Law:

Section:

Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xv) of the Indian Income-tax Act, 1922] - Business expenditure - Allowability of - Assessment year 1959-60 - Assessee-company was managing agent of several companies - Directors of assessee-company were sent on foreign tour to explore possibilities of technical and financial collaboration with foreign concerns - Assessee claimed expenses on foreign tour as business expenses but ITO disallowed it on ground that same was not incurred for purposes of assessee's business - Whether object or purpose of foreign tour was to produce conditions or circumstances for increased income of managing agent and, therefore, expenses incurred by assessee were not capital in nature and allowable as deduction under section 10(2)(xv) of 1922 Act - Held, yes FACTS The respondent-company acted as a managing agents of several companies. During the accounting period relevant to the assessment year 1959-60, the respondent-assessee was sent abroad to explore the possibilities of technical and financial collaboration with foreign concerns 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. The respondent claimed it as business expense; but the ITO disallowed the claim mainly on the ground that such expense was not incurred for the purpose of the respondent's business, i.e., the managing agency. On appeal the AAC held 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. On further appeal the Tribunal held that such expenditure never brought into existence any asset of an enduring nature to the respondent and the tour being undertaken in the ordinary course of business with a view to improve the conditions of the managed companies, which undoubtedly helped the respondent itself in earning higher managing agency commission in future years, the expenses incurred could not be treated to be of a capital nature. On reference : HELD In the instant case the assessee was…

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