Gujarat High Court
Mc Gaw Ravindra Laboratories vs Commissioner Of Income-Tax on 22 June, 1993
Equivalent citations: [1994]207ITR239(GUJ)
JUDGMENT
1. The Income-tax Appellate Tribunal, Ahmedabad, has referred the following question to this court under section 256(1) of the Income-tax Act, 1961 :
"Whether, on the facts and in the circumstances of the case, expenditure of Rs. 25,077 incurred by the assessee-company in respect of foreign tour of its general manager, Shri Iyer, in June-July 1970, is capital expenditure or whether it is revenue expenditure as contended by the assessee ?"
2. The assessee's general manager was sent on a foreign tour during June-July 1970, for negotiations for a new collaboration agreement with Dade Reagent of U. S. A. which company was one of the subsidiaries of the American Hospital Supply Corporation with whom the assessee-company had a collaboration agreement for the purpose of manufacturing intravenous infusion solution and blood administration sets. The expenditure incurred for that purpose was Rs. 25,077. The assessee claimed this expenditure as revenue expenditure on the ground that the said expenditure was incurred merely for the purpose of diversifying the manufacturing activity of the assessee and was not incurred for the purpose of starting a new business activity. The Income-tax Officer considered that expenditure to be of capital nature and assessed the assessee accordingly. The assessee preferred an appeal to the Appellate Assistant Commissioner who agreed with the view taken by the Income-tax Officer and dismissed the appeal so far as this claim was concerned. The assessee then approached the Tribunal but again failed. It, therefore, moved the Tribunal for referring the abovestated question to this court.
3. What is contended by learned counsel for the assessee is that the assessee had already a technical collaboration with McGaw Ravindra Laboratories (Inc.) U. S. A., which is a unit of the American Hospital Supply Corporation. The assessee wanted to diversify its business and wanted to enter into a technical collaboration agreement with another subsidiary of American Hospital Collaboration, viz., Dade Reagent. He further submitted that by the new collaboration agreement, the assessee wanted to manufacture blood grouping sets. It was already in the line inasmuch as it was already manufacturing blood administration sets and intravenous infusion solution and plastic disposable solution. In view of these facts, according to him, the assessee cannot be said to have embarked upon a new project for manufacturing a new product.
4. In order to appreciate the contentions raised on behalf of the assessee, what is required to be borne in mind is that it is found as a matter of fact that the assessee wanted to enter into an agreement for technical collaboration with Dade Reagent, whereas its earlier technical collaboration agreement was with McGaw Ravindra Laboratories (Inc) U. S. A., though both of them happen to be subsidiaries of the American Hospital Supply Corporation. It is also found as a matter of fact that the product which the assessee wanted to manufacture by entering into an agreement for technical collaboration was of a special nature. It wanted to manufacture the said product in order to compete in the international market and earn foreign exchange also. A new plant was required to be set up for that purpose. Thus, the expenditure which was incurred by the assessee was not for the purpose of improving its existing business, but was for the purpose of a new product. In respect of this very product and for the same purpose, the assessee's managing director had undertaken a foreign tour in the financial year ending March 31, 1967. An identical question arose during the assessment proceedings for that year wherein it was conceded that the expenditure incurred in connection with the foreign tour of the managing director was in connection with establishment of a unit for manufacturing a new product. The assessee, therefore, cannot now be permitted to say that expenditure incurred during the relevant assessment year was not in connection with a new product but was for the purpose of its existing business. Therefore, we need not consider the contention raised on behalf of the assessee as to what should be regarded as revenue expenditure and what should be regarded as capital expenditure in view of the rapid advances made by science. In view of the findings of fact recorded by the authorities, we are of the view that the Tribunal was right in holding that the expenditure of Rs. 25,077 incurred by the assessee in respect of the foreign tour of its general manager in June-July 1970, is capital expenditure. We, therefore, answer the question accordingly. The reference is disposed of accordingly. No order as to costs.