1983-VIL-61-ITAT-

Equivalent Citation: ITD 005, 349, TTJ 019,

Income Tax Appellate Tribunal BOMBAY

Date: 11.05.1983

HINDUSTAN HOSIERY INDUSTRIES.

Vs

FIRST INCOME-TAX OFFICER.

BENCH

Member(s)  : S. N. ROTHO., T. A. BUKTE.

JUDGMENT

Per Shri S.N. Rotho, Accountant Member --- This appeal has been filed by the assessee against the order dated 21-9-1981 of the Commissioner (Appeals), relating to the assessment year 1979-80, the previous year of which ended on 31-12-1978.

2. The assessee is a partnership firm deriving income from business in the manufacture and sale of hosiery goods. The only dispute in this appeal states that the Commissioner (Appeals) erred in law in not allowing deduction of a sum of Rs. 36,786 spent on account of the management and training expenses of one of the partners, even though a similar expense was allowed by the Tribunal in the immediately preceding assessment year.

3. The assessee had five partners, consisting of a mother and her four sons. In the preceding assessment year, the youngest son, namely, Vijay Kumar, went to the United States for training in Business Management. By the time he left for the said studies, he was already a partner in the assessee-firm for two years. A sum of Rs. 60,678 was spent which was disallowed by the ITO on the ground that it had nothing to do with the business carried on by the assessee. On appeal, the Commissioner (Appeals) had confirmed the same. On further appeal, the Tribunal by their order dated 25-11-1980 in IT Appeal No. 2550 (Bom.) of 1979 considered the claim of the assessee and came to hold that the expense under consideration was for the purpose of the business carried on by the assessee-firm, and that it was neither personal nor capital in nature. Hence, they allowed the sum of Rs. 60,678 as revenue expense in the assessment year 1978-79. In the subsequent assessment year 1979-80, which is now under consideration, the assessee claimed a sum of Rs. 36,786 as expense for the same purpose, namely, the education and training of one of the partners in Business Management in the United States. The ITO disallowed the claim of the assessee on the ground that the department had not accepted the decision of the Tribunal.

4. The assessee appealed to the Commissioner (Appeals) and contended that its claim should have been accepted on the basis of the decision dated 25-11-1980 of the Tribunal for the earlier assessment year. The Commissioner (Appeals), however, did not agree. According to him, the Tribunal relied on the decision in the case of CIT v. Natwarlal Tribhovandas [1973] 87 ITR 703 (Guj.) which was not applicable to the facts of the case. Secondly, the Tribunal had not considered the decision in the case of Travancore Titanium Product Ltd. v. CIT [1966] 60 ITR 277 (SC) on which the case of the revenue rested. According to the Commissioner (Appeals), the facts of the case came within the ratio of Travancore Titanium Product Ltd., and so he found it difficult to follow the decision of the Tribunal. He further observed that there was no direct connection between the expense under consideration and the business carried on by the assessee and in this respect, the finding of the Tribunal was erroneous and could not be accepted. Apart from the above, he observed that the interest of the business carried on by the assessee would have been equally served if the young partner had gone for higher education at his own cost, or had not gone at all. According to him, the real issue was whether the expenditure incurred was spent wholly and exclusively for the purpose of the business, carried on by the assessee during the previous year under consideration, and in this respect the finding of the Tribunal given in the earlier year was not acceptable to him. Hence, in all humility and with due respect to the order of the Tribunal for the earlier year, he confirmed the action of the ITO and dismissed the appeal.

5. Shri V.H. Patil, the learned representative for the assessee, urged before us that the Commissioner (Appeals) erred in his decision. He stated that the learned Commissioner (Appeals) was bound by the decision of the Tribunal, which was a higher forum in the hierarchy of the appellate authorities under the Income-tax Act, 1961 ('the Act'). He referred, in this connection, to the decision of the Supreme Court in the case of CWT v. Aluminium Corporation of India Ltd. [1972] 85 ITR 167, in which it has been held that the High Court was bound by the orders of the Supreme Court and could not entertain or express any arguments or views challenging their correctness. Judicial tradition and propriety requires the High Court not to attempt to sit on judgment over the decisions and orders of the Supreme Court. Shri V.H. Patil urged before us that by the same analogy, the Commissioner (Appeals) erred in not following the earlier order of the Tribunal, insofar as judicial propriety is concerned. He then referred us to the decision in the case of CIT v. L.G. Ramamurthi [1977] 110 ITR 453 (Mad.), in which it has been held that a Tribunal should not come to a conclusion entirely contrary to the one reached by another Bench of the same Tribunal on the same facts. He urged that the facts and circumstances during the year under consideration remained exactly the same as in the preceding year, which were considered by the Tribunal in their order dated 25-11-1980. Next, he pointed out that it was incorrect to say that the Tribunal did not consider the decision in the case of Travancore Titanium Product Ltd. because the same has been referred to in para 2 of the order dated 25-11-1980 of the Tribunal. Besides, in paragraph 4 of the order of the Tribunal, it has been observed :

" It is not necessary, in our opinion, to deal with the various decisions cited at the Bar as the decision of the Gujarat High Court in CIT v. Natwarlal Tribhovandas [1973] 87 ITR 703 would help us to resolve the controversy in a satisfactory manner. "

He pointed out that the Tribunal in the last paragraph of their order have clearly found that the expense under consideration was incurred for the purpose of the business carried on by the assessee, and that the same was neither capital nor personal in nature. They have, no doubt, relied on the decision of the Gujarat High Court in the case of Natwarlal Tribhovandas, but their decision is essentially a decision on factual matters. Coming to the merits, he urged that the education in Business Management by the partner was very useful to the business carried on by the firm, because, now-a-days, any business can be successfully carried on in the highly competitive economy only if it applies the scientifically tested principles of Business Management. He pointed out that the assessee was engaged during the previous year only in the manufacture of hosiery, but it could start any new line of business it deemed fit in future. Again, the knowledge about sound Business Management applied to every business including the one carried on by the assessee. It is, therefore, not correct to say that the knowledge acquired by the partner had no connection with the business carried on by the assessee. He, then took us through the decision in the case of Natwarlal Tribhovandas and pointed out that the facts and circumstances of the case before us were similar to that reported case. In this connection, he also referred to the decision in the case of CIT v. Royal Calcutta Turf Club [1961] 41 ITR 414 (SC), wherein the expenditure incurred for running a school for training jockeys by a Turf Club was allowed as revenue expenditure, because it was spent for the preservation of the business, and was also incurred wholly and exclusively for the purpose of the business of the assessee.

6. Shri G. Krishnan, the learned representative for the department, on the other hand, supported the order of the Commissioner (Appeals). He stated that the decision in the case of Travancore Titanium Product Ltd. laid down certain principles, namely, that there should be a direct connection between the expense and the business carried on by the assessee. According to Shri G. Krishnan, this crucial test was not satisfied in this case, and the same was not properly presented before the Tribunal in the earlier year. While stating before us that the Commissioner (Appeals) did not mean any disrespect to the earlier order of the Tribunal, he urged before us that the earlier decision requires reconsideration in the light of the decision in the case of Travancore Titanium Product Ltd.. In the alternative, he urged that the expense has to be considered as a capital expenditure. He placed his contention before us on the authority of rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963. Further he referred to the decision in the case of B.R. Bamasi v. CIT [1972] 83 ITR 223 (Bom.) wherein it has been held that the assessee is entitled to raise a new ground of law which does not necessitate any other evidence to be recorded even though he is not in appeal. He urged that the principle of res judicata is not applicable to the proceedings before the Tribunal, and so, the earlier decision of the Tribunal required reconsideration in the light of the new pleadings now raised before us.

7. Shri V.H. Patil replied that the department was precluded from raising a new ground at this stage to the effect that the expenditure should be regarded as capital, particularly when the Tribunal has already recorded a finding in the earlier year that the expenditure was not capital in nature. The department had not come up in any cross appeal. According to him, rule 27 of the Appellate Tribunal Rules did not apply to the facts of this case. Further, he stated that in view of the decision in the case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC), the expenditure under consideration cannot be said to be capital in nature. Finally, he referred to the decision in the case of Sassoon J. David & Co. (P.) Ltd. v. CIT [1979] 118 ITR 261 (SC) for the proposition that an expenditure will be admissible if it is incurred wholly and exclusively for the purpose of the assessee's business, even though the said expense also enures to the benefit of a third party incidentally. His point was that merely because the partner himself was also benefited by the education which he received, it cannot be said that the business carried on by the assessee was not benefited by the new knowledge obtained by the partner by his studies abroad. He pointed out that the turnover of the assessee rose from Rs. 1,34,82,851 in 1977-78 to Rs. 2,75,23,518 in 1982-83.

8. We have considered the contentions of both the parties as well as the facts on record. We may state that we do not propose to go into the propriety of the action of the Commissioner (Appeals) in not following the order of the Tribunal on the same point in the earlier year. Suffice it to say that in the absence of any new fact, the said decision of the Tribunal is binding on us in view of the decision in the case of L.G. Ramamurthi. We do not find any new facts during the year under consideration. The facts and circumstances of the year under consideration are exactly similar to those before the Tribunal in the earlier year. We also find that the Tribunal has indeed considered the decision in the case of Travancore Titanium Product Ltd. It is true that the said decision has later been overruled by the Supreme Court in the case of Indian Aluminium Co. Ltd. v. CIT [1972] 84 ITR 735, but, as rightly pointed out by Shri G. Krishnan, the principles laid down in the case of Travancore Titanium Product Ltd. remained good law. Those principles relate to the tests by which the admissibility of an expenditure has to be decided. We find that training in modern Business Management is definitely beneficial to the carrying on of any business. The mere fact that the said training is beneficial to any business does not, in any way, obliterate the fact that it is beneficial to the particular business carried on by the assessee-firm. In our considered opinion, the expenditure under consideration incurred for the training of one of the young partners in the techniques of modern Business Management has been definitely incurred wholly and exclusively for the purpose of the assessee's business. The mere fact that it has incidentally benefited the partner himself is immaterial vide the decision in the case of Sassoon J. David. We, therefore, on a reconsideration of the facts of the case and the pleadings before the Tribunal when they passed the order for the earlier year, as well as the pleadings before us, come to the conclusion that according to the principles laid down in the case of Travancore Titanium Product Ltd. as well as Sassoon J. David's case, the expenditure under consideration has been incurred for the purposes of the assessee's business. Admittedly, it is not personal. We find force in the argument that rule 27 of the Appellate Tribunal Rules does not authorise to raise a new ground at this stage because that rule says that the appellant can support the order appealed against on a ground which has been decided against him. In this case, the Commissioner (Appeals) has not decided any such issue, namely, that the expenditure is not capital in nature. However, even admitting that such a question could be raised, we do not find any merit in the same. As has been held in the case of Empire Jute, any expenditure which brings an enduring benefit or advantage into existence is not a capital expenditure. In order to be capital expenditure, that expenditure should not only bring into existence a benefit of enduring advantage or benefit but the same should also be in the capital field. We find that the benefit even if considered to be enduring in nature, is not in the capital field of the assessee-firm and so it cannot be said to be capital in nature. We, therefore, agree with the order dated 25-11-1980 of the Tribunal in this regard also.

9. We have gone through the decision of the Gujarat High Court in the case of Natwarlal Tribhovandas. Shri G. Krishnan pointed out before us that the said decision was concerned with a different issue, namely, whether the income earned by the partner while studying abroad could be said to be earned income. It would be earned income if the partner was actively engaged in the conduct of the assessee's business. The High Court held that even while studying abroad and acquiring knowledge in the science of civil engineering, the assessee was actively engaged in furthering the interests of the firm engaged in the business of construction. According to Shri G. Krishnan, the issue involved therein was quite different. We have considered this contention but we do not agree. In that case, it has been clearly held that the knowledge gained by the assessee during his stay abroad which would ultimately benefit the firm and help it in carrying on the business more efficiently and also to expand its business was income earned while actively participating in the activities of the firm (sic). In that case, the expenditure has been allowed by the revenue under section 37 of the Act in the case of the firm itself, which fact proved that the expense was considered by the department as wholly and exclusively incurred for the purpose of the business, and was neither revenue nor capital in nature. In the present case also, the knowledge that the partner was gaining by his studies abroad was such that it would definitely benefit the business carried on by the assessee-firm and so, the expenditure in acquiring that knowledge had a direct nexus with the business carried on by the firm. This is evident from the increase in sales from the subsequent years. As a matter of fact, the benefit arising out of the acquisition of the aforesaid knowledge by the partner enured to the assessee-firm as the partner is still working with the said firm even today. Considering all the facts and circumstances of the case as well as the contentions raised by the department in the earlier year as well as before us, we come to the same conclusion that the expenditure under consideration is admissible under section 37. We, therefore, vacate the orders of the ITO and the Commissioner (Appeals) on this point and direct that the sum of Rs. 36,786 be deleted from the total income of the assessee-firm.

10. In the result, the appeal is allowed.

 

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