Leila Seth, J.
(1) The questions posed for our consideration by the Tribunal under section 256(1) of the Incometax Act, 1961 (to be referred to in short as 'the Act'.), are as follows :
'1. Whether on the facts and in the circumstances 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 answer to question No. 1 is in the affirmative, whether on the facts and in the circumstances of the case 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 Brotherhood Limited 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 years with which we are concerned are 1965-66 to 1968-69, the corresponding previous years ending on 31st May, 1964, 31st May, 1965, 31st May, 1966 and 31st May, 1967. All 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 agreements entered into by the assessed with Petei Brotherhood Ltd. (to be referred to as 'Brotherhoods') and Bookers Sugar Machinery Group Limited (to be referred to as 'Bookers'). The agreements with Brotherhoods and Bookers are dated 1st June, 1961 and 2nd June, 1961 respectively. Brotherhoods' agreement is in connection with the manufacture of turbines whereas Bookers' agreement is in connection with the manufacture of sugar mill machinery. The relevant clauses in the two agreements are similarly worded.
(4) In pursuance of these agreements, the assessed paid an amount of 40,000 to Brotherhoods and 50,000 to the Bookers in the accounting year relevant to the assessment year 1963-64. At the same time both Brotherhoods and 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 agreements 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 and added it to the cost of plant and machinery. With regard to the 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 31st May, 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 became 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 claim these amounts as deductions while determining its profits, but the Income-tax Officer rejected its claims. He was of the view that the expenditure was clearly of a capital nature. He held that the technical services rendered by the foreign collaborators for the purpose of installation of the plant and machinery and for 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 Appellate Assistant Commissioner the disallowance was confirmed. The Appellate Assistant Cummissioner was of the view that the technical know-how expenses incurred by the assesseds 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 other than 1963-64, as there is no provision for the allowance of deferred revenue expenditure.
(7) The Appellate Assistant Commissioner 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 the Income-tax Officer 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 Incometax Appellate 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 pre-paid the formula for distribution over eight years of production was fair and reasonable. In any case, without prejudice to the earlier contentions, the Income-tax authorities should have allowed depreciation on this amount of 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 Appellate Assistant Commissioner was not justified in treating the amount of Rs. 8 lakhs as unconnected with actual cost of plant and machinery 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 Income-tax 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 organization. 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 organization. As such, this expenditure could be spread proportionately on the items of machinery and plant included both in the main organization and in the ancillary organization. thereforee, depreciation could be rightly allowed. The finding of the Appellate Assistant Commissioner 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 observations. 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 steam 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 steam turbines and of tools, dies and jigs (all of which shall henceforth become the absolute property of Triveni subject to clause 9 hereof) particulars 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 Brokers. It is described in the preamble as 'processee and experience'. As such, it held that by reason of this payment, the assessed acquired (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.
(13) 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 a part of the company's permanent apparatus of profit making as the plant and machinery and the drawings and design organization; the know-how was necessary for the starting of the manufacturing organization 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 sendees set out in clauses 3 (a) and 3(b) ; the lump sum payments made at the beginning of the agreements were clearly distinguishable from the payments made from year to 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 starting the business and for the right to receive information regarding developments according to the special requirements which would arises from time to time. Thus this initial payment was clearly of capital nature.
(14) But this 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. nor could the claim that the know-how was a plant because it was recorded in the form of papers, drawings and books be accepted. Accordingly, the assessed was not entitled to depreciation in regard to the amount of Rs. 4 lakhs.
(15) 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 question referred to us are limited to two aspects : (i) whether the payment of Rs. 4 lacs was capital in nature and (ii) if so, whether it could be treated as eligible for the grant of depreciation. 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 two amounts of Rs. 3 lacs and Rs. 4 lacs and (ii) whether the sum of Rs. 4 lacs 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.
(16) Learned counsel for the assessed relying on the terms of the agreements and the principles enunciated by the Supreme Court in Commissioner of Income-tax, Bombay City-1 v. Ciba of India Ltd., : 69ITR692(SC) and this Court in Shriram Refrigeration industries Limited v. Commissioner of Income-tax, Delhi-11 : 127ITR746(Delhi) , contended that the expenditure of Rs. 4 lacs was clearly of a revenue nature.
(17) In order to make a correct assessment of the position, it is necessary to examine the relevant provisions of the agreements 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. 'WHEREAS : (a) Brotherhoods are designers and manufacturers 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 follows : (a) Brotherhoods agree to seal outright to Triveni in Peterborough subject to the provisions of this Agreement technical know-how in respect of the steam turbines for use in The Republic of India and Triveni agrees in consideration thereof to pay Brotherhoods the sum of Forty Thousands Ponds (STERLING) payable in cash in Peterborough. (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 Brotherhood's and Triveni shall repay the said sum of Forty Thousand pounds within the aforesaid period of ten years in ten equal Installments commencing one year after the signing of this 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 manner : (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 0902steam turbines aforesaid at Naini and thereafter with regard to the extensions, additions, modifications and improvements thereto: (b) Provide the most modern and efficient technical aid assistance and information with regard to the design and manufacture of the steam turbines and in particular as and v,'hen requested by Triveni will : (i) Provide planning and manufacturing advice and assistance concerning the manufacture of the steam turbines; (ii) Provide detailed manufacturing date and advice concerning the manufacture of the steam turbines including the supply of technical information designs, drawings of the steam turbines and of tools, dies and jigs (all of which shall henceforth become the absolute property of Triveni subject to Clause 9 hereof) particulars of working costs and advice concerning manufacturing techniques testing methods and purposes: (iii) Provide 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 programmes requested by Triveni and which relates to the steam turbines subject to such training programme not hindering Brotherhoods normal operations; Civ) At its discretion (but without being bound so to do) send an employee or employees of Brotherhoods to Triveni in The Republic 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 developed 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 improvements 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 improvements being effected and Brotherhoods must within six months of such declaration intimate whether they wish to acquire such special improvements whereupon Triveni will take all necessary steps to sell such improvements to Brotherhoods on mutually acceptable terms: (ii) Brotherhoods shall have the right in the ease of any special improvements 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 then 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 copies of drawings supplied hereunder shall be deemed to be the property of Triveni as soon as they are received by Triveni by post or 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 purpose of this Agreement only. Further, clause 12 provides for complete confidentiality with regard to the technical know-how which can only be disclosed after obtaining written consent of Brotherhoods. Clause 15 provides that the period of the agreement shall endure for term of ten years subject to the right of termination. The rights of termination are provided for in clause 16, which can be 'forthwith' in certain circumstances. Clause 18 provides that it is not permissible to assign the agreement without the written consent of Brotherhoods.
(18) The Supreme Court in Ciba of India Ltd.'s case (supra) 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 purpose of carrying on its business of manufacture by making the technical knowledge available Or does the collaborator part with an asset of its business as a result of which the assessed acquires an assest or advantage of an enduring nature for the benefit of its business Shah J. speaking for the Court observed at pages 701 and 702 :
'INthe 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 of five years, liable to be terminated in certain eventualities even before the expiry of the period; (b) the object of the agreement was to obtain the benefit of the technical assistance for running the business; (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 all : 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'.
(19) Various High Courts have dealt with this matter and in our recent decision in Shriram Refrigeration Industries Ltd.'s case (supra) 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.
(20) In Shriram Refrigeration Industries Ltd.'s case (supra), 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 riming 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 sub-license nor assign the same without consent of Westinghouse. Further, we observed that the actual period of agreement being 5 or 10 or 15 years was not of such significance nor was the fact that the payment was by way of a lump sum and I or the know-how was for a new business; what was important was that the payments were for use of the know-how rather than for its acquisition. The crucial question is : What is the amount being paid for
(21) What has, thereforee, to be considered by us is whether, in fact, these agreements resulted in an absolute sale of know-how or whether the payment was for the use of the know-how provided by Brotherhoods and I or Bookers.
(22) On a cursory reading of the contract, one may at first be inclined to treat this as a case of absolute sale of technical know-how and not the mere use of it because of the use of the words 'Brotherhoods agree to sell out right 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 entirely and refraining from attaching undue significance to some of the words employed.'
(23) The facts that emerge on examination of the agreement are : 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 assessed for the currency of the agreement. (Clause 2(b)). 3. Though the date, drawings, documents and dies etc., transmitted to the assessed is said to be the absolute property of Triveni yet the copyright in the same remained vestad in Brotherhoods, the assessed having only a license to use the same during the Agreement. (Clause 3(b)(ii) and 9). 4. The assessed had to observe complete confidentiality with regard to the know-how and could not disclose any information without written consent. (Clause 12). 5. The assessed could not assign the agreement without written consent. (Clause 18 and proviso to clause 16). 6. The assessed had to inform Brotherhoods of any improvements developed by it, Brotherhoods being at liberty to use the same if the development expenditure incurred thereon was below 500 (Clause 4(1)). Further, if the development expenditure exceeded 500 and the improvements had not been declared by the assessed to Brotherhoods within three months they could acquire the same without payment (Clause 4(ii)). If such special improvements were patentable and Brotherhoods wished to acquire them, then it had to pay only the customary fee. (Clause 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.
(24) 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 clause in the agreement on the contrary the agreement could in certain eventualities be determined 'forthwith'. Further, though the manufacturing data, drawings, documents, dies and jigs etc. became, 'the absolute property' of the assessed, the copy right remained vested in Brotherhoods, the assessed having a limited 'license to use the same for the purpose of the agreement only'. It was also prevented from disclosing or assigning the data etc. to anyone without the written consent of Brotherhoods.
(25) Brotherhoods, however, were free to use certain improvements made by the assessed free of cost in some circumstances and on a nominal payment in others. They were also free to sell the know-how and steam turbines in any country other than India during the currency of the agreement and in India after ten years or on the termination of the agreement whichever was earlier.
(26) 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.
(27) 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 asessee on transmission, but it is to be noticed that in this age of fast technological, development and scientific research, drawings, designs etc. become obsolescent and mere scraps of paper very soon unless updated.
(28) Applying the principles of the two abovementioned decisions i.e. of the Supreme Court and of this Court it appears to us that the assessed has merely got the right to draw on the technical knowledge of Brotherhoods for the purpose of running its business during the term 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.'s case (supra).
(29) On a totality of the terms of the contract, we are convinced that 'there is no absolute parting of the secret pro- manucesses 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.
(30) Before parting with this aspect of the matter, we would like to mention that it 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 asset.
(31) In Commissioner of Income-tax, Bombay v. Tata Engineering & Locomotive Co. Pvt. 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 cannot be treated as a capital asset.
(32) A Full Bench of the Andhra Pradesh High Court has held in Praga Tools Ltd. v. Commissioner of Income-tax, Hyderabad, : 123ITR773(AP) that technical know-how is not a 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 use of the know-how rather than its acquisition, we do not feel it necessary to comment on this aspect of the decisions.
(33) With regard to question No. 2, learned counsel for the assessed asserted that if question No. I is answered in the negative then question No. 2 need not be answered. However, if question No. I 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. Commissioner of Income-tax Karnataka, : 116ITR231(KAR) ; the Bombay High Court in Commissioner of Income-tax Bombay v. Emco Electro Pvt. Ltd. : 118ITR864(Bom) ; and of the Gujarat High Court in Commissioner of Income-tax Gujarat-IV v. Jyoti Ltd., : 118ITR499(Guj) .
(34) 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 question; No. 2 does not arise.
(35) Questions 3 and 4 pertain to the payment of Rs. 1,09,1911- to Brotherhoods for conversion of the measurements and calculations 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 became more entrenched, 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. and paid them the abovementioned sum for this work during the assessment year 1965-66.
(36) 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 Appellate Assistant Commissioner affinned this view and so did the Tribunal.
(37) Before the Tribunal it was contended in the alternative, on behalf of the 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. 72,000.00 ), was in connection with the ancillary drawings and designs organization 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 organization and partly to the initial know-how for the manufacture of turbines. The Tribunal, thereforee, concluded that the expenditure allocated to the initial know-how would not be entitled to depreciation whereas depreciation and other related benefits in reward to the amount of Rs. 72,000.00 could be claimed.
(38) Both the assessed and the revenue moved for reference on this aspect. The Tribunal, however, reframed the qustions and referred the questions 3 and 4 as it felt that the controversy between the parties was precisely pin pointed therein.
(39) 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.
(40) We cannot accept this contention. Question No. 3 is linked up with question 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 expanded thereon for recalculation can be an asset or an advantage of an enduring benefit. The additional expenditure, in the circumstances, 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 the 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. 37,191.00 which has been allocated to it is also a revenue expenditure.
(41) With regard to the remaining sum of Rs. 72,000.00 which has been allocated as pertaining to the expenses on the ancillary drawings and designs organization the position has to be considered independently. It is the admitted case of the parties that the expenditure of Rs. 8 lakhs incurred for design layout etc. was capitalized. 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 that this expenditure, had it been incurred simultaneously with the transmission of the layout plans would have been a composite 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 British Insulated and Helsby Cables, Limited v. Atherton, 1926 Appeal Cases 205(8) that expenditure is attributable to capital when it is made with a view to bringing into existence an asset or advantage for the enduring benefit of a trade is too well-known. But it is not a necessary concomitant that all expenditure incurred for utilizing a capital asset is capital expenditure. The enquiry will have to be as to the object and purport of the expenditure in question.
(42) It appears that the layout drawings etc. were transmitted in 1961. The introduction of the metric system in India occurred earlier sometime at the end of the fiftees. But it was effectively enforced only some time thereafter. As such the conversion of the measurement system became necessary and the expenditure for the purpose was incurred in 1963. The purport of this expenditure was neither to bring a new asset into existence nor an advantage of an enduring nature. Further, it added nothing to the capital asset. 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 Commissioner of Income-tax, Bombay v. Finlay Mills Limited, : 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 opinion that it is a revenue expenditure.
(43) For the reasons outlined above, questions 1 and 3 are answered in the negative and in favor of the assessed. As such questions 2 and 4 need not be answered. As the assessed has succeeded, it will be entitled to costs. Counsel's fee Rs. 350.00 (one set).