V. Ramsawami, J.
1. The following question has been referred at the instance of the revenue :
'Whether it has been rightly held the project expenses incurred by the assessee were incidental to the carrying on of the assessee's business of managing agency and were not capital expenditure ?'
2. The assessee is a private limited company and its main business is that of managing agency. The had also been investigating several projects and, wherever feasible, promotion of new industrial under takings. For the assessment ears 1966-67 and 1967-68, the assessee claimed Rs. 9,865 and Rs. 10,785, respectively, as project expenses in respect of a project newsprint paper mill. The ITO disallowed the assessee's claim on the ground that they constituted capital expenditure. However, on appeal, the AAC allowed the claim accepting the contention that the expenditure is of a revenue nature and not a capital expenditure. It ma be mentioned that in respect of the assessment year 1967-68, he allowed on a sum of Rs. 3,027, being the expenses incurred in the previous ear and the rest of it was disallowed on the ground that it related to a different assessment year. The department went in appeal before the Tribunal. It appears that the department even went to the extent of contending before the Tribunal that the promotion of newsprint paper mill was ultra vies the objects of the company. The Tribunal referred to the memorandum of the company and proceeded to consider the question on the basis that such promotional undertakings are within its objects. On the merits also, the Tribunal held that the expenses which were incurred by the assessee in the abortive projects were expenses incidental to their business and as such allowable revenue expenditure. It is against this finding of the Tribunal that the revenue sought the question that has been referred.
3. Among the objects of the company as seen from the memorandum were the following :
'3. (1) To purchase or otherwise acquire any patents, brevets and inventions, licences, concessions and the like conferring any exclusive or non-exclusive or limited right to use any invention or privilege, which may seem capable of being used for any of the purposes of the company or acquisitionof which ma seeem calculated directl or indirectly to benefit this compan and to use, exercise, develop or grantlicences in respect thereof, or otherwise turn to account the property and rights so acquired.
(m) To sell, exchange, mortgage (with or without a power of sale). assign, lease, sublet and generally deal with the whole or any part of the business, estates, property or undertaking of the company as a going concern or otherwise to any person or person, associations, or otherwise for such consideration as the company may think fit, and either for cash or for shares, debentures or securities for any other company having objects altogether or in part, similar to the object of this company and to hold or distribute among the members in specie or otherwise the whole or part of the consideration for such sale.
(n) To promote any company or companies for the purpose of acquiring all or any of the proprty or liabilities of this company or for any other purpoe, which may seem directly or indirectly calculated to benefit this company.'
4. It was also in evidence before the Tribunal that the assessee-company had promoted a number of companies like Seshasayee Paper Boards, Neyveli Ceramics, Insulators, Simco, Southern Asbestos Cement, Mettur chemicals and Industrial Corporation Ltd. etc., and that the company had also been investigating several projects including projects for the manufature of chemical plants, manufacture of asbestos sheets and pressure plants and newsprint paper mill projects. If the project materialised, the expenses were transferred and revovered from the new unit and the a ssessee secured th office of the managing agents or technical consultancy or the like and earned profits. If the projects were unsuccessful, the assessee-company was writing off the expenses. It is, in these circumstances, that the Tribunal was of he view that in the hands of a person whose business was the promotion of new ventures, the project expenditure was incidental to the business and that, therefore, it could not be treated as preliminary or capital in naure. We are in entire agreement with this view of the Tribunal. The purpose of incurring the expenditure has to be borne in mind in considering he question whether an expenditure of this type is capital or revenue. The managing agency was interested in increasing its own earnings or argumenting the commission it derived from the managed companies and if the amount is spent with the object of creating the possibilities of enlargement of its income, that will be an expenditure incidental to the business and, therefore, allowable as revenue expenditure. On the facts, therefore, there could be no doubt that the expenses incurred in this case were in the course of he business as promoters of companies or as managing agents and with a view to augment theri income.A similar view was taken in CIT v. J. K. Industries (P.) Ltd. : 71ITR594(Cal) . As such, the Tribunal was right in holdign that it is allowable revenue expenditure. We, accordingl, answer the reference in the affirmative and against the revenue. The assessee will be entitled to its costs. Counsel fee Rs. 500 one set.