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Delhi Cloth and General Mills Co. Ltd. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
Subject Direct Taxation
CourtDelhi High Court
Decided On
Case NumberIncome-tax References Nos. 130 to 135 of 1976
Judge
Reported in[1986]158ITR64(Delhi)
ActsIncome Tax Act, 1961 - Sections 37 and 256(1)
AppellantDelhi Cloth and General Mills Co. Ltd.
RespondentCommissioner of Income-tax
Excerpt:
.....parties can be allowed as deduction - no link established between payment to political parties and business of assessed - held, it cannot be allowed as deduction. (ii) deduction - section 10 (2) of income-tax act, 1961 - whether expenditure incurred by assessed in organizing football tournament can be allowed as deduction - on basis of precedents court held that it was allowable deduction under section 10 (2) (xv). (iii) foreign trips - whether foreign tours to attend meetings by assessed can be claimed as deduction - if foreign tours conducted for purpose of advancing business then it can be allowed as deduction under section 10 (2) (xv) - assessed had several overseas business and several agencies through out world - held, expenditure can be allowed as deduction. - - it has..........for the next year, on the foreign tour expenses of the assessed's employees, were allowable as revenue expenditure, having been incurred for improving the existing techniques of the assessed's business (7) whether, on the facts and in the circumstances of the case, the expenditure of rs. 10,320 and rs. 10,088 incurred on foreign tours undertaken by sarvashri n. a. patel and u. k. choudhry for training in japan was deductible in computing the assessed's business for the assessment year 1969-70 (8) whether, on the facts and in the circumstances of the case, the tribunal was legally right in holding that the expenditure incurred for dr. bharat ram's foreign tours to attend the meetings of the international chamber of commerce was fully admissible as expenditure incurred for carrying.....
Judgment:

S.B. Wad, J.

1. This is a reference under section 256(1) of the Income-tax Act, 1961, referring the following questions to this court. They are raised by the assessed, D.C.M. Company Limited, and the Commissioner of Income-tax, Delhi, and arise out of the consolidated order dated November 28, 1974, passed by the Income-tax Appellate Tribunal, Delhi Bench. They relate to assessment years 1968-69 and 1969-70. Two applications were made by the assessed (938 and 939/74-75) and four by the Income-tax Commissioner (939, 964 to 967 (Delhi) /174-75). The following are the questions :

'(1) Whether, on the facts and in the circumstances of the case, the sums paid by the assessed in the accounting years relevant to the assessment years 1968-69 and 1969-70, to the Indian National Congress and the Swatantra Party, were allowable deductions under the Income-tax Act, 1961

(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal had erred in holding that the two units of the assessed company, viz., M/s. DCM Ginning Factory, Malout, and the DCM Ginning Factory, Hissar, were entitled to the benefits of deduction under section 80J of the Income-tax Act, 1961, for the assessment years 1968-69 and 1969-70

(3) Whether the Income-tax Appellate Tribunal had erred in holding that rule 19A of the Income-tax Rules, 1962, did not, in any manner, take away the benefit conferred by section 80J or whittle down its efficacy and that for the purpose of section 80J, the relief was to be worked out at 6% not on the entire capital employed in the concerned industrial undertaking but only on such part of it as was reduced by the borrowed moneys and debts due by the assessed (other than the debentures issued by it and its borrowers exempted under rule 19A(3)

(4) Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 10,610 incurred by the assessed on the foreign tour of Shri Charat Ram for visiting Japan for the Joint Session of the Business Co-operation Committee of India and Japan was deductible in computing its business income for the assessment year 1969-70

(5) Whether, on the facts and in the circumstances of the case, the Tribunal was legally right in holding that the expenditure incurred by the assessed for running the DCM Football Tournament was an admissible deduction for arriving at its profits from business

(6) Whether, on the facts and in the circumstances of the case, the Tribunal was legally right in holding that the amounts of Rs. 15,300 incurred for the assessment year 1968-69 and Rs. 31,414 for the next year, on the foreign tour expenses of the assessed's employees, were allowable as revenue expenditure, having been incurred for improving the existing techniques of the assessed's business

(7) Whether, on the facts and in the circumstances of the case, the expenditure of Rs. 10,320 and Rs. 10,088 incurred on foreign tours undertaken by Sarvashri N. A. Patel and U. K. Choudhry for training in Japan was deductible in computing the assessed's business for the assessment year 1969-70

(8) Whether, on the facts and in the circumstances of the case, the Tribunal was legally right in holding that the expenditure incurred for Dr. Bharat Ram's foreign tours to attend the meetings of the International Chamber of Commerce was fully admissible as expenditure incurred for carrying on of the business of the assessed company ?'

Question No. 1 relates to the donations to political parties made by the assessed. In the case of the same assessed, this court had held in Delhi Cloth & General Mills Co. Ltd. v. CIT : [1980]125ITR96(Delhi) , that there is no link established between the payment to the political parties and business of the assessed and, thereforee, the claim for donations was rightly disallowed. We find no reason to take a different view. The question is answered against the assessed.

In question No. 2, deductions are claimed under section 80J for setting up ginning factories at Malout and Hissar by the assessed. In Textile Machinery Corporation Ltd. v. CIT : [1977]107ITR195(SC) ), the Supreme Court has held that in similar circumstances the assessed is entitled to the deduction under section 80J. After the decision, the Tribunal has carried out rectification in favor of the assessed on April 8, 1981. thereforee, the question is not pressed by the assessed.

Question No. 3 relates to the question whether relief under section 80J is to be worked out on the entire capital or only on such part of it as was reduced by the borrowed moneys and debts due to the assessed. This question is pending decision before the Supreme Court. The assessed and the Revenue have jointly stated that they will abide by the decision of the Supreme Court. Hence, we need not answer the question.

Question No. 5 pertains to the admissibility of deductions on account of the assessed running the DCM Football Tournament. In CIT v. Delhi Cloth and General Mills Co. Ltd. : [1978]115ITR659(Delhi) , this court has held that the expenditure incurred by the assessed in organising football and hockey tournaments was an allowable deduction under section 10(2)(xv). We take the same view. The question is, thereforee, answered in favor of the assessed.

Questions Nos. 4, 6, 7 and 8 relate to foreign trips of Dr. Bharat Ram, Shri Charat Ram and the employees of the D. C. M. Dr. Bharat Ram had incurred an expenditure of Rs. 42,118 for attending meetings of the International Chamber of Commerce of which Dr. Bharat Ram was the President. The Income-tax Officer disallowed a sum of Rs. 22,118 out of the said amount. The Appellate Assistant Commissioner upheld it. The Tribunal reversed the said order and permitted total deduction of Rs. 42,118. The Revenue argued before us that Dr. Bharat Ram was not authorised by the company to take up the tour and that there was no nexus between the business of the D.C.M. and the tour undertaken by Dr. Bharat Ram as the President of the International Chamber of Commerce. The assessed, however, submitted that Delhi Cloth & General Mills Co. Ltd. has substantial overseas business having as many as thirty-five agencies throughout the world. The company has entered into collaboration agreements and it was in the interest of the company to maintain contact with foreign business houses. D.C.M. Cloth Mill was a member of the International Chamber of Commerce and in that capacity Dr. Bharat Ram was elected as the President of the meeting of the International Chamber of Commerce. The Supreme Court has already given the guidelines for such deductions. It has recommended a broad realistic approach. These guidelines were followed by the Tribunal for the year 1963-64 for giving the deductions. The observation of the Tribunal earlier is quoted in the reference order. We do not find any new circumstances or facts brought out by the Revenue to contest the assessed's claim for deduction. The deduction is fully covered by the decision of this court in CIT v. Dr. P. N. Beh : [1972]84ITR125(Delhi) . Before us, the counsel for the Revenue has relied upon a decision of the Karnataka High Court in ClT v. Dr. B. V. Raman : [1966]59ITR20(KAR) . In Beh's case, this court has considered that decision and the observation from that decision, namely, that if an assessed attends a conference with the purpose of advancing his business, profession or vocation and if the expenditure was incurred for that purpose, then certainly the deduction can be claimed under section 10(2)(xv). Question No. 8 is answered in favor of the assessed and against the Revenue.

Question No. 4 is similar to question No. 8. Shri Charat Ram incurred an expenditure of Rs. 10,610 for attending the joint session of the Business Co-operation Committee of India and Japan in the year 1969-70. The Tribunal, agreeing with the Appellate Assistant Commissioner, has held that the said expenditure is of a capital nature and the item be capitalised. In relation to a similar matter for the year 1963-64, the Income-tax Appellate Tribunal had allowed the expenditure as admissible deduction. It was stated in the said order : 'As the Supreme Court has pointed out, the purpose of an assessed's trade has to be interpreted in a broad realistic context. Most of the business carried on by the assessed company and particularly the textile business is carried on in what may be described as global context. The assessed as a major unit of a major industry in India has necessarily to take an active interest in the deliberations of the world representatives of that industry or in world conference relating to the industry... No unit and particularly a unit like the assessed's could act in isolation.. The expenditure incurred in connection with the visit of the chief executive of the company as a representative of the national industry, whether in the textile conference or in the GATT body, was clearly allowable as expenditure under section 37. It was an expenditure meant for indirectly facilitating the carrying on of the trade and was allowable as such.'

2. No special or new facts are alleged in the present case against the assessed by the Revenue. We hold that the expenditure of Rs. 10,610 incurred by Shri Charat Ram for his visit to Japan is an admissible deduction. The question is answered in favor of the assessed.

3. Question No. 6 relates to Rs. 15,300 and Rs. 31,414 incurred by the assessed as tour expenses for its employees. In the years 1968-69 and 1969-1970, the deductions were allowed by the Tribunal as revenue expenditure as it was held that the expenses were incurred for improving the existing techniques of the assessed's business.

4. The contention of the Revenue is that these expenses were made by the assessed for its P.V.C. plant which had already been set up in 1963, and it had also been manufacturing calcium carbide. The Revenue further contends that the expenses are in the nature of capital expenditure because they secured to the assessed company benefit of enduring nature. The Tribunal disagreeing with the Appellate Assistant Commissioner held that it was not appropriate to disallow such expenditure on training of the employees because the trained employees continued to be employees for their employer's business, after such training. We agree with the Tribunal. The technical advancement and the methods of running the modern complex industries are changing very fast. A training of this nature is necessary to update and modernise the indigenous industries. We hold the expenditure as an admissible revenue expenditure. The question is answered in favor of the assessed.

5. The last question, namely, question No. 7, relates to the expenditure of Rs. 10,320 and Rs. 10,088 incurred by the two employees, namely, N. A. Patel and U. K. Chowdhry, for training in Japan in the year 1969-70. Agreeing with the Appellate Assistant Commissioner, the Tribunal has held that both the items represent capital expenditure and that the items should be capitalised. The expenditure was, of course, disallowed as revenue expenditure.

6. The Department was of the view that the expenditure on training was in connection with the assessed's business in P.V.C. sheets and pipe manufacture which was 'undertaken in a year subsequent to the relevant assessment year. It also held that it was for the opening of a new branch of the assessed's manufacturing activities. The counsel for the assessed had brought to the notice of the Appellate Tribunal the letter dated March 28, 1972, written by the general manager of Shri Ram Chemical Industries, Quota (Kota), to the managing director of the assessed company. It was stated in the said letter that the visits of Shri N. A. Patel and U. K. Chowdhry to Japan were not undertaken to establish a new line of production as the main plant had been installed and production in small quantity had started. It appears that this factual position has not been properly appreciated by the Revenue. On the same reasoning as in the case of question No. 6, this expenditure is to be allowed as revenue expenditure and is entitled to a deduction. The question is answered in favor of the assessed.


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