- (1.) IN this reference under Sub-section (1) of Section 66 of the Income-tax Act, 1922, the questions referred are " (1) Whether, on the facts and in the circumstances of the case, the assessee's profits and gains earned in the calendar year 1955 were assessable to tax for the assessment year 1956-57 at the rates in force according to Indian Finance Act, 1956, or in accordance with Clause 23 of the agreement of April 1, 1938, referred to above? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sum of Rs. 13,070, being the foreign tour expenses of Lachhman Sarup, was expenditure of a capital nature ?"
(2.) IN so far as the first question is concerned, it is quite unnecessary to go into the facts and circumstances of the case as detailed by the Income-tax Appellate Tribunal in its order, because it is accepted that the answer to the question is provided by their Lordships in the Supreme Court in the judgment reported as Dalmia Dadri Cement Company Ltd. v. Commissioner of Income-tax, [1958] 34 I. T. R. 514 (S. C.) according to which the assessee-company's profits and gains earned in the calendar year of 1955 were assessable to tax for the assessment year 1956-57 at the rates as in the Finance Act of 1956 and not in accordance with Clause 23 of the agreement of April 1, 1938, upon which the assessee-company based its claim. The answer to the question is rendered accordingly.
(3.) THE assessee-company claimed Rs. 13,070 as travelling expenses of Lachhman Sarup, its engineer, but the Income-tax Officer disallowed this claim saying that no reasons were given in spite of repeated requests made to the company's representatives for and in support of this claim. In appeal before the Appellate Assistant Commissioner of Income-tax it was explained on behalf of the assessee-company that Lachhman Sarup, engineer, had gone abroad on behalf of the assessee-company to inspect the machinery which it was to purchase. The machinery was to be purchased for the extension of the factory of the assessee-company. The travelling expenses, according to the Appellate Assistant Commissioner of Income-tax, incurred by the engineer, were concerned with the purchase and inspection of the machinery which was to be installed for the extension of the assessee-company's factory. He, therefore, was of the opinion that the expenses could not be considered as revenue expenses but were of capital nature. On further appeal the Income-tax Appellate Tribunal also disallowed this claim pointing out that the expenses had been incurred in connection with the purchase of new plants arid machinery which were to be installed for the extension of the assessee-company's cement factory because, after the visit of the engineer, the assessee-company purchased the plants and machinery worth one crore rupees. So the Tribunal discarded the argument on the side of the assessee-company that the expenditure could not be treated as of a capital nature as the same did not bring into existence any asset or advantage of an enduring nature. In its order of reference the Income-tax Appellate Tribunal has found as a fact, (a) that the travelling expenses incurred by the engineer were connected with the purchase of new plants and machinery which were to be installed for extension of the assessee-company's cement factory, and (b) that the assessee-company actually purchased plants and machinery worth one crore of rupees soon after the visit of the engineer to Europe. On behalf of the assessee-company support before the Tribunal was sought from Seshasayee Brothers Ltd. v. Commissioner of income-tax, [1961] 42 I. T. R. 568 (Mad.) and for the contrary view, on behalf of the Commissioner of Income-tax, from Ambica Mills Ltd. v. Commissioner of Income-tax, [1964] 54 I. T. R. 167 (Guj.) which last-mentioned case lent complete support to the approach of the learned Tribunal that this expenditure was in the nature of capital expenditure and not revenue expenditure, the first case not really being relevant on facts. It is accepted by the learned counsel for the parties that there is no other case which directly bears upon this claim of the assessee-company but Ambica Mills Ltd. 's case and, as stated, that case completely supports the approach of the learned Tribunal and at page 183 of the report, Shelat C. J. observed: "if the tour is undertaken with the object of investigating whether new processing should be adopted and for that purpose, new and suitable machinery should be purchased, it is clear that even if the purchase were not to take place then but later, in other words, even if the tour were to be for investigating which new machinery should be suitably and properly purchased to bring the mills of the company on modern and up-to-date lines, thereby bringing into existence new asset, the expenditure for such a tour must be regarded as capital expenditure. ";