Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Assessee-company, engaged in manufacture of engineering equipments, decided to manufacture aerial ropeways for transporting machines and men - It sent its director abroad to select foreign engineers and claimed deduction of foreign tour expenses incurred by its director - Whether impugned expenditure allowable - Held, on facts, yes Facts The assessee-company was engaged in the manufacture of engineering equipments. For the assessment year 1967-68, relevant to the accounting year ending 31-12-1966, it sent one of its directors abroad for selection of some foreign engineers with a view to start, for the first time, manufacture and installation of aerial ropeways on turnkey basis for transporting machines as well as human beings. In their report, the directors of the assessee-company, had clarified that the company had decided to start designing and manufacture of aerial ropeways, to overcome the effects of competition and with a view to diversify its activities. The ITO, however, disallowed its claim of Rs. 16,948, representing foreign tour expenses as business expenditure since production of aerial ropeways was entirely a new line of its activities. The AAC, on appeal, confirmed the disallowance. The Tribunal, on further appeal, allowed the assessee's claim holding (i) that though the assessee wanted to embark upon a different line altogether; and (ii) that the method of aerial ropeways was much more sophisticated method but, the main consideration was whether the assessee embarked upon a new line altogether or whether this was only a more effective utilisation of existing resources. Since for the purpose of aerial ropeways no new machinery was required and the funds would come from the same source, it could be said that the assessee only wanted to utilise the existing resources in a more effective way and the manufacture of aerial ropeways was an extention of its existing activities. On reference: Held If the expenditure is incurred for making a more efficient utilisation of the existing process, knowledge and techniques which are used by the assessee, it amounts to revenue expenditure,…

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