Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Capital or revenue expenditure - Assessee-company was managing agent of another company cm which was granted letter of intent by government to expand its PVC plant involving substantial expenditure in foreign currency - G, a director of assessee-company, undertook foreign tour to conduct negotiations for collaboration - ITO held expenditure on G's foreign tour to be of capital nature and disallowed the same - Whether impugned expenditure was admissible as revenue deduction - Held, on facts, yes FACTS The assessee-company was the managing agent of another company CM which was granted a letter of intent by the Government for expansion of its PVC plant. The expansion scheme involved a capital expenditure of Rs. 14 crores out of which expenditure worth Rs. 8 crores was to be in foreign currency, G, a director of the assessee-company who was also chairman of CM, undertook a foreign tour to conduct negotiations for collaboration with interested parties. In its assessment for the assessment year 1966-67, the assessee-company claimed a deduction of Rs. 19,300 being the amount spent on the foreign tour of G. The ITO disallowed this deduction, holding that the expenditure was capital in nature inasmuch as the purpose of the visit was to get loan facilities for the establishment of a new undertaking. The AAC and the Tribunal sustained the view taken by the ITO. On reference: HELD The assessee-company had incurred the expense on the foreign tour either for improvement or ex-pansion of business or for starting a new business of the company managed by it. By incurring this expenditure the assessee did not acquire any capital asset, nor had any benefit of any enduring nature accrued to it. It may be that by reason of this expenditure, certain assets of enduring nature accrued to the managed company, but that was not relevant. What had to be borne in mind was the purpose for which the assessee-company incurred this expenditure. The assessee was interested in increasing its own earnings or augmenting the commission derived from the managed company and it was with the object of increasing its income that it had spent the impugned…

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