1. In this case, at the instance of the revenue, the following two questions have been referred to us for our opinion :
'(1) Whether, on the facts and in the circumstances of the case, the foreign tour expenditure incurred by the assessee on its director, Shri S. I. Patel, who was sent abroad to appoint two foreign engineers for manufacture of aerial ropeways for passenger traffic and material handling, is allowable as revenue deduction
(2) Whether, on the facts and in the circumstances of the case, under rule 19(5) of the Income-tax Rules, 1962, half of the profits had to be added for the computation of capital for determining relief under section 84 of the Income-tax Act, 1961 ?'
2. We are concerned in this case with the assessment year 1967-68, the previous year being the calendar year 1966. The assessee before us is a limited company. It was manufacturing engineering equipments of various kinds. In the year of account, relevant for this reference, one of its directors, Mr. S. I. Patel, was sent abroad by the company for selection of some foreign engineers with a view to start manufacture of aerial ropeways. The aerial ropeways were for transporting of machines as well as human beings. The assessee had not manufactured aerial ropeways earlier. The ITO noted that in the director's report it was clarified that the company had decided to start designing and manufacture of aerial ropeways for passenger traffic and handling materials on a turnkey basis to overcome the effects of competition and with a view to diversify its activities. The ITO, however, held that this was entirely a new line of activity and disallowed the expenditure claimed for the foreign tour expenses of the director as capital pH expenditure, the foreign tour expenses being in the same of Rs. 16,948.
3. The assessee when in appeal before the AAC on this and on some other points but the AAC confirmed the order of the ITO so far as this item of foreign tour expenditure was concerned. On further appeal by the assessee to the Tribunal, the Tribunal held that the assessee wanted to embark on a different line altogether as aerial ropeways were entirely different from the normal tipplers, hoists or conveyor belts produced by the assessee. Aerial ropeways were a highly sophisticated method of transporting good as well as human beings. The Tribunal considered, what according to it was the main consideration, namely, whether the assessee embarked upon a new line of manufacture altogether or whether it was only a more effective utilisation of the existing resources. After considering various aspects, particularly utilisation of the existing machinery and existing financial resources and the management, the Tribunal held that the assessee only wanted to utilise the existing resources in a more effective way and that, the manufacture, of aerial ropeways was an extension of the assessee's existing activities and the Tribunal allowed the item of Rs. 16,948 being the foreign tour expenditure in connection with this aerial ropeways project. Another point which arose first before the ITO and thereafter before the AAC and ultimately before the Tribunal was regarding the computation of capital employed by the assessee in its business for the purpose of relief under s. 84 of the I.T. Act, 1961, as it then stood. The assessee was entitled to claim under that section that no income-tax should be paid in respect of a newly established undertaking in respect of income to the extent of six per cent. of the capital employed. The capital employed was to be computed under r. 19 of the I.T. Rules and, under sub-r. (5) of r. 19, the assessee was entitled to include one-half of the profits in the capital computed for the purpose of s. 84. The ITO rejected the claim of the assessee. The AAC rejected the contention of the assessee when the matter came in appeal before him and the Tribunal, following the decision of the High Court in Income-tax Reference No. 197 of 1972, being the case of CIT v. Elecon Engineering Co. Ltd. : 104ITR510(Guj) , held that one-half of the profits would have to be added to compute the capital for the purpose of s. 84. The Tribunal allowed the appeal of the assessee on this point also and, thereafter, at the instance of the revenue, the two questions hereinabove set out have been referred to us for our opinion.
4. The case in CIT v. Elecon Engineering Co. Ltd.  104 ITR 510 was the case of the very same assessee as is before us. That case was in respect of assessment year 1964-65. In that cases, it was held (headnote) :
'Section 84 of the Act (now section 80J) provided for tax holiday for new industrial undertakings or hotels and exempted the income thereof to the extent of six per cent. of the capital employed in the business of the new industrial undertakings or hotels, computed in the manner prescribed by rule 19 of the Income-tax Rules, 1962. The legislative intent as expressed in rule 19, having regard to the scheme of the entire rule, is that to effectively extent the concession of the tax holiday, the average capital employed throughout the year in an industrial undertaking or a hotel should from the basis for such concession. This basis appears to emerge from the comparison of the phraseology employed in sub-rules (1) and (5) of rule 19. The Legislature has adopted two different concepts in sub-rules (1) and (5), namely, the valuation or the cost of the assets and the average amount of capital employed. It may be that, in a given case, profit or loss might be invested in, or debited to, the financial statement of the assessee from time to time, but it cannot be always so, as the assets of the assessee may not at all time reflect the fluctuations of the profits at different rates as and when they accrue at the different stages of the computation period. The Legislature has, therefore, provided that for ascertaining the averages amount of capital employed in a business during any computation period, the profit or loss made in that period shall, except so far as the contrary is shown, be deemed to have accrued at an even rate and to have resulted, as they accrued, in a corresponding increase or decrease, as the case may be, in the capital employed in the business. It may be that in ascertaining the average amount of capital, as provided in the fiction, numerous factors have to be considered. But it appears that the income-tax authorities have, by way of rough and ready method, adopted the addition of half the amount of the profit on the basis of this fiction that the profits have accrued at a uniform rate throughout the computation period and correspondingly resulted in increase or decrease as and when the profits or losses accrued.'
5. Both the parties are agreed that so far as question No. (2) is concerned, it is covered by the decision in the case of the earlier assessment, being the case reported in : 104ITR510(Guj) . Hence, question No. (2) is answered in the affirmative, that is, in favour of the assessee and against the revenue.
6. As regards question No. (1), namely, regarding foreign tour expenditure, the Tribunal has found in para. 16 that the assessee wanted to embark upon a different line altogether. Aerial ropeways were entirely different from the normal tipplers, hoists or conveyor belts. The method of aerial ropeways is a much more sophisticated method of transporting goods as well as human beings. In the directors' report for the year 1966, it was mentioned at page 5 of the report :
'To overcome the effects of keen competition we are now diversifying our activities. During the year under review, it was decided to start designing and manufacturing of aerial ropeways for passenger traffic and material handing on a turnkey basis. Uptil now the requirements of the country for aerial ropeways for material handling are being met through imports, while aerial ropeways for passenger traffic is not allowed to be imported due to shortage of foreign exchange. This activity of ours is likely to be very beneficial.
The company has already appointed two foreign engineers and is now in a position to offer aerial ropeways for material handling and passenger traffic, indigenously designed and manufactured.'
7. The Tribunal further founded that this highly sophisticated method of conveying or transporting goods and human beings was not in the same line as the business that was carried on till then by the assessee. It was also a different type of the conveying or transport. It was also not made clear why this venture had to be given up after the appointment of the foreign engineers. However, in the view of the Tribunal, the main consideration was whether the assessee embarked upon a new line of manufacture altogether or whether this was only a more effective utilisation of the existing resources. The Tribunal held that the assessee wanted to use the existing machinery for manufacturing aerial ropeways. There was nothing to show that fresh financial resources were required or whether such resources had to come from another fund. There was nothing to show that a separate management had to be set up for this venture of manufacturing aerial ropeways. Under these circumstances, according to the Tribunal, it would be reasonable to resume that the assessee wanted to manufacture aerial ropeways pH which was only one of the methods of transporting men and materials. In addition to its existing activities of manufacturing tipplers, hoists or conveyor belts, which were meant for transporting of goods, for the purpose of aerial ropeways no new machinery was required, and the funds would presumably comes from the same source and the management also would be the same for this new proposed activity as well as the old activities. In a way, it could be said that the assessee wanted to utilise the existing resources in a more effective way. The Tribunal, therefore, held that the expenses incurred by the assessee with a view to start manufacturing aerial ropeways was an extension of the assessee's existing business activities and that the expenses incurred for the purpose would, therefore, be allowed as revenue expenses.
8. On the facts found by the Tribunal it is clear that no new machinery was proposed to be installed for the purpose of manufacturing and installation of aerial ropeways on turnkey basis. In this connection there are several decisions, both of our High Court and of the Supreme Court, but so far as it is material for the purposes of our judgment, we start with the decision of this High Court in CIT v. Alembic Glass Industries Ltd.  71 ITR 752. In that case the assessee-company manufactured glassware and it deputed three of its technicians to the United States of America to enable them to obtain practical training in the manufacture of heat-resisting glassware. The training was imparted by Thatcher Glass Manufacturing Company, incorporated in the United States of America and in connection with this practical training, the assessee-company paid a sum of Rs. 71,625 by way of fee to Thatcher Glass Manufacturing Company and a further sum of Rs. 56,302 was spent by the assessee-company in the assessment year 1961-62, for travelling, lodging and other expenses of the employees. A further sum of Rs. 3,489 was spent by the assessee-company in the same connection so far as the assessment year 1962-63 was concerned and the company claimed the amounts of Rs. 71,625 and Rs. 56,302 and the sum of Rs. 3,489 as revenue expenditure for the relevant assessment years. The High Court held that as the outlay in question was not made for the initiation of the business or for expansion of the business or for a substantial replacement of the equipment of the business, nor was it an expenditure for acquiring or bringing into existence an asset or an advantage of an enduring nature to the business but was made for running the business with a view to produce more profits and with a view to run the business more efficiently so as to produce higher profits, the expenditure amounted to revenue expenditure. In that case it was observed at pages 759-760 of the report :
'According to the said affidavit, it was not necessary for the assessee-company to purchase any new machinery for this purpose. In fact, for this purpose no new machinery was required nor was any purchased for this purpose. The result was an improved article of the same nature as the company was already making by the pressing method. It is thus clear that, as a result of the expenditure incurred by the company, the technicians were made more efficient so that they were able to discharge their duties in the company's employment better and the training was for the purpose of acquiring knowledge of the practical working of the manufacture of better heat-resisting glassware. As a result of this expenditure what was acquired was the technical knowledge of more efficient use of the processes and methods, which the assessee-company already had. As pointed out in the affidavit, which the Tribunal accepted as correct, no new machinery was purchased by the company, no new method was employed but as a result of the expenditure, the methods and processes already employed by the company were rendered more efficient so that better heat-resisting glassware came to be manufacture by the company.' pH
9. Thus, it is clear that if the expenditure is for making a more efficient utilisation of the existing processes and existing knowledge and existing techniques which are used by the assessee in question and the expenditure is incurred for the better utilisation of such existing techniques, then it amounts to revenue expenditure, especially from the commercial point of view.
10. Similar is the decision of this High court in Sayaji Iron & Engineering Works P. Ltd. v. CIT : 96ITR240(Guj) . In that case the assessee-company carried on the business of manufacturing among other items electric hoists of a particular lifting capacity. It intended to manufacture electric hoists with a different design so as to increase the lifting capacity. In order to acquire technical know-how and also for purpose of studying and obtaining training for the manufacture of conveyor leaders, two directors and the production manager of the company went to Germany. The expenditure incurred was disallowed by the Tribunal on the ground that the assessee wanted to manufacture a different item which would result in an expansion of its activities and the expenditure was of a capital nature. On these facts, this High Court held that the Tribunal was not justified in disallowing the expenditure. The expenditure had been incurred with a limited purpose, namely to get an idea as to the design of a hoist and study new and modern techniques of manufacturing process involved therein. No capital asset had been brought into existence or was intended to be brought into existence as a result. The expenditure incurred in connection with acquiring know-how for manufacture of electric hoists was allowable as business expenditure. At page 246 of the report it was pointed out :
'..... the assessee-company was manufacturing amongst other items electric hoists of a particular lifting capacity and that it intended to manufacture electric hoists with a different design so as to increase the lifting capacity and in order to acquire a technical know-how and also for purposes of studying manufacturing process of such items as well as for manufacturing of conveyor leaders, that these two directors and the production manager went to Berlin. Before these three persons went abroad, the assessee-company and Messrs. Veb Maschinenfabrik and Eisengieseerai Dessan as represented by Limex Ltd., entered into an agreement for technical collaboration, though by the consent of both the parties to the said agreement, it was not acted upon. In other words, therefore, the two directors and the production manager went abroad for purposes of finding out whether it would be profitable for the company to adopt a new design of hoists with increased lifting capacity which they intended to manufacture.'
11. The High Court held that having regard to the nature of the trip for which the expenses in question were incurred in the case before the High Court, it could not be successfully established as was sought to be done by the revenue, that these expenditure were not for the purposes of acquiring modern methods of technical production and know-how which were very essential for increasing the profits of the company. In the case of Sayaji Iron & Engineering words Pvt. Ltd. : 96ITR240(Guj) no new machinery was installed or contemplated to be installed and it was for the purpose of manufacturing better hoists with greater lifting capacity that the expenditure by way of foreign tour was undertaken by the company.
12. In Empire Jute Co. Ltd. v. CIT : 124ITR1(SC) , the Supreme Court has again considered all the earlier decisions on the point and particularly the test about the benefit of enduring nature and at p. 10 of the report, Bhagwati J., speaking for the Supreme Court, after considering the decision of the House of Lords in Commissioner of Taxes v. Nchanga Consolidated Copper Mines Ltd.  58 ITR 241 , observed (p. 10 of 124 ITR).
'There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none of less, be on revenue account and the test of enduring benefit may break done. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid done in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowed on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given case.'
13. On the facts before the Supreme Court, the Supreme Court pointed out that if there is no addition to or expansion of the profit-making apparatus of the assessee and the income-earning machine remains what it was prior to the incurring of the expenditure, what it amounts to is that the assessee is merely enabled to operate the profit-making structure in a better manner and, therefore, the question to be asked, according to the Supreme Court, is whether there is any addition to the fixed capital of the company by reason of the expenditure incurred. It may be not be an immediate addition or it may be even an anticipated addition to the fixed capital but if the expenditure is merely incurred for running the profit-making apparatus or income-earning machine more efficiently and in a better manner or better utilisation of the profit-making apparatus, then, it is not an expenditure of a capital nature. To use the language used by this court in CIT v. Alembic Glass Industries Ltd.  71 ITR 752 if the expenditure is incurred so that the methods of production already employed by the assessee were rendered more efficient so that better material handling equipment, namely, aerial ropeways, could be manufactured by the company with its existing plant and machinery, the expenditure could never be said to be an expenditure of a capital nature.
14. Mr. Raval, for the revenue, has drawn our attention to some of the other decision of this court where, from the nature of things, the expenditure could not be considered to be of a revenue nature. In Ambica Mills Ltd. v. CIT : 54ITR167(Guj) , the assessee-company which carried on textile manufacturing business authorised a tour by the director and superintendent of the company's mills for two purposes, namely, in order to make an on-the-spot study of the latest developments in the manufacture, designing the processing of cloth in the United Kingdom and other countries, and to make a report on their return on the work done by them as to the latest developments in the manufacturing, designing and processing of textiles seen by the representatives, and to recommend as to whether the latest developments should be adopted and for the purpose, to purchase new machinery which would bring an enduring benefit to the assessee-company and which also would bring about a change in the methods of manufacturing, designing and processing. After their visit, the assessee-company did import this new improved and modern machinery for the purpose of being used in running its textile mills, and on these facts the Tribunal came to the conclusion that the object of the tour was to replace the old and out of date or obsolete machinery used in the textile mills of the assessee-company by the more modern ones and that the expenditure incurred in these circumstances related to the fixed framework of the profit-making apparatus of the assessee-company and not to the carrying on of its business and was, therefore, a capital expenditure. On these facts, the Division Bench of this High Court held that a tour undertaken for the purpose of a preliminary survey of new methods of manufacturing, designing or processing and of new machinery with a view of purchase them, even if not immediately but at a alter stage, would be one for the purpose of bringing into existence a capital asset and such expenditure would, therefore, be capital expenditure. It is true that the line of distinction between the two kinds of expenditures, particularly the preliminary type, is a thin one but none the less, it is a perceptible one. No hard and fast rule can be laid down for universal application and each case must depend upon its own facts and circumstances. It would, therefore, be the duty of the court to find out from a scrutiny of the facts and circumstances the true and proper nature of such expenditure. Undoubtedly, in Ambica Mills case : 54ITR167(Guj) , the expenditure was incurred with a view to import new machinery and, therefore, the expenditure on foreign tours was held to e on a capital nature. We respectfully agree with that conclusion in Ambica Mills' case.
15. In Hyderabad Allwyn Metal Works Ltd. v. CIT : 98ITR555(AP) , a Division Bench of the Andhra Pradesh High Court was concerned with the following facts : The assessee-company was manufacturing refrigerators, steel furniture and was also carrying on the business of building bus bodies. The expenditure incurred by it in connection with one of its directors going on a tour of Japan with to the object of negotiating an technical collaboration with a Japanese company for the manufacture of scooters, etc., was in question before the High Court and the dispute was whether this was revenue expenditure or capital expenditure and it was held that the expenditure was in the nature of capital expenditure and not revenue expenditure as it was to incurred in connection with the expansion of the old business. What the assessee-company sought to starts was a new line of business and the expenditure thereon should be treated as capital expenditure and not business expenditure. We respectfully agree with the conclusion of the learned judges of the Andhra Pradesh High Court because for the purpose of the new line of manufacturing scooters, new machinery would have to be installed and merely because both for the purpose of its existing line of business of manufacturing refrigerators, steel furniture and building bus bodies, the assessee-company was utilising steel sheets and for the proposed new business of manufacturing scooters, steel sheets would be partly use, it could not be said that it was an expansion of the same business which the company was carrying on till then.
16. In a recent decision delivered by the Division Bench of this High Court, namely, in CIT v. McGaw Ravindra Laboratories, Income-tax Reference No. 125 of 1975 decided on July 16, 1980 : 132ITR401(Guj) , one of the question was in connection with the expenditure incurred by the assessee-company in that case on foreign tours of Mr. Rohit Chinubhai and Mr. V. P. Gupta. It was found as a fact that one-half of the tour expenditure in connection with Rohit Chinubhai was in connection with the existing business of the company and the other half of Rohit Chinubhai's foreign tour and the entire expenditure in connection with Gupta's tour was for starting the manufacture of a new product by the company. The assessee-company wanted to enter into a new collaboration agreement with a foreign manufacturer for the purpose of manufacturing a new product altogether and for that purpose to install new machinery and on those facts it was held that since one-half of the expenditure in connection with the foreign tour or Rohit Chinubhai and the entire expenditure in connection with the tour of Gupta was connection with a new product, it could not be said to be of a revenue nature and these expenditure was treated as capital expenditure. But so far as one-half of the expenses of the tour of Rohit Chinubhai were concerned, since that part of the expenditure for the foreign tour was of the purpose of expansion of the existing business of the assessee-company, it was allowed as a revenue expenditure. It is true, as was pointed out to us by learned counsel at the Bar, that a part of the facts in McGaw Ravindra Laboratories case : 132ITR401(Guj) were found as a result of the concession made at the Bar but ultimately on these facts this could be the only result.
17. These are distinctions, which we have pointed out, where another one side-line or the other the question is decided by determining whether the expenditure in question was incurred for a more efficient use or better utilisation of the existing processes and techniques employed by the company or whether the expenditure was incurred for the purpose of acquiring new machinery or new plant or addition, even though remotely or at a distant future, to the fixed capital of the company. If the expenditure fell in the first category, namely, in the category of better utilisation of the existing income-earning apparatus of the company, it has always been treated as in the three different cases pointed out above as revenue expenditure. If, on the other hand, it is incurred for the purpose of adding, immediately or in future to the fixed capital of the company and buying new machinery or installing new machinery so that the fixed capital of the company would increase, then, it has always been treated as capital expenditure.
18. In the instant case, as has been found by the Tribunal, there was no proposal to increase the fixed capital of the company. All the existing designing techniques and processes known and in the possession of the assessee-company were to be employed for the purpose of manufacturing aerial ropeways but it was for the better utilisation and more efficient utilisation of its existing profit-earning apparatus that the directors of the company wanted to diversify from their existing business of manufacturing tipplers, hoists or conveyer belts and go in for the system of aerial ropeways, both for the purpose of carrying human beings and also for the purpose of carrying raw materials and as a material-handling equipment. Under these circumstances, since there was no proposal to add to the fixed capital of the company even at a later date and all that was sought to be done was to utilise the existing machinery and knowledge of the company more efficiently and in a better manner, the foreign tour expenditure aggregating to Rs. 16,948 incurred for the foreign tour of Mr. S. I. Patel was rightly treated by the Tribunal as revenue expenditure.
19. Under these circumstances, question No. (1) referred to us must be decided in favour of the assessee. We, therefore, answered the question referred to us as follows :
Question No. (1) in the affirmative, that is, in favour of the assessee and against the revenue.
Question No. (2) in the affirmative, that is, in favour of the assessee and against the revenue.
20. The Commissioner will pay the costs of this reference to the assessee.