Revenue expenditure for securing supply of an existing product remained deductible, as no new business or capital asset arose.

Travelling expenses incurred to secure a supply arrangement for rubber gaskets were treated as revenue expenditure because the technicians were engaged to study technical requirements, specifications and local conditions for marketing an existing product, not to create a capital asset or enter the capital field. The fact that the product was marketed in India for the first time did not by itself constitute a new business, since there was no new manufacturing venture. The deduction was therefore allowable in the relevant year, and the questions were answered against the Revenue and in favour of the assessee.

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Issues: (i) Whether the expenditure incurred on travelling expenses of foreign technicians for securing the supply arrangement for rubber gaskets was capital or revenue in nature; (ii) whether the supply of rubber gaskets constituted a new business so as to deny deduction of the travelling expenses for the year under consideration.

Issue (i): Whether the expenditure incurred on travelling expenses of foreign technicians for securing the supply arrangement for rubber gaskets was capital or revenue in nature.

Analysis: The activity involved marketing a product which the assessee was already capable of selling. The technicians were brought in to study technical requirements, specifications, and local conditions for completing the supply arrangement. No new manufacturing venture in India was undertaken, and the expenditure was not incurred for creating any capital asset or entering the capital field.

Conclusion: The expenditure was revenue expenditure and was allowable as a deduction.

Issue (ii): Whether the supply of rubber gaskets constituted a new business so as to deny deduction of the travelling expenses for the year under consideration.

Analysis: The assessee had not embarked upon a new business merely because it marketed a product in India for the first time. A first sale of an existing product does not amount to entry into a new business unless the product itself is manufactured for the first time. The travelling expenditure was incurred in relation to the business activity of supply of gaskets during the relevant year.

Conclusion: The supply of rubber gaskets was not a new business, and the expenditure related to the year under consideration remained deductible.

Final Conclusion: The questions referred were answered against the Revenue and in favour of the assessee, resulting in allowance of the deduction claimed.

Ratio Decidendi: Expenditure incurred to secure and complete the marketing or supply of an existing product, without creation of a capital asset or commencement of a new manufacturing venture, is revenue expenditure and deductible in the year in which it is incurred.

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