S.K. Mal Lodha, J. - (1.) THIS reference has been made by the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur ("the Tribunal" herein), at the instance of the Commissioner of Income-tax, Jodhpur. The Tribunal has referred the following question of law arising out of its order dated December 10, 1979, passed in ITA No. 764/JP/1978-79 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the expenditure of Rs. 11,039 incurred by the assessee on the tour of its managing director to the U.S.A. was allowable as revenue expenditure ? "
(2.) THE assessee (non-petitioner) is a private limited company. It derives income from selling tractors, luna mopeds, godrej steel furniture, etc. For the assessment year 1976-77, the assessee incurred an expenditure of Rs. 11,039 on the foreign tour of the managing director, Shri P.S. Murdia. THE case of the assessee is that the tour was undertaken to the U.S.A. mainly on the following two grounds : " 1. To take direct dealership for the supply of steel to Hindustan Zinc Ltd., Udaipur, against their annual enquiry. THEre was an invitation from M/s. McLouth Steel Corporation, 300, South Livernois Avenue, Detroit, Michigan (USA). 2. To study the equipments such as Test Bench, Antomiser Repair Bench and important tools required for the repairs and calibration of PT pumps of Commins Engines and to take practical training in the same. " Before the Income-tax Officer, the assessee submitted a detailed note on February 18, 1978. The Income-tax Officer after considering the evidence on record and contentions of the assessee opined that the tour was undertaken primarily in connection with the farbrication of the Test Bench. In these circumstances, the Income-tax Officer held, vide his order dated February 21, 1978, that such expenditure was of capital nature. He, therefore, disallowed it. An appeal was taken. The Appellate Assistant Commissioner on the basis of the material on record concurred with the finding of the Income-tax Officer that such expenditure was of capital nature. He, therefore, dismissed, the appeal by his order dated August 31, 1978. A further appeal was filed by the assessee before the Tribunal. The Tribunal disagreed with the conclusion arrived at by the Income-tax Officer and the Appellate Assistant Commissioner. It held that the amount of Rs. 11,039 spent in connection with the foreign tour of the managing director was a business expenditure and as such should be allowed. It will be useful to excerpt the following portions from para. 7 of the order of the Tribunal : "...From the aforesaid material, it is clear that the assessee company was trading in machinery, hardware, steel furniture, millgin stores and other raw materials. It was also on the approved list of suppliers to the various Government departments and semi-Government undertakings...... So, in substance, the purpose of visiting the U.S.A. was to seek the feasibility of a steel deal, which was required by the assessee company for increasing its profits. The assessee company also wanted to start a Test Bench in Udaipur, but that did not materialise. Under the circumstances, the expenditure in question cannot be called as capital in nature... " An application under Section 256(1) of the Income-tax Act, 1961 (No. XLIII of 1961)("the Act"), was filed by the Commissioner of Income-tax, Jodhpur. He desired that two questions of law which have been mentioned in the statement of the case may be referred for the opinion of this court. The Tribunal has, however, referred the aforesaid question only. We have heard Mr. B.R. Arora, learned counsel for the Revenue, and Mr. J.L. Daga, learned counsel for the assessee.
(3.) IT was contended by Mr. B. R. Arora that the expenditure incurred by the assessee on the foreign tour of its managing director was capital expenditure and, therefore, the Tribunal should not have allowed it. The submission, in this connection, is that the expenditure was incurred in connection with the fabrication of a Test Bench by obtaining training for the repairs of pumps and technical know-how from the foreign company and since the expenditure is related to a capital asset, this would be treated as a capital expenditure and not as a revenue expenditure. In this connection, he invited our attention to the reasons given by the Income-tax Officer as well as the Appellate Assistant Commissioner for holding that the expenditure incurred by the assessee on the foreign tour of the managing director was of capital nature. On the other hand, Mr. J.L. Daga, learned counsel for the assessee, supported the order of the Tribunal and while adopting the reasons given by it pressed for our consideration that the Tribunal was justified in allowing the amount of Rs. 11,039 spent on the foreign tour of the managing director as revenue expenditure. We have given our anxious consideration to the rival contentions of the learned counsel for the parties. Section 37 of the Act lays down that any expenditure (not being expenditure of the nature described in Sections 30 to 36 and Section 80VV and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head ''Profits and gains of business or profession". In other words, in Section 37 of the Act, if any amount has been spent by the assessee wholly and exclusively for the purpose of carrying on of the business, it is an allowable deduction or an allowable expenditure. In other words, it is a revenue expenditure. The correct position, in this connection, is that when the director or the managing director or a technical personnel of a company goes on foreign tour in connection with the acquisition of capital asset and collaboration for expansion of the business of the company, then such expenses would be capital in nature. Further that travelling expenses on tour abroad for making negotiations or training in the manufacture of steel or in pursuance of the foreign collaboration agreement or for purchase of new machinery are also in the nature of capital expenditure and they have to be disallowed. On the contrary, if the expenditure is incurred for technical know-how of the principal business run by the assessee, it has to be treated as revenue expenditure on tours as it is for the purpose of securing knowledge and information. In this case, the Tribunal on the basis of the material that is on the record has come to the conclusion that the purpose of visiting the U.S.A. by the managing director, Shri P.S. Murdia, was to study the feasibility of a steel deal, which was required by the assessee in order to increase the profits. In connection with the business, the assessee company also wanted to start a Test Bench at Udaipur but that did not materialise. The assessee company was dealing in machinery, hardwares, steel furniture, millgin stores, etc., and in connection with its business, it received certain enquiries from M/s. Hindustan Zinc Ltd., Udaipur. The Hindustan Zinc Ltd., Udaipur, wanted supply of such goods on a particular type of steel which was not available in India and so the assessee company after correspondence with the U.S.A. company sent its managing director for finding out the availability of such material. In these circumstances, it cannot be said that the managing director was sent to find out the feasibility of starting a new business. The object of sending the managing director to the U.S.A. was to enable it to effect supply of specified commodities with a particular steel or material and this would have increased the income or profit of the assessee company. The managing director was sent in connection with acquiring know-how for manufacture of a particular type of machinery with a particular kind of steel and, therefore, there is no question of bringing into existence an asset of enduring nature. The Tribunal has correctly stated that the assessee company by sending its managing director to the U.S.A. only wanted to augment its income and in such a case, the expenditure incurred by the assessee on the foreign tour of its managing director to the U.S.A. was of a revenue nature and was, thus, an allowable expenditure under Section 37(1) of the Act. The aforesaid conclusion of ours stands fortified by the decisions mentioned hereunder. ;