RAJAGOPALAN, J. - The questions referred to this court under section 66(1) of the Income-tax Act were :
'1. Whether on the facts and in the circumstances of this case the sum of Rs. 14,625 representing expenses of the foreign tour of one of the directors is allowable as a proper deduction from the assessable profits under section 10(2)(xv) of the Indian Income-tax Act ?
'2. (a) Whether, on the facts and circumstances of the case, the sum of Rs. 41,000 received by the assessee company is exempt under section 4(3)(vii) of the Income-tax Act ?
(b) If the answer is in the negative, whether it is assessable under the head business under section 10 or under the head capital gains under section 12B of the Indian Income-tax Act ?'
With reference to the first question, the facts found were that Mr. Raman who was one of the directors of the assessee firm was deputed by the Mettur Chemical & Industrial Corporation Ltd. of which the assessee firm was the managing agent, to attend a conference of Chemical Manufacturers in London. The corporation bore the expenses of Raman to the extent of Rs. 9,995. The assessee company claimed that advantage was taken of this opportunity to depute Raman to visit other countries and acquaint himself with the manufacturing conditions. The assessee company, it should be remembered, was the managing agent not only of the Mettur Chemical and Industrial Corporation but of various other concerns. Chemicals were not the only line of business in which the assessee company interested itself. Unfortunately, the assessee company failed to furnish any material from which either the Department or the Tribunal could decide what was the object of the visits Mr. Raman was either deputed to undertake or naturally undertook while abroad. No decided onubt the Tribunal was, in our opinion, not correct when it observed that the experience, if any, gained by Mr. Raman by his tour abroad was a benefit of an enduring nature, and that the expenditure incurred should be one a capital nature. Nor can we attach any great importance to the fact, that Mr. Raman did not furnish the assessee company with a written report of what he had done abroad. If the assessee company was satisfied with what Mr. Raman had done, it was not for the Department to point out that there had been no written report by Mr. Raman in the interests of the company, and that the expenses incurred satisfied the tests prescribed by section 10(2)(XV) of the Act. The assessee company did not even furnish details of the places visited by Mr. Raman in the United Kingdom, Switzerland, Canada or the United States. Whether the trip was in part or in whole for pleasure, the Department was not in a position to gauge. In the absence of materials the Department and the Tribunal were certainly justified in coming to the conclusion, that the assessee had failed to establish the requirements of section 10(2)(XV) with reference to this item of expenditure of Rs. 14,625. We therefore, answer the question in the negative and against the assessee.
With reference to the second question the relevant facts were as follows. The assessee company in association with Ravindra Mulraj and Dharmsey Mulraj Khatau constituted a firm under the name and style of Ravindra Mulraj and Co. It was formed to promote the manufacture of vanaspathi products. A license was obtained form the Government of India by that firm for that purpose. Finding that the future of vanaspati was uncertain, Ravindra Mulraj and the assessee company withdraw from the project. The license was surrendered to another group, in which no doubt Dharmsey Mulraj Khatau still figured, and in exchange for the license that was traded in the partnership, got a sum of Rs. 1 lakh. Ravindra Mulraj was in charge of these negotiations. A sum of Rs. 18,000 had been expended, and deducting that, Rs. 82,000 was available for division amongst the partners from out of Rs. 1 lakh that had been realized by selling the license. Since Dharmsey Mulraj Khatau was one of the group which had taken over the license and the right to start manufacture of vanaspati, he was not given any share in the sale proceeds. The net sale proceeds of Rs. 82,000 were divided between Ravindra Mulraj and the assessee company. The assessee company thus got Rs. 41,000 for its share. The payment was received in April, 1946. When precisely the license was sold there was no evidence to indicate and apparently the assessee declined to avail itself o the opportunities to place that evidence on record.
The Income-tax Officer treated it as a trading receipt and brought it to tax. The Assistant Commissioner to whom the assessee appealed held it was a capital receipt assessable to tax under section 12B of the Act. Both the assessee and the Department appealed against that finding of the Assistant Commissioner. The Tribunal held, agreeing with the Income-tax Officer, that it was a trading receipt in the hands of the assessee. That led to the formulation of the second question we have set out above.
If only to eliminate it, we have to point out that it was not the case of the Department at any stage, that the acquisition of the licence by the firm of Ravindra Mulraj, Dharmsey Khatau and the assessee firm was an adventure in the nature of trade, and that the apparent formation of a company and the acquisition of licence were effected with the intent to sell the licence at a profit. It should also be noticed that the Department and the Tribunal accepted the contention of the assessee, that in that firm the active partner was Ravindra Mulraj.
There was certainly no evidence to indicate that either the partnership or the assessee company did any business in promoting companies or in obtaining and selling licences for manufacture of products. The Tribunal observed in its order on appeal :
'This is one of the business lines of the assessee. it cannot certainly be called casual. it is in its regular course of business as promoter and managing agents of the company.'
we must confess we are unable to understand what precisely the Tribnal meant. We have pointed out here was no evidence to come to any possible conclusion, that one of the lines of the business of the assessee company was to promote companies and to sell out after the companies had been formed. Nor was it one of the regular lines of business of the assessee company to acquire licences or permits and sell them. Nor even was it a regular line of business of the assessee company to acquire managing agencies and sell them. though we must point out in this case no case of acquiring and selling any managing agency in return for the receipt of Rs. 41,000 could arise of consideration.
That the licence which the partnership, of which the assessee company was a member, was a valuable asset and a capital asset in its hands could admit of no doubt. That capital asset was sold for a sum of rupees one lakh. Rs. 41,000 which the assessee received, represented its share of that receipt. It was a capital receipt in its hands, and in our opinion, the Assistant commissioner was right in the view he took, that being a capital receipt it fell within the scope of section 12B of the Act. It was not assessable to tax as a trading receipt.
Before the Tribunal, an attempt was made by the assessee to establish that section 12B could not apply, because the profits had accrued prior to 1st April, 1946, after which date alone there was a statutory liability to pay the tax on capital gains. We have pointed out earlier that there was no evidence to show when precisely the licence was sold. Nor was there anything to show when the assessees share of the profits accrued, independent of the actual receipt of Rs. 41,000. All what we know is that Rs. 41,000 was received after 1st April, 1946, and assessee failed to show that it had accrued to it at any point of time anterior to 1st April, 1946. The Assistant Commissioner was, therefore, right in holding that the provisions of section 12 B applied to the receipt of this item of Rs. 41,000.
From what we have said above it should be obvious that the claim of the assessee, that it was entitled to the benefit of section 4(3)(vii), is erroneous. It was in connection with the business activities of the assessee that the assessee received this sum of Rs. 41,000. That it was a capital receipt in its hands did not make it any the less income from business, and it certainly could not be treated as something of a casual receipt or windfall. We answer question 2(a) in the negative and against the assessee. Our answer to question 2(b) is that Rs. 41,000 was assessable to tax as capital gains under section 12B of the Indian Income-tax Act.
As neither the assessee nor the Department has wholly succeeded in this reference there will be no order as to costs.