Law:

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Section 37(1) of the Income-tax Act, 1961 - Capital or revenue expenditure - Certain officers/directors of assessee-company had undertaken foreign tour for purchase of capital asset as well as for study of diffuser working - Whether expenditure incurred on such tour was capital expenditure and, therefore, could be capitalised for purposes of depreciation or development rebate - Held, on facts, yes Facts In the relevant previous years certain officers/directors of the assessee-company had undertaken foreign tour 'for the purchase of capital asset as also for the study of diffuser working'. The ITO disallowed the said expenditure on the ground that the expenditure was of a capital nature On appeal, the AAC agreed with the ITO that the tours were made not only for study but also for the purchase of a capital asset and directed the ITO to capitalise the expenditure for the purposes of depreciation and development rebate and allow the same on such figure as he arrived at. On further appeal, the Tribunal also upheld the AAC's order. On reference: Held In the instant case, it was clear that the capital asset which was purchased was a diffuser and, therefore, the entire expenditure on foreign tours was incurred in connection with the purchase of the capital asset. Accordingly, the Tribunal was justified in upholding the AAC's order giving direction to the ITO to capitalise the said expenditure for the purposes of depreciation and development rebate, and to allow the same. Case referred to CIT v. Shree Changdeo Sugar Mills Ltd. [1983] 143 ITR 469 (Bom.). G.S. Jetly, D.H. Parekh and Miss S.G. Shah for the Applicant. S.E. Dastur and B.D. Damodar for the Respondent. JUDGMENT Bharucha, J.-This is a reference under section 256(1) of the Income-tax Act, 1961 made at the instance of the revenue. It poses the following two questions: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the interest paid on withdrawals used for the purpose of the payment of dividend was a revenue expenditure? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenses incurred for the…

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