Dwarka Prasad, J.
1. This is an application under Section 256 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), seeking a directionthat the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur, should be directed to state the case and refer questions of law arising out of its order dated April 28, 1981, to this court.
2. The assessee, M/s. Sunil Synchem Ltd., Alwar, is a public limited company incorporated on February 5, 1973. The assessee is engaged in the manufacture of empty gelatine capsules at Alwar and went into production on March 15, 1976. In respect of the assessment year 1977-78, the company claimed deductions under Section 80J of the Act and pre-production expenses incurred by the assessee were claimed as capital expenditure. A sum of Rs. 6,778 was claimed as business promotion expenses said to have been incurred by the company before it went into production, while a sum of Rs. 43,831 was claimed as training expenses, constituting a part of the actual cost of the machinery, being part of the installation charges. The Income-tax Officer took the view that the business promotion charges, even if incurred before the installation of the machinery or before the production started, was not admissible as the same was entertainment expenditure falling under Section 37(2B) of the Act As regards the training expenses, it was held by the departmental authorities that the training was imparted to the employees of the company in respect of maintenance or operational processes and not regarding installation of the machinery. As regards the claim in respect of borrowed capital and debts, the income-tax authorities rejected the claim of the assessee in view of the amendment made by the Finance Act, 1980, with retrospective effect from April 1, 1972.
3. The Income-tax Appellate Tribunal concurred with the view taken by the Income-tax Officer and the Commissioner of Income-tax (Appeals). In respect of training expenses, the Income-tax Appellate Tribunal took into consideration the documents produced by the company, namely, the letter from the supplier of machinery dated February 12, 1975, along with the training programme and came to the conclusion that the training programme of engineers abroad was not for the purpose of installation of the machinery but was in respect of operation of the machinery, its maintenance and manufacturing techniques.
4. The assessee required the Income-tax Appellate Tribunal to draw up a statement of the case and refer four questions arising out of the order of the Income-tax Appellate Tribunal dated April 28, 1981, to this court. The Tribunal allowed the application in respect of one of the question relating to inauguration expenses incurred by the assessee and a reference was made in respect thereof to this court by the Income-tax Appellate Tribunal by its order dated February 2, 1982. However, as regards the other three questions sought to be referred, the Income-tax Appellate Tribunal rejected the request of the assessee in respect of question No. (ii) relating to deduction of borrowed moneys and debts on the ground that no referable question of law arose. As regards the expenditure incurred on business promotion and in respect of trainingexpenses, the Tribunal held that the decision on those questions is based on pure findings of fact and no question of law arose. It was observed that the business promotion expenses could not be said to be capital expenditure at all. Regarding training expenses, a finding of fact was arrived at by the Tribunal that the expenditure was incurred on training for purposes of operation and maintenance of the machinery and not for installation thereof.
5. In the present application under Section 256(2) of the Act, the assessee has prayed that the Tribunal be directed to refer the remaining three questions to this court, which it has refused to do by its order dated February 2,1982.
6. As regards the second question relating to deduction of borrowed capital, the matter has now been set at rest by the decision of their Lordships of the Supreme Court in Lohia Machines Ltd. v. Union of India : 152ITR308(SC) , wherein it has been held that borrowed capital is excluded from computation of the capital employed for purpose of allowing relief under Sub-section (1) of Section 80J of the Act. Thus, the question of referring second question does not arise.
7. As regards the third question, relating to expenditure incurred on training of engineers of the company, it was urged by the learned counsel for the asses-see that the finding of the Tribunal is perverse and is based on a misreading of the letter on the training programme dated February 12, 1975. The letter dated February 12, 1975, referred to by the Appellate Tribunal, was sent by the supplier of the machinery to the assessee and the assessee was required to send its plant manager and plant engineer for training, so that when the equipment arrival in India, those people may be ready to put the machine into operation at an carry date. It was further provided in that letter that the training programme arranged for the plant engineer and the plant manager would enable them to spend three weeks in the factory of the supplier of the machinery and 9 weeks in a capsule plant, according to the training programme given in the enclosed document The training programme which was sent along with the aforesaid letter included review of machine specifications and drawings, preventive maintenance programme, observing assembly of components and final assembly of machine, witnessing mechanical cycling of machine and final testing machine adjustments and change over procedure, while there was a nine weeks' capsule manufacturing training, where they were to be given operational training. According to the learned counsel for the assessee, the training which was to be imparted by the suppliers of the machinery included not only operational training, but also training which was necessary for installation of the machinery and according to him, the training expenses should be included in the installation charges and thus formed part of the cost of the machinery, within the meaning of Section 43(1) of the Act Section 43(1) of the Act provides that the 'actual cost' means the actual cost of the assets to the assessee.
8. In Challapalli Sugars Ltd. v. CIT : 98ITR167(SC) their Lordships of the Supreme Court observed that the expression 'actual cost' has not been denned in the Income-tax Act and it should be construed in the sense understood in the course of commerce and industry. It was observed that in determining the cost of fixed assets, all expenditure necessary to bring such assets into existence and to put them in working condition would be includible in the actual cost of the assets. Their Lordships observed that by way of illustration, legal charges and stamp duties in the case of land, architect's fees in the case of buildings ; wages, salaries and installation expenses in the case of machinery, could be included in the value of fixed assets and depreciation could be claimed by the assessee in respect thereof.
9. In CIT v. J. M A Industries Ltd. : 129ITR373(Delhi) , the Delhi High Court observed that on a logical extension of the principle enunciated by their Lordships of the Supreme Court in Challapalli Sugar's case : 98ITR167(SC) , the expenditure which would go into the cost of the assets will not only be expenditure which is directly and specifically referable to those assets, but also other expenditure incurred by the assessee prior to the commencement of business, which it would have been obliged to incur towards the cost of the assets.
10. In CIT v. New Central Jute Mills : 135ITR736(Cal) , the Calcutta High Court held that expenses incurred for staff training, insurance and power and fuel for installing plant and machinery would form part of the actual cost of the machinery and depreciation is admissible on such actual cost.
11. Thus if the staff training is relatable to the installation of the machinery, then it would undoubtedly be includible in the actual cost of the assets of the assessee, within the meaning of Section 43(1) of the Act. But if the training expenditure was incurred in relation to imparting training only in maintenance or operational processes, then it may not constitute part of the fixed assets or actual cost of the machinery.
12. In this view of the matter, a question does appear to arise as to whether the finding arrived at by the Appellate Tribunal that the training expenses were incurred for the operational purposes and not for installation of the machinery, is based on a misreading of the two documents dated February 12, 1975 and whether the finding arrived at by the Tribunal is justified on a true interpretation of the aforesaid two documents.
13. The further question of law which arises out of the finding of the Tribunal is as to whether the training expenses as well as the business promotion expenditure would form part of the actual cost of the machinery. It was urged by the learned counsel for the Revenue that even if it be held that part of the training expenditure was incurred in respect of the installation of the machinery, then, only the expenditure relating to three weeks' training would fall in that category according to the training programme, while the remaining 9 weeks' trainingwould relate to operational processes or maintenance of the machinery. This matter can only be gone into if it is held that the finding of fact arrived at by the Tribunal was vitiated on account of misreading of the two documents dated February 12, 1975.
14. As regards the expenditure said to have been incurred on business promotion, the case of the assessee is that the expenditure, incurred prior to the factory of the assessee going into production would constitute part of the capital expenditure, being part of the cost of the machinery, while according to the Tribunal, the said expenditure was of the nature of entertainment expenditure and could not be said to be capital expenditure.
15. The assessee has desired that the Tribunal may be directed to refer the following two questions to this court:
'1. Whether, on the facts and in the circumstances of the case, the learned Tribunal was correct in law in holding that the expenditure of Rs. 43,831 was not for the purpose of installation of the machinery but was for the purpose of operation of the machinery, its maintenance and manufacturing techniques and hence not allowable to be capitalised for purpose of allowing depreciation on machinery ?
2. Whether, on the facts and in the circumstances of the case, the learned Tribunal was correct in law in not increasing the cost of assets on account of business promotion expenses at Rs. 6,778 and training expenses at Rs. 43,831 incurred by the assessee before commencement of production (which have been capitalised by the assessee) and in not allowing depreciation thereon?'
16. As discussed above, we are of the view that two questions of law do arise out of the order of the Tribunal dated April 28, 1981, but we would like to re-frame the questions so as to bring the matter in dispute more clearly :
'1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in coming to the conclusion on the basis of the material on record that the expenditure of Rs. 43,831 was incurred by the assessee for imparting training in maintenance and manufacturing techniques and not for the purpose of installation of the machinery ?
2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the amount of Rs. 43,831 incurred by the assessee as training expenses and Rs. 6,778 spent as business promotion expenses before the commencement of the production did not form part of the actual cost for the purpose of allowing depreciation allowance ?'
17. The reference application is allowed. The Income-tax Appellate Tribunal is directed to state the case and refer the above mentioned two questions of lawarising out of its order dated April 28, 1981, to this court The parties are left tobear their own costs of these proceedings in this court.