1. This is a reference under Section 256(1) of the I.T. Act, 1961, by which the Income-tax Appellate Tribunal has referred the following questions of law to this court:
'1. Whether the expenses of Rs. 74,366 incurred on foreign tours of Shri Charat Ram, Shri Bharat Ram and some of the officers of the assessed-company represent an element of actual cost of machinery arid plant, etc., to the assessed and, as such, depreciation and development rebate are admissible with reference to this amount also
2. Whether the expenses of Rs. 23,399 incurred on foreign tours of technical officers of the company represent an element of actual cost of machinery and plant to the assessed and, as such, depreciation and development rebate are admissible with reference to this amount also ?
3. Whether, on the facts and in the circumstances of the case, the expenditure incurred by the assessed in organising football tournament was an allowable deduction under Section 37 of the Income-tax Act, 1961 ?'
2. The respondent-company in its assessment year 1962-63 claimed an item of Rs. 1,05,227 as expenses incurred by its directors and other officers on foreign tour. The ITO held that these expenses were mainly to select suitable machinery for H.T.R. yarn project and P. V. C. plant and alsoknow-how for the latter, and this being of capital nature cannot he allowed. In appeal, the AAC allowed the expenses of Rs. 30,861 on account of Lala Charat Ram, one of the directors of the company, and disallowed the deductions with regard to rest of the amounts. In further appeal the Tribunal did not agree with the assessed that this was a revenue expenditure but it held that it was clearly of capital nature, but it also accepted the alternative plea of the assessed that if any expenditure related to the particular project the same had to be included in the project for the purpose of working the actual coals for the project; it, thereforee, gave a direction 1o the ITO that such of the expenditure as can be reasonably related to the new project should be included in the actual cost of the assets for the purpose of granting rebate,
3. There, was another item of Rs. 23,399 which was on account of the expenses in connection with some of the officers visiting abroad. The ITO disallowed this as being of a capital nature. The AAC, though he rejected the plea of the assessed that it was a revenue expenditure, was of the opinion that during the accounting period some machinery had been purchased and the expenditure being in connection with it had rightly been treated as of a capital nature and directed the ITO to allow the rebate for it if admissible in that year. The Tribunal agreed that this amount was to be capitalised because it was an integral part of the machinery.
4. There was another item of Rs. 15,102 in holding D.C.M. Football tournament. The ITO disallowed the same but the AAC deleted the disallowance. The Tribunal upheld the allowance of expenditure.
5. It is thereafter that the Revenue asked the Tribunal to refer the various questions of law out of which the above said three questions have been referred to this court.
6. In CIT v. L.G. Balakrishnan and Bros. (P.] Ltd. : 95ITR284(Mad) , the expenses incurred on foreign trips by the directors and engineers as are relatable to the project have been held to he considered as part of the actual cost of machinery and depreciation and development rebate have to be allowed thereon. The reasoning given is that if the tour undertaken by the directors and others is necessary for the purchase of machinery then though the expenditure may be of a capital nature, since the expenses as are relatable to inspection, selection and supervision of machinery, they can be taken to add to the cost of the machinery, and are to be so included in the cost of the machinery. One of the points decided by the Madras case was that the interest paid on borrowed amount for setting up the factory can be capitalised and included in the actual cost of machinery and plant. This view of the Madras High Court was referred to with approval in the Supreme Courtjudgment in Challapalli Sugars Ltd. v. CIT : 98ITR167(SC) . We may note that before the Tribunal the Department had sought to rely on a judgment of the Andhra Pradesh High Court reported as CIT v. Challapalli Sugars Ltd. : 77ITR392(AP) , while the assessed had relied on a judgment reported as CIT v. Standard Vacuum Refining Co. of India Ltd. : 61ITR799(Cal) . The Supreme Court in the above referred case : 98ITR167(SC) , approved the Calcutta case and disapproved the Andhra Pradesh case.
7. We are also of the view that such of the expenditure as is relatable to a new project can be capitalised and included in the actual costs. The Tribunal has sent the matter back to the ITO for examination of this matter in detail. That was obviously a correct course to do. As to what Amount is to be included in the actual cost will have to be determined by the ITO, Of course, the actual amount which is so found and will be that as is relatable to the cost of the project. The question has to be answered in the affirmative.
8. Question No. 2.--This question is also on the same basis as question No. 1 and must also be answered in the affirmative.
9. Question No. 3.--Similar question with respect to the assessed was the subject-matter of decision in CIT v. Delhi Cloth and General Mills Co. Ltd. (I.T.R. No. 172/74, decided on 19-4-1978- : 115ITR659(Delhi) , by this court. The Division Bench has held that the expenditure incurred by the assessed in organising the tournament was an allowable deduction under Section 10(2)(xv) of the Indian I.T. Act, 1922. The question was answered in the affirmative.
10. The only argument which Mr. Verma sought to urge was that though the tournament brought into prominence the name of D.C.M. yet it did not mention any particular item sold by it, and this could not be said to be an expenditure incurred for the purpose of business. We find the argument unacceptable. For the purpose of satisfying the test whether, the expenditure is in connection with the business it is not necessary that the expenditure must be connected and co-related to any particular brand which is dealt with by a large group as D.C.M. The fact that the name of D.C.M. gets advertised because of the holding of the tournament would naturally mean that a large number of people would become familiar with the name of D.C.M. The publicity to the brands of D.C.M. is inherent in the publicity of the name of D.C.M. Obviously if a business house dealing with a large number of goods spends money on such items of sport it has to be on behalf of the parent organisation and could not be relatable to any particular product sold by it, nor in law it is so necessary in order to claim the business expenses. Advertisements by D.C.M. wouldinevitably carry advertisements for all the products put out by the D.C.M. There is no merit in this contention. Dismissed.
11. We see no reason to take the contrary view and we also, with respect following this judgment, answer this question in the affirmative.