P.D. Mulye, J.
1. By this reference under Section 256(1)of the I.T. Act, 1961, the Income-tax Appellate Tribunal, Indore, at the instance of the assessee, has referred the following questions of law to this court for its opinion:
' 1. Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the expenditure on repairs to the extent of Rs. 90,000 was capital in nature ?
' 2. Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the amount of Rs. 93,100 expendedby the assessee in the purchase of know-how relating to the existing line of business was capital in nature '
2. The facts giving rise to this reference as per the statement of facts furnished by the Tribunal are as under :
The assessee is a company engaged in the manufacture of densified impregnated and laminated wood products and boards and components. The assessment year concerned is the assessment year 1975-76, the previous year being the year ended September 30, 1974.
3. The assessee had during the relevant year incurred an expenditure of Rs. 1,73,935 by way of repairs and maintenance of buildings which they had purchased by a registered sale deed on February 11, 1974, prior to which they were occupying the premises as a tenant from October 1, 1963. Two major items included in this expenditure were replacement of three inch pipeline from BHEL pipeline to factory building of the assessee at a cost of Rs, 34,234 and on water proofing of two staff quarters and residential buildings for breaking the existing treatment on terrace and treating the terrace with water proof compound including break-bat coba, etc., amounting to Rs. 52,200. In making the assessment, the ITO disallowed these two sums as well as two other sums of 2,000 being cost incurred in replacing the A.C. sheets in factory building and Rs. 11,801 out of labour charges. The ITO rounded off the disallowance to Rs. 1,00,000.
4. During the relevant accounting period the assessee, in terms of agreement dated October 17, 1973 (annexure-D), between Permali Ltd., U.K. and the assessee, incurred an expenditure of Rs. 93,100 (equivalent to 5,000) towards purchase of know-how for manufacture of fibre glass laminates and cast epoxies. It was the assessee's contention that the final product obtained by the assessee-company by using the know-how so acquired was the same as was being produced by the assessee-company by adopting the earlier method of production by a different process that was in vogue. It was also its contention that the assessee continued the manufacture and production of the final product by both these methods. In the assessment framed by the ITO for the assessment year 1975-76, he disallowed both these items of expenditure.
5. On an appeal filed by the assessee, the Commissioner of Income-tax (Appeals) confirmed the disallowance of both these items. Against the said decision of the Commissioner of Income-tax (Appeals), the assessee filed a second appeal before the Tribunal before which it was contended that the expenditure on 'repairs was revenue expenditure being in the nature of current repairs. The Tribunal allowed the expenditure of Rs. 2,050 on replacement of A.C. sheets and Rs. 7,801 out of labour charges. In other words, the sums of Rs. 34,234, Rs. 52,200 and out of labour charges a sumof Rs. 4,000 were disallowed as of capital nature and the Tribunal rounded off the amount to Rs. 90,000. Hence, this reference.
6. According to the learned counsel for the petitioner, the expenditure incurred by him on repairs was a revenue expenditure and not a capital expenditure. According to the learned counsel, these repairs were carried out after the petitioner-assessee had purchased the said property prior to which they were occupying the same as a tenant. The learned counsel for the petitioner contended that the view taken by the Commissioner of Income-tax (Appeals) as also by the Tribunal that if these expenses had been incurred by the seller, the same would have been added to the purchase price and, consequently, it would have added to the price at which the petitioner purchased the same and, thus, in that case, his cost of expenditure together with the purchase price at which the petitioner-assessee purchased the same would have been included as a capital expenditure is not a correct proposition of law, because the nature of expenditure carried out by the petitioner, though for the benefit of the petitioner-company, would not be included in the capital expenditure but will have to be included as revenue expenditure because change of roof and replacement of pipeline, which had got damaged, were such repairs which were required to be carried out by the petitioner and, consequently, the same have been wrongly treated as a capital expenditure and in support of his submission, he placed reliance on the decisions reported in CIT v. Wheels India Ltd. : 141ITR745(Mad) , CIT v. Ciba of India Ltd. : 69ITR692(SC) ; Kanpur Dyeing & Printing Co. v. CIT : 75ITR686(All) , CIT v. Sri Rama. Sugar Mills Ltd. : 21ITR191(Mad) and CIT v. Kalyanji Mavji & Co. : 122ITR49(SC) .
7. On the other hand, on this point, the learned counsel for the Revenue placed reliance on the decisions reported in Ratlam Bone Mills v. CIT : 147ITR148(MP) and Gulamhussein Ebrahim Matcheswalla v. CIT : 97ITR24(Bom) , and contended that as the expenditure incurred by the petitioner is for an enduring benefit, the same has been rightly treated by the Tribunal to be capital expenditure.
8. The Supreme Court in the decision in L.H. Sugar Factory and Oil Mills (P.] Ltd. v. CIT : 125ITR293(SC) , has held that an expenditure incurred by an assessee can qualify for deduction under Section 10(2)(xv) of the Indian I.T. Act, 1922, only if it is incurred wholly or exclusively for the purpose of his business, but even if it fulfils this requirement it is not enough ; it must further be of revenue as distinct from capital nature. If the advantage consists merely in facilitating the assessee's business operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixedcapital untouched, the expenditure would be on revenue account even though the advantage may endure for an indefinite future.
9. Applying this test, it would appear that in the present case the repairs carried out by the petitioner would not strictly come under the purview of renovation. The cardinal rule is that the question whether a certain expenditure is on capital or revenue account should be decided from the practical and business view-point and in accordance with accountancy principles and this rule is of special significance in dealing with expenditure on expansion and development of business. It is not the law that, in every case, if an enduring advantage is obtained, the expenditure for securing it must be treated as a capital expenditure. Therefore, after going through the case law cited, we are of the opinion that considering the facts and circumstances of the case, the expenditure incurred by the petitioner on repairs has to be treated as revenue expenditure and not capital expenditure.
10. As regards the amount of Rs. 93,100 expended by the assessee in the purchase of ' know-how ' relating to the existing line of business, the case law on this point is now quite clear according to which it has been held by several decisions mentioned below that it has to be treated as a revenue expenditure and not a capital expenditure : CIT v. Wheels India Ltd. : 141ITR745(Mad) , ACC-Vickers Babcock Ltd. v. CIT : 103ITR321(Bom) , Agarwal Hardware Works P. Ltd. v. CIT : 121ITR510(Cal) , CIT v. Oblum Electrical Industries P. Ltd. : 127ITR409(AP) , Shriram Refrigeration Industries Ltd. v. CIT : 127ITR746(Delhi) , Indian Telephone Industries Ltd. v. CIT : 117ITR682(KAR) , Mysore Kirloskar Ltd. v. CIT : 114ITR443(KAR) , CIT v. Tata Engineering & Locomotive Co. P. Ltd. : 123ITR538(Bom) and Praga Tools Ltd. v. CIT : 123ITR773(AP) . Thus, we are unable to agree with the reasoning given by the Tribunal in deciding these two points against the assessee.
11. In the result, this reference is decided in favour of the assessee and against the Department. Our answer to question No. 1 is that--
1. On the facts and in the circumstances of the case, the Tribunal has erred in law in holding that the expenditure on repairs to the extent of Rs. 90,000 was capital in nature.
Similarly our answer to question No. 2 is that--
2. On the facts and in the circumstances of the case, the Tribunal has erred in law in holding that the amount of Rs. 93,100 expended by the assessee in the purchase of know-how relating to the existing line of business was capital in nature.
12. The reference is answered, accordingly, with no order as to costs.