Judgment:
M.B. Shah, J.
1. At the instance of the assessee, Shahibag Entrepreneurs Private Limited, Ahmedabad, the Income-tax Appellate Tribunal has referred the following question for our opinion :
'1. Whether, on the facts and in the circumstances of the case, the foreign tour expenses to the turn of Rs. 1,61,827 were not allowable as revenue expenses?
2. Whether, on the facts and in the circumstances of the case, the weighted deduction under 35B was not allowable in respect of items totalling up to Rs. 1,21,000?'
2. The aforesaid questions of law arise in the background of the following facts :
In the return of income for the assessment year 1972-73, the assessee claimed deduction of various expenses including the deduction of expenses incurred for foreign tours undertaken by the director and the employees of the assessee-company for the purpose of establishing joint venture units in countries such as Malaysia, Indonesia, Philippines, Mauritius, Nigeria, Nairobi, Kenya, etc. The Income-tax Officer disallowed the said claim and the Appellate Assistant Commissioner of Income-tax confirmed the said disallowance.
3. Being aggrieved by the orders of the authorities below, the assessee preferred Appeal No. 220/(Ahd.) of 1977-78, before the Income-tax Appellate Tribunal. After appreciation the evidence on record, the Tribunal disallowed the claim of the assessee for the expenses incurred for undertaking foreign tours in those cases where they were undertaken for the purpose of setting up joint venture units in the foreign countries with the collaboration of the assessee-company. This aspect is discussed by the Tribunal in detail in paragraph 5 of its judgment and order dated October 31, 1979.
4. Therefore, the question is : when the assessee has incurred expenses towards foreign tours for setting up new joint venture unit in foreign countries in collaboration with the Government or other persons, can it be said to be of revenue nature or of capital nature? The Tribunal held that the said expenditure would be of capital nature. In our view, the said finding of the Tribunal is justified on the facts and in the circumstances of the present case, because it is not dispute by the assessee that the expenses were incurred for setting up new joint venture units in the foreign countries in collaboration between the assessee-company and the Government or some other persons.
5. A similar question is dealt with by this court in the case of McGaw-Ravindra Laboratories (India) Ltd. v. CIT [1994] 210 ITR 1002. In that case also, the assessee-company incurred expenses for foreign travel of its employees for exploring the possibility of establishing a joint venture unit in Malaysia and claimed deduction of the said expenditure. The court held that there was nothing on record to indicate that business organisation, administration fund of both the units were to be common and in fact from the facts of that case it was clear that the business organisation, administration and funds of the assessee's unit in India and the proposed unit in Malaysia were not going to be common. There was not going to be complete inter-connection, interlacing and interdependence of both the units. The court, therefore, held that it is difficult to say that the manufacturing unit, which was to be started in Malaysia, was part of the existing business of the assessee and, therefore, the business, which was going to be established in Malaysia, could not be said to be a continuation of the business of the assessee. The unit in Malaysia was going to be a new and independent unit. The court held that the expenditure incurred for the foreign travel for exploring the possibility of establishing a joint venture until in Malaysia could not be said to be revenue in nature. The expenditure was capital in nature, as rightly held by the Tribunal.
6. In the present case also, the facts are similar. It is not the case of the assessee that the foreign tours have been undertaken by the director and the employees of the assessee-company for establishing its units in the foreign countries. The units which were to be established in the foreign countries were to be established as joint ventures in the foreign countries by the assessee-company with the collaboration of the Government and/or other persons. The said units were not going to be part and parcel of the existing unit of the assessee-company and, hence, the Tribunal has rightly arrived at the conclusion that the expenditure incurred by the assessee-company for exploring the possibility of establishing the joint venture units in foreign countries was capital in nature and could not be said to be revenue in nature.
7. In this view of the matter, question No. 1 is answered in the affirmative, i.e., in favour of the Revenue and against the assessee, by holding that the foreign tour expenses to the tune of Rs. 1,61,827 were not allowable as revenue expenses.
8. Question No. 2 :
9. The answer to question No. 2 is dependent upon the answer to question No. 1. Under section 35B(1)(a) of the Income-tax Act, it is specifically provided that export markets development allowance would be granted if it is not in the nature of capital expenditure or personal expenses of the assessee. As we have held that the expenditure incurred of foreign tours was in the nature of capital expenditure, the assessee was not entitled to get weighted deduction under section 35B of the Income-tax Act. Hence, the Tribunal has rightly held that the said deduction was not allowable. Hence, question No. 2 is answered in the affirmative, i.e., in favour of the Revenue and against the assessee.
10. In the result, the reference stands disposed of accordingly with no order as to costs.