Dr. P. Vadamalayan vs Commissioner of Income Tax

Rajagopalan, J.—The assessee, a leading surgeon of Madurai with a lucrative practice, undertook a tour abroad in 1953, in the course of

which he visited a number of hospitals and clinics in the United States of America and the United Kingdom, to study the latest technique in surgery

and treatment. The tour cost him Rs. 19,538, the whole of which he claimed as a deduction u/s 10(2)(xv) of the income tax Act, in computing his

assessable income in the assessment year 1954-55. The income tax Officer disallowed the claim in its entirety. He held that the expenditure was of

a capital nature, incurred by the assessee to secure to himself a benefit of an enduring nature. The Assistant Commissioner differed and found that

no portion of the expenditure was of a capital nature. He, however, held that only one-half of the expenditure satisfied the test of having been

wholly and exclusively incurred for the purpose of the assessee''s profession. The other half was treated as the personal expenses of the assessee

while abroad. The Assistant Commissioner allowed a deduction of Rs. 9,769. The Department appealed to the Tribunal. The Tribunal agreed with

the income tax Officer that the expenditure of Rs. 9,769 was of a capital nature, but did not disturb the finding of the Assistant Commissioner, that

that half of the expenditure incurred by the assessee did satisfy the other requirement of section 10(2)(xv), that it had been incurred wholly and

exclusively for the, purposes of the assessee''s profession. The Tribunal recorded in its order on appeal:

The assessee''s case is that he, a specialised surgeon, undertook a study tour in advanced countries, so as to bring his already expert knowledge in

line with modern developments in his branch of surgery. It was not a study tour undertaken specifically with reference to or in connection with any

particular professional engagement or engagements of his, undertaken by him in the course of his carrying on of his profession in India. By

undertaking this tour, he hoped to perfect his surgical knowledge to stand him in good stead on his return to his native country in the competitive

field that he had to face. The mental equipment obtained by the tour is, therefore, of a general and enduring nature and the benefit of such tour is

expected to be far-reaching and not merely confined to a short span. The amount in question is, therefore, only capital in nature and not allowable

as a deduction u/s 10(2)(xv).

At the request of the assessee, the Tribunal referred the following question to this court u/s 66(1) of the Act:

Whether the outlay of Rs. 9,769 on the foreign tour of the assessee is capital in nature, not allowable as a deduction u/s 10(2)(xv)?

The scope of the question is limited to the issue whether the expenditure was of a capital nature. The amount involved is not in issue. It is Rs.

9,769, the amount estimated by the Assistant Commissioner. That the expenditure of that amount satisfied the other test of section 10(2)(xv) and

that it was expended wholly and exclusively for the purpose of the assessee''s profession as a surgeon, is not in issue either.

We do not propose to embark upon the task eminent Judges in England and India have declined consistently to undertake. We shall not attempt

to evolve a formula, infallible and of universal application, to decide what marks off revenue from capital expenditure either for a profession or for a

business. The dividing line in some cases may be thin, but it is a clear and perceptible one. Courts have always addressed themselves to the

comparatively less difficult task of deciding whether a given item of expenditure falls on one side or the other of that dividing line. We need not

embark either on a review afresh of the case-law on the subject, when practically nothing new can be added. The case-law was reviewed at length

by the Supreme Court in Assam Bengal Cement Co. Ltd. Vs. The Commissioner of Income Tax, West Bengal, .

It should be taken as well-settled that the question what is the inference to be drawn from the facts established in a given case, is the expenditure

of a capital nature, is a question of law.

The Tribunal obviously accepted the assessee''s claim, that he had undertaken the study-tour to bring the expert knowledge he already had in

line with modern developments in his branch of surgery, but the Tribunal held that the mental equipment which resulted from this tour was a benefit

of an enduring nature. Certainly the expenditure incurred by the assessee did not bring him any tangible asset, capital or otherwise. The question is,

whether an expenditure incurred by a surgeon to keep abreast of the latest technique of the profession in surgery and treatment is expenditure of a

capital nature. The expenditure was not incurred to initiate any new business or profession, nor even to enlarge the scope or character of the

profession that the assessee was already practising. He was and continued to be a surgeon, one of the leading surgeons of Madurai. The

expenditure was not incurred to obtain any additional qualifications to practise his profession. The Department could claim at best, in the

circumstances of this case, that the assessee incurred the expenditure to maintain his efficiency in his profession. As in the Australian case noted in

paragraph 1278 at page 440, in Gunn''s Commonwealth Income Tax Law and Practice, fourth edition, it would be much less correct to say that

the assessee gained an enduring benefit by his study-tour abroad than to say that he took steps to maintain his efficiency in his chosen profession as

a surgeon.

Suppose, a surgeon at Madurai, less fortunately placed than the assessee, incurred periodical expenditure for a. refresher course of study at a

place like Madras, surely it would be incorrect to view it as an expenditure of a capital nature incurred to obtain any enduring benefit. If, without a

defined refresher course, the surgeon periodically visited the larger institutions at Madras to study the technique and keep himself abreast of the

latest professional knowledge available, the expenditure he incurred for that purpose would not be expenditure of a capital nature. That he made

such a study at more places than one, say at Madras, Bombay and Delhi, can make no difference. That the study-tour was outside India, again,

could make no difference in the principle by which to judge whether the expenditure incurred was of a capital nature. All these would be cases of

expenditure incurred by the surgeon to maintain his efficiency, even if it resulted in a mental equipment which enabled him to carry on his profession

as a surgeon in a better and more scientific way.

During the arguments before us we were referred to passages in paragraphs 1277 and 1278 at pages 438 following, in Gunn''s Commonwealth

Income Tax Law and Practice, 4th edition. The reports of the cases on which those passages were based are not available, and that handicaps us.

The details of the cases are, however, instructive and help us to keep in view the distinction between expenditure incurred, for example, in

launching on a profession or adding to it, and expenditure incurred on gaining income from an existing professional practice. The latter is not

expenditure of a capital nature, and the doctrine of enduring benefit cannot apply to such an expenditure. It is in that class that the assessee''s claim

fell. It was not an expenditure of a capital nature. We answer the question in favour of the assessee. The assessee will be entitled to the costs of

this reference.