possibilities of technical and financial collaboration with foreign concerns in the matter of manufacture of paints (the business of Hoyle's Paints Ltd.) and hoist-cranes and conveying equipments (later on manufactured by J. K. Steel Ltd.) and also to acquire generally available technical knowledge about manufacture of paints, wire-ropes, hoops and box-strapping. The total expense of the foreign tour came to Rs. 33,009, and the assessee claimed it as business expense. The Income-tax Officer disallowed the claim mainly on the ground that such expense was not incurred for the purpose of the assessee's business, i.e., the managing agency business. The Appellate Assistant Commissioner held that the expenses in question should be borne by the managed companies on whose behalf the assessee had incurred the expenses and, as such, the account involved could not be charged to the assessee's amounts. He considered also the question whether the expenditure was of a revenue nature or capital in character and came to the conclusion that, since the purpose of the foreign trip was to explore the possibilities of technical collaboration and financial assistance, the expenditure incurred was of a capital nature. Before the Tribunal it was contended that the foreign tour expenses were not of a capital nature and should have been held to be laid out wholly and exclusively for the purpose of the assessee's business and both these contentions were upheld by the Tribunal. On a reference to the High Court: Held, that, though, by reason of expenses incurred by the…