IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No 44 of 1989 For Approval and Signature: Hon'ble MR.JUSTICE J.M.PANCHAL and Hon'ble MR.JUSTICE M.S.SHAH ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements? 2. To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- COMMISSIONER OF INCOME-TAX Versus INDUSTRIAL MACHINERY MFG. PVT LTD. -------------------------------------------------------------- Appearance: MR BB NAIK with MR MANISH R BHATT for Petitioner MR JP SHAH for Respondent No. 1 -------------------------------------------------------------- CORAM : MR.JUSTICE J.M.PANCHAL and MR.JUSTICE M.S.SHAH Date of decision: 25/01/2001 ORAL JUDGEMENT (Per : MR.JUSTICE M.S.SHAH) In this reference at the instance of the revenue, the following question is referred for our opinion in respect of assessment year 1983-84 :- "Whether the Appellate Tribunal is right in law and on facts in allowing deduction in respect of the foreign tour expenses of two employees ?" 2. We have heard Mr BB Naik, learned counsel for the revenue and Mr JP Shah, learned counsel for the assessee. 3. The controversy is in respect of expenses of Rs.1,54,779/- incurred by the respondent assessee for the foreign tour of two of its employees. The assessee is manufacturer of Humidifiers and industrial axial flow fans. The Board of Directors passed a resolution to depute the said employees for the tour for the following purposes :- (i) to explore the possibilities of exports of our equipment, (ii) to study the latest development in the products manufactured by us, and (iii) to seek the collaboration or an extension of technical know-how for the manufacture of Industrial Fans, Continuous Vacuum Filters and fabrication/manufacture of various types of Dryers. The Board of Directors also passed a resolution to bear the expenses of the said employees for the above tour. The assessee also produced copies of its application to the Reserve Bank of India in support of its contention alongwith the copy of the tour report for the tour which lasted from 23.1.1983 to 5.3.1983. The Assessing Officer, however, held that the foreign tour was for a double purpose of contacting foreign parties for negotiating collaboration in respect of purchase of machinery, technical know-how, etc. and to acquaint themselves with the matters of mutual interest and, therefore, he treated one half of the expenses as of revenue nature and the other half as of capital nature which was disallowed. The Commissioner of Income-tax (Appeals) confirmed the decision of the Assessing Officer. The Tribunal, however, allowed the appeal by applying the decision of this Court McGaw Ravindra Laboratories case (132 ITR 401) and after observing that the items for which the two employees had gone to foreign tour are quite similar or atleast incidental to the existing line of manufacture of the assessee and, therefore, no part of the tour expenditure can be disallowed. 4. At the hearing of the reference, Mr BB Naik, learned counsel for the revenue submitted that the assessee was manufacturing humidifiers and industrial axial flow fans and, therefore, the other items like continuous vacuum filters and fabrication of dryers must be considered to be new machinery and that applying the principles laid down by this Court in McGaw Ravindra Laboratories (Supra), the Tribunal ought to have confirmed the decision of the Assessing Officer and the CIT(A) and ought to have disallowed one half of the tour expenses as capital expenditure. 5. Having heard the learned counsel for the revenue and having perused the orders of the Assessing Officer, the Commissioner (Appeals) and the Tribunal, we are of view that the findings given by the Tribunal are on questions of fact. There is no dispute about the fact that the industrial fans and dehumidifiers were the existing products of the assessee Company. The Tribunal has correctly applied the test as laid down by this Court in McGaw Ravindra Laboratories that if the items are new, the expenditure cannot be allowed but if they are similar, the expenditure should be allowed. The Tribunal has given a finding of fact that the disputed items are quite similar or atleast incidental to the existing line of the products beings manufactured by the assessee. Looking to the nature of the existing products and the products for which the foreign tour was undertaken, the finding of the Tribunal can not be said to be perverse. In view of this finding of fact, we are of the view that the Tribunal was right in allowing deduction in respect of the foreign tour expenses of the two employees. 6. We accordingly answer the question in the affirmative i.e. in favour of the assessee and against the revenue. The reference stands disposed of accordingly with no order as to costs. (J.M. Panchal, J.) (M.S. Shah, J.) sundar/-