Capital expenditure on failed foreign collaboration for a proposed new manufacturing unit was not allowable as revenue expense.

Travelling expenses incurred to explore foreign collaboration for a proposed new manufacturing unit were held to be capital in nature because they were directed toward bringing into existence a new business line, not carrying on the existing business. No collaboration agreement was reached, the licence application was rejected, and the proposed manufacturing activity never commenced. The disallowance was therefore upheld as the expenditure was not allowable as revenue expenditure.

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Issues: Whether travelling expenses incurred for exploring foreign collaboration for setting up a proposed new manufacturing unit were allowable as revenue expenditure in the assessee's existing business.

Analysis: The expenditure was incurred to explore the possibility of collaboration for manufacture of gaskets, a line of activity that had not yet commenced. The negotiations did not result in any agreement, the licence application was rejected, and the proposed manufacturing activity never started. On these facts, the outlay was directed towards bringing into existence a new manufacturing business and not towards carrying on the existing business already being conducted by the assessee.

Conclusion: The expenditure was capital in nature and was not allowable as revenue expenditure; the disallowance was upheld.

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