Mrs. Leila Seth, J.
1. The question posed for our consideration by the Tribunal under s. 256(1) of the I.T. Act, 1961 (to be referred to in short as 'the Act'), are as follow :
'1. Whether, on the facts and in the circumstance of the case, the amount of Rs. 4 lakhs debited by the assessed to 'Deferred Revenue Expenditure, Technical know-how Payment Account' was expenditure of a capital nature
2. If the answer to question No. 1 is in the affirmative, whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the assessed-company was not entitled to depreciation in respect of the said amount of Rs. 4 lakhs
3. Whether, on the facts and in the circumstances of the case, the amount of Rs. 1,09,191 paid by the assessed to Brotherhoods Ltd., represented expenditure of a capital nature
4. If answer to question No. 3 is in the affirmative, whether, on the facts and in the circumstances of the case, the assessed-company was entitled to depreciation in respect of the whole or a part of the amount of Rs. 1,09,191 ?'
2. The assessed is a public limited company manufacturing turbines and other machinery. The four assessment year with which we are concerned are 1965-66 to 1968-69, the corresponding previous year ending on May 31, 1964, May 31, 1965, May 31, 1966, and May 31, 1967. All the four above noted questions have been referred for the assessment year 1965-66 but only the first two have been referred for the subsequent assessment years.
3. The disputes pertain to payments made in pursuance of two agreement entered into by the assessed with Peter Brotherhood Ltd., (to be referred to as 'Brotherhoods') and Bookers Sugar machinery Group Ltd., (to be referred to as 'Bookers'). The agreement with Brotherhoods and Bookers are dated June 2, 1961, and June 2, 1961, respectively. Brotherhoods' agreement is in connection with the manufacture of turbines whereas Bookers' agreement is in connection with the manufacture of the sugar mill machinery. The relevant clause in the two agreement are similarly worded.
4. In pursuance of these agreement, the assessed paid an amount of 40,000 to Brotherhoods and 50,000 to Bookers in the accounting year relevant to the Bookers advanced 40,000 and 50,000 respectively to the assessed to be repaid in ten equal installments. The amount of 90,000 paid under the agreement was at the relevant time equivalent to Rs. 12,00,000. The assessed capitalised the amount of Rs. 8 lakhs in its books of account balance of Rs. 4 lakhs it debited the same to an account called 'Deferred Revenue Expenditure Technical Know-how Payment'. this sum was carried forward for two years and in the year ending May 31, 1964, relevant to the assessment year 1965-66, an amount of Rs. 50,000 was written off. Identical amounts were also written off for the assessment years 1966-67 and 1967-68. But for the assessment year 1968-69, the assessed become liable to pay an amount of Rs. 90,390 instead of Rs. 50,000 as a result of the devaluation of the rupee in June, 1966.
5. The assessed claimed these amounts as deduction while determining its profits but the ITO rejected its claims. He was of the view that the expenditure was clearly of a capital nature. He held that the technical service rendered by the foreign collaborators for the purposes of installation of the plant and machinery and for the manufacture of products was a benefit of a lasting nature to the assessed. However, he did not object to the amount of Rs. 8 lakhs being included as actual cost of plant and machinery and depreciation being allowed thereon.
6. On appeal to the AAC the disallowance was confirmed. The AAC was of the view that technical know-how expenses incurred by the assessed were not related to the day-to day manufacture of products; but the entire payment was for the manufacture of steam turbines and other engineering products which the assessed could not have manufactured without the help of the technical know-how supplied by the foreign collaborators. As such, he held that the entire sum of Rs. 12 lakhs paid as technical know-how fees should be treated as capital expenditure. He further observed that even presuming that part of these expenses, i.e., Rs. 4 lakhs, amounted to revenue expenditure, the same could not be allowed under section 37 in any assessment year the then 1963-64, as there is no provision for the allowance of deferred revenue expenditure.
7. The AAC also held that the technical know-how did not bring into existence any plant or machinery whose ownership could be said to have vested in the assessed. As such, he directed to ITO to withdraw the depreciation on the amount of Rs. 8 lakhs capitalised by the assessed and debited under the plant and machinery head.
8. Being aggrieved, the assessed appealed to the Tribunal. The assessed argued that the payment of Rs. 4 lakhs was clearly an expenditure of a revenue nature; further it could not be disallowed only because it was prepaid-the formula for distribution over eight years of productions was fair and reasonable. In any case, without prejudice to the earlier contentions, the I.T. authorities should have allowed depreciation on this amount Rs. 4 lakhs as they themselves had treated it as capital expenditure; and the papers containing the know-how were a plant.
9. It was also urged that the AAC was not justified in treating the amount of Rs. 8 lakhs as unconnected with actual cost of plant and machines and this amount was an integral part of the actual cost of the plant and machinery.
10. The Tribunal, on a consideration of the contentions, clauses of the agreement and the case-law cited, held that the initial payment of Rs. 12 lakhs was clearly of a capital nature and was rightly treated by the I.T. authorities as such. however, it held that the assessed was not entitled to depreciation in regard to the amount of Rs. 4 lakhs.
11. With regard to the payment of Rs. 8 lakhs, it noticed that it was admitted on both sides to be an expenditure of a capital nature. It held that it was spent for the setting up of the plant and ancillary drawings design organisation. The installation of machinery being as much a part of the cost of machinery as the purchase price of machinery itself, the expenditure was an integral part of the setting up of the plant. the payment under clause 3(a) of Brotherhoods' agreement, thereforee, took on the quality and the character of the price paid for the items of plant and machinery included in the main plant and in the ancillary design organisation. As such, this expenditure could be spread proportionately on the items of machinery and plant included both in the main organisation and in the ancillary organisation. thereforee, depreciation could be rightly allowed. The finding of the AAC to the contrary was reversed and the contention of the assessed upheld.
12. Dealing with the controversy regarding the revenue or capital nature of the expenditure of the amount of Rs. 4 lakhs, the Tribunal made the following observation :
'On a reading of clauses 2 and 3 of Brotherhoods' agreement, especially clause 3(b), it is determinable that the amount was paid for acquisition of know-how. This know-how was referred to as the 'most modern and efficient technical aid assistance and information with regard to the design and manufacture of the stem turbines'. The nature of this know-how was qualified as 'detailed manufacturing data and advice concerning the manufacture of the steam turbines including the supply of technical information designs, drawings of the stem turbines and the tools, dies and jigs (all of which shall henceforth become the absolute property of Triveni subject to clause 9 thereof) particularly of working costs and advice concerning manufacturing techniques, testing methods and purchases'. A similar description of the know-how has also been set out in the agreement with Bookers. It is described in the preamble as 'processes and experience'.'
13. As such, it held that by reason of this payment, the assessed acquire :
(1) Technical know-how for the manufacture of steam turbines and engineering products which it did not have before; (admittedly, the assessed was not manufacturing these items before the agreement :
(2) The right to consult the collaborators in respect of the adjustments and modifications according to the special requirements of its customers.
14. The Tribunal also concluded that the company was promoted with the idea of manufacturing these products and the securing of the know-how from the collaborators was, so to speak, the foundation on which the business of the assessed was started; further, without the technical know-how the plant and machinery would have been of no use and the technical know-how was as much as part of the company's permanent apparatus of profits-making as the plant and machinery and the drawings and design organisation. The know-how was necessary for the starting of the manufacturing organisation and not merely for the running of the business; the assessed had to make separate payments to the collaborators for the cost of providing the services set out in clauses 3(a) and 3(b); the lump sum payment made at the beginning of the agreement were clearly distinguishable from the payments made from year by reference to the actual cost of the services to be rendered by the collaborators; the initial payment was to secure the basic know-how for staring the business and for the right to receive information regarding development according to the special requirement which would arise from time to time. Thus, this initial payments was clearly of a capital nature.
15. But the know-how covered by clause 3(b) had nothing to do with the installation or setting up of the plant or design organisation. It was concerned with the techniques of using this plant and machinery for the manufacture of the end products. It was, thereforee, not a part and parcel of the plant and machinery or design organisation. Now could the claim that the know-how was a plant because it was records in the form of papers, drawing and books be accepted. Accordingly, the assessed was not entitled to depreciation in regard to the amount of Rs. lakhs.
16. It is in these circumstances that, on the request of the assessed, the Tribunal has referred the first two questions, earlier set out for our decision. We may, at the outset, point out that the questions referred to use are limited to two aspect :
(1) Whether the payment of Rs. 4 lakhs was capital in nature; and
(2) If so, whether, if court, be treated as eligible for the grant of depreciation.
17. We confine ourselves only to these two aspects. We are not concerned with, and will express no opinion on, the further questions regarding (i) the basis of apportionment of the sum paid in the two amounts of Rs. 8 lakhs and Rs. 4 lakhs, and (ii) Whether the sum of Rs. 4 lakhs would be deductible in whole or in part in any or each of the four accounting years under consideration, in case it is held to be revenue expenditure.
18. learned counsel for the assessed relying on the terms of the agreement and the principles enunciated by the Supreme Court in CIT v. Ciba of India Ltd. : 69ITR692(SC) and this court in Sriram Refrigeration Industries Ltd. v. CIt : 127ITR746(Delhi) , contended that the expenditure of Rs. 4 lakhs was clearly of a revenue nature.
19. In order to make a correct assessment of the position, it is necessary to examine the relevant provisions of the agreement between the assessed and the foreign collaborators as also the law on the subject. The relevant and pertinent provisions of the agreement with Brotherhoods are extracted as it is the common case that the terms of Bookers' agreement are similar.
(a) Brotherhood are designers and manufactures of steam turbines and have acquired information concerning techniques and methods of manufacture thereof.
(b) Triveni desires to manufacture in whole or in part and to sell in India steam turbines in accordance with the designs and know-how of Brotherhoods and Brotherhoods have agreed to supply drawings and assist them in every reasonable way in regard thereto subject to the terms and conditions hereinafter contained.
NOW THIS AGREEMENT WITNESSETH AS FOLLOW :-............
2. (A) BROTHERHOODS agree to sell outright to Triveni in Peterborough subject to the provisions of this Agreement technical know-how veni agrees in consideration thereof to pay Brotherhoods the sum of forty thousand pounds (sterling) payable in cash in Paterborough.
(b) Brotherhoods undertake that during the currency of this agreement the technical know-how shall be exclusive to Triveni in the Republic of India and shall not be disposed of by Brotherhoods to any other person in the Republic of India.
(c) brotherhoods agree to lend Triveni the sum of forty thousand pounds (sterling) free of interest for a period of ten years. The said sum shall be credited by Triveni to any account nominated by Brotherhoods and Triveni shall replay the said sum of forty thousand pounds within the aforesaid period of ten years in ten equal installment commencing one year after the signing of their Agreement.
3. Brotherhoods agree with Triveni that in order to impart to Triveni the know-how sold under clause 2 hereof Brotherhoods will during the continuance of this Agreement when requested by Triveni provide Triveni with Technical Services in the following manne :
(a) For a period of two years from the date hereof will act as technical consultant to Triveni with regard to the planning, design, layout and building of an independent shop or a section thereof for the manufacture of the aforesaid steam turbines and with the setting up and development of a drawing and design organisation ancillary thereto for the manufacture of the steam turbines aforesaid at Naini and thereafter with regard to the extensions, additions, modifications and improvement there to :
(b) Provided the most modern and efficient technical aid, assistance and information with regard to the design and manufacture of the steam turnings and in particulars as and when requested by Triveni will :
(i) Provide planning and manufacturing data and advice concerning the manufacture of the steam turbine :
(ii) Provide detailed manufacturing data and advice concerning the manufacture of the steam turbines including the supply of technical information, designs, drawings of the steam turbines and to tools, dies and jigs (all of which shall henceforth become the absolute property of Triveni subject to clause 9 hereof) particulars of working courts and advice concerning manufacturing techniques, testing methods and purpose :
(iii) Provided in the United Kingdom reasonable training facilities (including payment of subsistence allowance) for up to three employees of Triveni at any one time for any training programs requested by Triveni and which relates to the steam turbines subject to such training programs not hindering Brotherhoods normal operation;
(iv) At its desecration (but without being bound so to do) send an employee or employees of Brotherhoods to Triveni in the Republics of India for the purposes of assisting Triveni in the manufacture of the steam turbines;
(v) Provide Triveni with assistance in the United Kingdom for the recruitment of employees.
4. TRIVENI agrees to inform Brotherhoods of any improvements development by Triveni to the steam turbines of their method of manufacture and Brotherhoods shall be at liberty to use such information without payment provided that :
(i) Where any such improvement cause or would require development expenditure by Triveni of Five hundred pounds or more (hereinafter called 'Special Improvements') then Triveni must declare all details of such special improvement being effected an Brotherhoods must within six months of such declaration intimate whether they wish to acquire such special improvement whereupon Triveni will take all necessary steps to sell such improvement to Brotherhoods on mutually acceptable term :
(ii) Brotherhoods shall have the right in the case of any special improvement which are not declared by Triveni within the said period of three months to acquire such special improvements without payment;
(iii) If any special improvements are patentable them Brotherhoods on wishing to acquire such special improvements will only pay the customary fees for the use of such patents.
5. It is mutually agreed that Triveni may use its best endeavors to solicit and execute orders for its steam turbines anywhere in the world.....
8. All copes of drawings supplied hereunder shall be deemed to be the property of Triveni as soon as they are received by Triveni by post of transmitted to Triveni by a special messenger or otherwise collected by or on behalf of Triveni.
9. The copyright in such drawings, patterns and jigs shall remain vested in Brotherhoods, Triveni having a license to use the same for the purposes of this agreement only.'
20. Further, clause 12 provides for complete confidentiality with regard to the technical know-how which can be disclosed only after obtaining the written consent of Brotherhoods.
21. Clauses 15 provides that the period of the agreement shall ensure for a terms of ten years subject to the rights of termination. The right of termination are provided for in clause 16, which can be 'forthwith' in certain circumstances. Clause 18 provides that is it not permissible to assign the agreement without the written consent of Brotherhoods.
22. The Supreme Court in Ciba of India Ltd., case : 69ITR692(SC) has enunciated the principles applicable to such cases. What emerges there from is that an enquiry has to be addressed as to what has been granted by the agreement. Does the agreement merely give the right to the assessed to draw upon the technical knowledge of the collaborator for a limited period for the purposes of carrying on its business of manufacture by making the technical knowledge available Or does the collaborator part with an assets of its business as a result of which the assessed acquires an assets or advantage of an enduring nature for the benefit of its business Shah J., speaking for the court, observed at pages 701 and 70 :
'In the case in hand it cannot be said that the Swiss company had wholly parted with its Indian business. There was also no attempt to part with the technical knowledge absolutely in favor of the assessed.
The following facts which emerge from the agreement clearly show that the secret processes were not sold by the Swiss company to the assessed.
(a) the license was for a period to five years, liable to the terminated in certain eventualities even before the expiry of the period :
(b) the license was granted to the assessed subject to rights actually granted or which may be granted after the date of the agreement to other person :
(c) the license was granted to the assessed subject to rights actually granted or which may be granted after the date of the agreement to other persons;
(d) the assessed was expressly prohibited from divulging confidential information to third parties without the consent of the Swiss company :
(e) there was no transfer of the fruits of research once for al : the Swiss company which was continuously carrying on research had agreed to make it available to the assessed; and
(f) the stipulated payment was recurrent dependent upon the sales, and only for the period of the agreement.'
Various High Court have dealt with this matter and in our recent decision in Shriram Refrigeration Industries Ltd., case : 127ITR746(Delhi) we have referred to the majority of them, We, thereforee, do not consider it necessary to refer to all of them, especially as each case really depends on the terms and substance of the agreement.
23. In Shriram Refrigeration Industries Ltd., cases : 127ITR746(Delhi) , after considering all the terms, we were of the opinion that the whole object of the agreement was only to enable the assessed to have access to the technical knowledge available with Westinghouse, for the purpose of running its business. there was no absolute transfer or sale of technology. What the assessed had acquired was 'a license for manufacturing certain types of apparatus and materials and to sell the same'. The assessed could not grant any sublicense or assign the same without the consent of Westinghouse. Further, we observed that the actual period of agreement being 5 or 10 or 15 years was not of much significance not was the fact that the payment was by way of a lump sum and/or the know-how was for a new business; what was important was that the payment were for use of the know-how rather than for its acquisition. The crucial questions, i : what is the amount being paid for
24. What has, thereforee, to be considered by us is whether, in fact, these agreement resulted in an absolute sale of know-how or whether the payment was for the use of the know-how provided by Brotherhoods and/or Bookers.
25. On a cursory reading of the contract, one may at first be inclined to treat this as a case of a absolute sale of technical know-how and not the mere use of it because of the use of the words 'Brotherhoods agree to sell outright to Triveni' in clause 2 followed by the use of words like 'sold' 'absolute property' and 'deemed to be the property of' in clauses 3, 3(b)(ii) and 8, respectively. But, we have come to a contrary conclusion, on a more careful and closer reading of the contract as a whole, by reading it in its entirety and refraining from attaching undue significance to some of the words employed.
26. The facts that emerge on an examination of the agreement ar :
1. The agreement was for a period of ten years liable to be terminated in certain circumstances 'forthwith' (Clauses 15 and 16).
2. The agreement was limited to the Republic of India though exclusive to the a assessed for the currency of the agreement (Clause 2(b)).
3. Though the data, drawings, documents and dies, etc., transmitted to the assessed is said to be the absolute property of Triveni, yet the copyright in the same reminded vested in Brotherhoods, the assessed heaving only a license to use the same during the Agreement. (Clauses 3(b)(ii) and 9).
4. The assessed had to observe compete confidentiality with regard to the know-how and could not disclose any information without written consent. (Clauses 12 and proviso to clauses 16).
5. The assessed could not assign the agreement without consent (Clauses 18).
6. the assessed has to inform Brotherhoods of any improvement developed by it, Brotherhoods being at liberty to use the same if the development expenditure incurred thereon was below Pound 500 (Clauses 4(i)). Further, if the development expenditure exceeds Pound 500 and the improvement had not been declared by the assessed to Brotherhoods within three months they could acquired the same without payment (Clause 4(ii)). If such special improvement were patentable and Brotherhoods wished to acquire them, then it had to pay only the customary fee (Clauses 4(iii)).
7. The payment for the use of the know-how to design and manufacture steam turbines was made in a lump sum. This was a new business for the assessed. However, the information, etc., to be imparted in terms of clause 3(b) was to be spread over the period of the agreement.
27. thereforee, a study and scrutiny of the agreement indicates that despite the use of the words 'agreed to sell outright to Triveni', what the assessed got in substance was a limited right of user for the maximum period of ten years. There was no renewal clauses in the agreement; on the contrary the agreement could in certain even utilities be determined 'forth with'. Further, though the manufacturing data, drawings documents, dies and jigs, etc., become 'the absolute property' of the assessed, the copyright remained vested in Brotherhoods, the assessed having a limited 'license to use and same for the purposes of the agreement only'. It was also prevented from disclosing or assigning the data, etc., to any one without the written consent of Brotherhoods.
28. Brotherhoods, however, were free to use certain improvement made by the assessed free of cost in some circumstance and on a nominal payment in others. They were also free to sell the know-how and steam turbines in any country other then India during the currency of the agreement and in India after ten years or on the termination of the agreement, whichever was earlier.
29. One can hardly equate this situation with the position of a seller who has sold his goods outright to a buyer. It would, thereforee, appear to us that what the assessed has got is precious little in the way of acquisition of an asset or an enduring advantage.
30. It is true that in the present case there is no provision for return of the drawings, documents, etc., the copies of which are 'deemed' to become the property of the assessed on transmission; but it is to be noticed that in this age of fast technological development and scientific research, drawings, designs, etc., become obsolete and mere scraps of paper very soon unless upheld.
31. Applying the principles of the two above mentioned decisions i.e., of the Supreme Court and of this court, it appears to us that assessed has merely got the right to draw on the technical knowledge of Brotherhood for the purposes of running is business during the terms of the agreement. The fact that the payment for this is by way of a lump sum and it is for a new business is not of much relevance, as noticed by us in Shriram Refrigeration Industries Ltd., case : 127ITR746(Delhi) .
32. On a totality of the terms of the contract, we are convinced that there is no absolute parting of the secret processes and technical knowledge by the collaborators to the assessed. As such no asset or enduring advantage has been acquired by the assessed or parted with by the collaborators. The use of the words 'sell outright' cannot enslave the decision which is clear once the substance of the agreement is looked at, that the assessed has only got a license for a limited use of the knowledge and information possessed by Brotherhoods.
33. Before parting with this aspect of the matter, we would like to mention that if was contended for the assessed relying on the observations in certain decisions, that even if the agreement is construed as providing for and involving the acquisition of Brotherhoods technical know-how, the expenditure thereon cannot be treated as a tangible capital assets.
34. In CIT v. Tata Engineering & Locomotive Co. Ltd. : 123ITR538(Bom) , the Bombay High Court held that technical information with regard to the techniques of production is not a protected right under a registered patent and as such there cannot be an outright sale of it; nor is it a tangible asset and, in these days of swift technological development, it cannot be treated as a capital assets.
35. A Full Bench of the Andhra Pradesh High Court has held in Praga Tools Ltd. v. CIT : 123ITR773(AP) , that technical know-how is not property right and, thereforee, the question of transfer of it does not arise. The imparting of the knowledge by the foreign collaborators is like a teacher selling his skill or knowledge to his pupil. However, in the view we have taken above that the amount paid by the assessed was for the use of the know-how rather than its acquisition, we do not fell it necessary to comment on this aspect of the decision.
36. With regard to question No. 2, learned counsel for the assessed asserted that if questions No. 1 is answered in the negative, then question No. 2 need not be answered. However, if questions No. 1 is answered in the affirmative and it is held that the expenditure of Rs. 4 lakhs was incurred for acquiring a capital asset then the drawings, etc., which embody the know-how must be treated as a plant and depreciation thereon be permitted. Reliance was placed on the decisions of the Karnataka High Court in Nippon Electronics (P.) Ltd. v. CIT : 116ITR231(KAR) , the Bombay High Court in CIt v. Emco Electro Pvt. Ltd. : 118ITR864(Bom) and of the Gujarat High Court in CIT v. Jyoti Ltd. : 118ITR499(Guj) .
37. We need not go into this matter as we are of the opinion, as already noticed, that the expenditure was for use of the technical know-how and, thereforee, the sum of Rs. 4 lakhs spent was a revenue expenditure; as such questions No. 2 does not arise.
38. Questions Nos. 3 and 4 pertain to the payment of Rs. 1,09,191 to Brotherhoods for conversion of the measurements and calculation in these drawings from the British to the metric system. The calculations in the drawings were originally set out in terms of inches, feet and yards but as the metric system introduced in India become more entranced, the precise measurements had to be recalculated in accordance with the metric system. In order to ensure precision, the assessed took the assistance of Brotherhoods to check the calculations, etc., the paid them the above 'mentioned sum for this worked during the assessment year 1965-66.
39. The assessed claimed deduction of this sum as a revenue expenditure. The Income-tax Officer disallowed it as he held that it was a capital expenditure as it resulted in an enduring benefit to the assessed. The AAC affirmed this view and so did the Tribunal.
40. Before the Tribunal it was contended in the alternative, on behalf of the a assessed, that if the sum was treated as a capital expenditure then depreciation thereon should be allowed. the Tribunal held that the main part of this expenditure (i.e., Rs. 72,000) was in connection with the ancillary drawings and designs' organisation and the balance related to the initial know-how. This apportionment was done as the drawings and designs were related partly to the setting up of the ancillary organisation and partly to the initial know-how for the manufacturing of turbines. The Tribunal, thereforee, concluded that the expenditure allocated to the initial know-how would not be entitled to depreciation where as depreciation and other related benefit in regard to the amount of Rs. 72,000 could be claimed.
41. Both the assessed and the Revenue moved for reference on this aspect. The Tribunal, however, reframed the questions and referred two questions Nos. 3 and 4 as it felt that the controversy between the parties was precisely pinpointed therein.
42. Learned counsel for the Revenue contended that by the conversion from the British system to the metric system, the value of the asset had been greatly enhanced and this resulted in an enduring advantage to the assessed. The Payment for this purpose was thus a capital expenditure especially as it pertained to the pre-production period.
43. We cannot accept this contentions. Question No. 3 is linked up with questions No. 1 Since we have held that the drawings, designs, documents, etc., constituting the know-how have not been acquired absolutely, it would be incongruous to conclude that the additional payment expended thereon for recalculation can be an assets or an advantage, of an enduring benefit. The additional expenditure, in the circumstance, must partake of the same quality as that of the drawings, etc., as it is only an expenditure to facilitate the use of the drawings and the carrying on of the operation. In view of our decision that the expenditure, of Rs. 4 lakhs pertaining to the technical know-how is a revenue expenditure, we hold that the amount of Rs. 37,191 which has-been allocated to it is also a revenue expenditure.
44. With regard to the remaining sum of Rs. 72,000 which has been allocated as pertaining to the expenses of the ancillary drawings and designs organisation, the position has to be considered independently. It is the admitted case of the parties that the expenditure of Rs. 8 lakhs incurred for designs layout, etc., was capitalised. The Tribunal permitted depreciation on it as it felt it should be spread over the items of plant and machinery being a part of the actual cost of setting up. In any case, we feel that this further expenditure incurred on the changing of the measurements system, if capital is certainly entitled to depreciation and, if revenue, to deduction. It may be pointed out that this expenditure, had it been incurred simultaneously with the transmission of the layout plans would have been a composites expenditure and would have become part of the actual cost of setting up the plant and machinery, and as such been of a capital nature. Lord Cave's famous dictum in Atherton (H. M. Inspector of Taxes) v. British Insulated and Helsby Cables Ltd.  AC 205 that expenditure is attributable to capital which is made with a view to bringing into existence an asset or advantage for the enduring benefit of a trade is too will know. But it is not a necessary concomitant that all expenditure incurred for utilising a capital asset is capital expenditure. The enquiry will have to be as to the purport of the expenditure in questions.
45. It appears that the layout, drawings, etc., were transmitted in 1961. The introduction of the metric system in India occurred earlier some time at the end of the fifties. But is was effectively enforced only some time thereafter. As such the conversion of the measurement system became necessary and the expenditure for the purposes was incurred in 1963. The purport of this expenditure was neither to bring a new asset into existence not an advantage of an enduring nature. Further, it added nothing to the capital assets. Its purport was to facilitate the use of the layout plan; it did not alter the asset in any manner. The decision of the Supreme Court in CIT v. Finlay Mills Ltd. : 20ITR475(SC) throws some light on this aspect but as noticed therein the question is always one of fact depending on the circumstances of each case individually. In the present case, on the facts, we are of the opinion that it is a revenue expenditure.
46. For the reason outlined above, questions Nos. 1 and 3 are answered in the negative and in favor of the assessed. As such question Nos. 2 and 4 need not be answered. As the assessed has succeeded, it will be entitled to costs.