Commissioner of Income Tax vs Vaccum Concrete (Overseas) Co. Inc.

R. Jayasimha Babu, J.—The Tribunal in our view has rightly held that the marketing"" of rubber gaskets which are essential for laying

pipelines, an activity in which the assessee was engaged together with another company known as Mysore Structural Limited, did not constitute an

activity in the capital field and that the expenditure incurred for securing an order for the supply of the said gaskets and for entering into an

agreement with the buyer was a revenue expenditure.

The assessee is a Greek company which has its head office at Athens. The business of the assessee in India was to help the Indian company,

Mysore Structural Limited, in laying water pipelines in Dharwar, in the State of Karnataka. During the assessment year four technicians from the

head office of the assessee at Athens visited India with the object of securing the contract from Mysore Structural Limited, for supply of rubber

gaskets which are necessary in the laying of pipelines. It is not the case of the Revenue that the assessee had nothing to do with the rubber gaskets

that it was not engaged in the manufacture or sale of rubber gaskets.

The fact that the assessee though capable of selling rubber gaskets had hitherto not marketed the same in India does not imply that the assessee

had no intention of marketing that product. The fact that it located a customer during that year and for completing the arrangement with that

customer, it had to bring in technicians from Athens who apparently were required to study the technical requirements in the field and the nature

and specifications of the gaskets to be used and the local conditions and the nature of user to which the pipelines were to be put does not imply

that this activity was an activity in the capital field. A business which is capable of vending more than one product, when it embarks on the first sale

of one of its products which it had not marketed earlier does not enter the capital field unless that product is manufactured for the first time by that

assessee. It is not the Revenue''s case that the assessee embarked on the manufacturing of rubber gaskets in India and incurred capital expenditure

for that purpose. All that it did was to market a product which it was capable of marketing, and the expenditure incurred in relation to that activity

was clearly revenue expenditure and not capital expenditure.

The question referred to us at the instance of the Revenue which concerns the assessment year 1978-79, the questions being (1) whether, on the

facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the business of supply of rubber gaskets was not a new

business and, therefore, the sum of Rs. 70,639 being the travelling expenses incurred on the foreign technicians from Athens should be allowed as

a deduction ? and (2) whether the Appellate Tribunal''s view that the travelling expenditure relates to the year under consideration and should be

allowed as a deduction in this year is sustainable in law ? are answered against the Revenue and in favour of the assessee.