Skip to content


Dalmia Dadri Cement Co. Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberIncome-tax Reference No. 29 of 1966
Judge
Reported in[1970]77ITR405(P& H)
ActsIncome Tax Act, 1922 - Sections 10(2)
AppellantDalmia Dadri Cement Co. Ltd.
RespondentCommissioner of Income-tax
Appellant Advocate G.C. Sharma and; N.N. Goswami, Advs.
Respondent Advocate D.N. Awasthy and; B.S. Gupta and; Avinash Jain, Advs
Cases Referred and India Cements Ltd. v. Commissioner of Income
Excerpt:
- sections 100-a [as inserted by act 22 of 2002], 110 & 104 & letters patent, 1865, clause 10: [dr. b.s. chauhan, cj, l. mohapatra & a.s. naidu, jj] letters patent appeal order of single judge of high court passed while deciding matters filed under order 43, rule1 of c.p.c., - held, after introduction of section 110a in the c.p.c., by 2002 amendment act, no letters patent appeal is maintainable against judgment/order/decree passed by a single judge of a high court. a right of appeal, even though a vested one, can be taken away by law. it is pertinent to note that section 100-a introduced by 2002 amendment of the code starts with a non obstante clause. the purpose of such clause is to give the enacting part of an overriding effect in the case of a conflict with laws mentioned with the..........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.....
Judgment:

Mehar Singh, C.J.

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 whichthe 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 theapproach 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.'

4. In spite of this, the learned counsel for the assessee-company, has relied upon State of Madras v. G. J. Coelho, [1964] 53 I.T.R. 186 (S.C.) in which their Lordships of the Supreme Court held that payment of interest on capital borrowed for the purchase of plantation was not capital expenditure as no new asset was acquired or enduring benefit obtained as a result of such payment; Bombay Steam Navigation Co. (1953) Private Ltd. v. Commissioner of Income-tax, [1965] 56 I.T.R. 52(S.C.) in which it was held that the expenditure for satisfying liability related to the business, even if incurred for avoiding danger, apprehended or real, to the conduct of the business, cannot be said to be revenue expenditure, and it was a case of a liability having been incurred for payment of balance of outstanding price of sale; and India Cements Ltd. v. Commissioner of Income-tax, [1966] 60 I.T.R. 52 (S.C.) which was a case of raising of a loan on the security of a charge on fixed assets of the assessee and an amount spent in connection with the completion of that transaction having been claimed as business expenditure, the same was allowed, their Lordships holding that the amount spent was not in the nature of capital expenditure and was laid out or expended wholly and exclusively for the purpose of the assessee's business. It is apparent that, on facts, these cases do not bear upon the present case and are not helpful even as analogies.

5. The argument of the learned counsel for the assessee-company is that the Tribunal having found that the expenditure was incurred in connection with the purchase of plants and machinery by the assessee-company, it was not expenditure for the purchase of plants and machinery though connected with the same, and hence, not capital expenditure but was revenue expenditure. The learned counsel has urged that the trade and business of the assessee-company was already existing and going on and the travelling expenses incurred by its engineer, in the circumstances of this case, must be taken to have been incurred in that connection, though in consequence of his visit abroad to inspect the plants and machinery required for the assessee-company, the same were actually purchased. The learned counsel has stressed that that expenditure had nothing to do with the actual purchase as it was not an integral part of the purchase and so it should be treated as expenditure standing by itself and connected only with the trade and business of the assessee-company, thus laid out or expended wholly and exclusively for the purpose of its business. If this approach was to be accepted, it would mean that this expenditure will have to be isolated and divorced altogether from the purchase of the plants and machinery actually installed by the assessee-company immediately after the visit of the engineer to Europe in connection with that purchase. This obviously cannot be done, because the visit was for the purchase of plants and machinery by the assessee-company, which were actually purchased soon after the visit. The purpose of the visit cannot be divorced from the nature of the expenditure for, if that was done, there is no explanation for incurring the expenditure by the assessee-company. If the argument of the learned counsel was to prevail, the visit of the engineer to Europe was to no purpose connected with the business of the assessee-company, because the purchase had nothing to do with the visit, and, according to the learned counsel, must be taken apart from it. The learned counsel further says that by incurring this expenditure the assessee-company acquired no new assets or enduring benefit, but this is not correct because it was in consequence of the visit of the engineer to Europe for the purchase of the new plants and machinery by the assessee-company that the plants and machinery were actually purchased and installed, which was a new asset acquired by the assessee-company. The expenditure incurred in this connection as travelling expenses of the engineer was an integral part of the whole transaction of the purchase of plants and machinery by the assessee-company for the expansion of its business. It has not been denied that the purchase of the said machinery by the assessee-company, having been for expansion of its business, was in the nature of capital expenditure and it was for the completion of that that the expenditure, now claimed as revenue expenditure under Section 10(2)(xv) of the Act, was incurred by the assessee-company and it was thus a part and parcel of the expenditure incurred by it for the expansion of its business. So the answer to the second question is in the affirmative that the Tribunal rightly held that this amount was in the nature of capital expenditure and was not allowable to the assessee-company under Section 10(2)(xv) of the Act.

6. In this reference the assessee-company shall bear the costs of the Commissioner of Income-tax. Counsel's fee being Rs. 250.

Bal Raj Tuli, J.

7. I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //