Foreign tour expenses of managing agent treated as revenue expenditure where outlay served business commission income.

Foreign tour expenses incurred by a managing agent's director were held to be revenue expenditure because the proper test was the nature and object of the outlay. Expenditure to acquire an asset or enduring advantage is capital, while expenditure incurred for running the business and earning profits is revenue. The court focused on the assessee's purpose in improving the managed companies to increase its own commission income. Any enduring benefit to the managed companies did not make the expense capital in the hands of the managing agent. The expenses were therefore allowable as business expenditure.

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Issues: Whether the foreign tour expenses incurred by the assessee for the managing agent's director were capital expenditure or expenditure laid out wholly and exclusively for the purpose of the assessee's business.

Analysis: The relevant test is the nature and object of the expenditure. Expenditure incurred to acquire or bring into existence an asset or advantage of enduring benefit is capital in character, whereas expenditure incurred for running the business and earning profits is revenue. The court treated the assessee as a managing agency company and held that the proper inquiry was the purpose for which it incurred the expenditure, namely, to improve the managed companies so as to increase its own commission income. The fact that the managed companies may have derived an enduring advantage did not make the expenditure capital in the hands of the managing agent.

Conclusion: The foreign tour expenses were not of a capital nature and were allowable as business expenditure; the question was answered in the affirmative, in favour of the assessee.

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