Shyamal Kumar Sen, J. - (1.) Pursuant to the orders of this court under Section 256(2) of the Income-tax Act, 1961, the following questions have been referred to us by the Tribunal : Assessment year 1964-65 : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenses of Rs. 33,000 incurred in connection with rent for plot of land and Rs. 3,852 incurred on account of the foreign tour of Shri T. H. Iyer are not deductible as business expenses under Section 30 and/or Section 37 of the Income-tax Act, 1961 ?" Assessment year 1965-66 : "2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenses of Rs. 27,000 incurred in connection with rent of plot of land and Rs. 10,000 incurred on account of foreign tour of Shri S.K. Agarwalla are not deductible as business expenses under Section 30 and/or Section 37 of the Income-tax Act, 1961 ?"
(2.) The facts, inter alia, are that the assessee is Messrs. Mining Machinery and Explosives (P.) Ltd. and the assessment years involved are 1964-65 and 1965-66. The assessee-company although named as Mining Machinery and Explosives (P.) Ltd. was dealing in detonators manufactured by Indian Detonators Ltd. The assessee is a distributor of the detonators, which are used in mining operations. This was the only line of business in which the assessee-company was dealing, till it decided to export manganese ore and import steel on barter basis. It was stated that the permission of the Government of India for export and import was taken and the assessee-company sent Shri T.H. Iyer, who was an expert in this line, to Europe in connection with the dealings in manganese and steel. An amount of Rs. 3,852 was spent in this regard. The assessee-company also took on rent for a period of 11 months at Rs. 3,000 per month premises at P-26, Transport Depot Road, Calcutta, for storing manganese ore and steel. However, in the assessment year 1964-65, no business was done in this regard. In the next year, the assessee's director, Shri S.K. Agarwalla, went on a foreign tour for the same purpose and the assessee-company also paid Rs. 27,000 as rent but again nothing came of it and the business was never commenced. These expenses were debited by the assessee in its profit and loss statement but the Income-tax Officer disallowed the same on the ground that the expenses were not incidental to the business. The Income-tax Officer also observed in regard to disallowance of rent in the first year that the business had never materialised and no benefit was derived from the occupation of the premises on hire. Complete details of the claim though called for were not, furnished. The expense, according to the Income-tax Officer, was neither incidental to business nor of a trading nature. For similar reasons, he made the disallowance in the following year.
(3.) The assessee-company filed appeals before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner discussed the order in detail in the assessment order for the assessment year 1964-65. He held that it was clear from the very nature of the transaction that the expenditure was in regard to the object of purchase and sale of certain goods with a view to make profit. It was accordingly connected with the assessee's business which was that of a dealer in goods. The Appellate Assistant Commissioner observed that although the assessee was dealing only in mining machinery and explosives and the proposed line was steel and manganese ore, it was only a continuation of the appellant's existing business by expansion of articles dealt in and that it will not be a new business. Consequently, it cannot be treated as an expenditure incurred prior to the setting up of a new business either. The Appellate Assistant Commissioner agreed with the submission and allowed the expenditure for both the years.;