R.N. Misra, J. - (1.)ON applications of the revenue made under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as " the Act") the Tncome-tax Appellate Tribunal, Bombay Bench, has stated these cases and referred the following questions for the opinion of the court:
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in deleting-

Rs. 3,08,012.(in assessment year 1962-63)

Rs. 5,57,658 (in assessment year 1963-64)

Rs. 5,79,336 (in assessment year 1964-65)

Rs. 3,57,681 (in assessment year 1965-66) and

Rs. 5,87,729 (in assessment year 1966-67)

on the ground that the said capital expenditures were converted into revenue expenditures and if the said deletions were legal ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that it was not a case of sharing the net profit, but, on the other hand, it was a case of remuneration for specific services rendered ? "

(2.)IN regard to the assessment year 1963-64, the following question has also been referred :
" Whether depreciation and development rebates were allowable to the assessee-company in respect of the technical know-how report ? "

Similarly, for the assessment year 1964-65, one more question has also been referred being:

" Whether, on the facts and in the circumstances of the case, the Tribunal was justified in treating the contribution made to the two hospitals as expenditure of a revenue nature ? "

Assessee is a public limited company by name Belpahar Refractories Ltd. with its registered office at Belpahar within this State. The company was born out of a collaboration agreement (hereafter referred to as " the agreement") dated November 6, 1957, between the Tata Iron and Steel Company Ltd. (hereafter referred to as " the TISCO "), the Tata Industries (Pvt.) Ltd. (hereafter referred to as " the TATAS ") and Didier Works A.G., a company incorporated in West Germany (hereinafter referred to as " the German Company"). During the material time the shareholdings in the assessee-company were in the following proportions :

(i) TISCO, TATAS and their associates ... 61%

(ii) Maharaja of Jeypore ... 28%

(iii) The German company ... 11%

The authorised capital of the assessee-company was rupee five crores divided into five lakh shares of Rs. 100 each. The first issue of capital was to be not less than rupees two crores and not more than rupees three crores twenty lakhs of ordinary shares and out of it the TATA group had agreed to take shares of not less than fifty-one per cent. and the German company had agreed to take shares of not less than rupees seventy lakhs. Clause 5 of the agreement ran thus :

" Didier-Works shall contribute the said rupees seventy lakhs in the first issue of capital as follows ;

(a) Rs. 30 lakhs by providing an equivalent proportion of the purchase prices of machinery and equipment required for the said plants in Deutsche Mark, pounds sterling or other European currencies for the account of the Refractories Company (including the price or prices of any machinery or equipment supplied by Didier- Works themselves) until the full equivalent of the said Rs. 30 lakhs shall have been provided;

(b) as to the remaining Rs. 40 lakhs by instalments equivalent to the amounts payable to Didier-Works under any of the following heads, that is to say-

(i) the engineering fee accruing under Clause 3 of the agreement set out in the fourth schedule hereto,

(ii) the percentage of net profits of the Refractories Company accruing under Clause 8 of the agreement set out in the third schedule hereto,

(iii) any dividends payable on the shareholding of Didier-Works in the Refractories Company until the full equivalent of the said Rs. 40 lakhs shall have been so appropriated. Provided that Didier-Works shall contribute the said Rs. 40 lakhs in full within a period of eight years from the date the plant comes into full production. Provided further that if payments under heads (i), (ii) and (iii) above are not sufficient to enable Didier-Works to contribute the said Rs. 40 lakhs in full within the said eight years the parties hereto shall mutually consult, and decide the manner in which the balance of the said Rs. 40 lakhs shall be provided." A separate agreement between the assessee-company and the German company was put into the third schedule of the agreement, Clause 1 whereof provided that the German company was to render all technical services in connection with the erection, installation and starting up of the plants. The German company also undertook that the two plants shall have incorporated in them the latest improvements and designs and shall fulfil the performance guarantee as regards the quantity and quality of the products set out in a schedule of that separate agreement. The expression " technical services " which were to be rendered by the German company included :

"(a) Collection and analysis of the engineering data and other information, preparation of preliminary cost, estimated and making investigations and other preliminary studies as required for the formulation of definite plans and designs for the said plants.

(b) Preparation of detail drawings and statistical calculations for buildings to house the said two plants.

(c) Advice on tenders and on placing of orders for materials and equipment to be purchased in India and expediting the same.

(d) Supervision of erection and completion of erection of the said two plants and putting them into commercial operation.

(e) Communication of know-how and technical information and processes in respect of the said two plants and in respect of the manufacture, use and marketing of the products or otherwise relating thereto.

(f) Provision and supply to the Refractories Company in India of the requisite number of adequately qualified technical personnel for the purpose aforesaid."

In several clauses of the separate agreement, the German company remained obliged to render various other services. Under Clause 8 of the separate agreement, the company's remuneration for the services to be rendered were provided in the following terms :

"By way of remuneration for the said rights and technical information and services given and provided or agreed or covenanted to be given and provided under this agreement Didier-Works shall be paid in rupees by the Refractories Company the following remuneration, namely, 6 1/4% (six and one-fourth per cent.) of the amount representing the net profits of the Refractories Company for each financial year for a period of 8 years commencing with the financial year in which the said Refractory plant comes into full production provided that if the date on which the said plant comes into full production falls in the second half of a financial year, the said period of eight years shall commence with the next following financial year. For the purpose of payment under this clause the net profit shall mean profits arrived at after allowing for depreciation at income-tax rates, taxes, overheads including selling and head office expenses and the usual charges and expenses. The above remuneration shall cover the salaries, living expenses, passages and other expenses of the technical personnel (including the works manager) who may be provided by Didier-Works in accordance with Clause l(f) hereof up to the date when the refractory plant commences operation on a commercial basis. As from that date the salaries of any of the said technical personnel who may be retained by the Refractories Company shall be borne by that company."

Clause 9 provided:

"Didier-Works shall bear and pay such Indian income-tax, super-tax, or any other Indian tax (if any), as may be payable by them on the remuneration payable to them under this agreement......."

In terms of the remuneration clause, the assessee-company paid to the German company the following amounts in the relevant assessment years :

The assessee-company claimed these as deductible expenses but the Income-tax Officer disallowed the claims in the respective years by holding that they represented capital expenditure as according to the Income-tax Officer, the assessee derived a benefit of an enduring nature in lieu of these payments.

On appeal to the Appellate Assistant Commissioner, in respect of the first two years, he adopted the reasoning of the Income-tax Officer for disallowing the assessee's claim and in the second group of three years, he sustained the disallowance by holding that the remuneration paid in these years to the German company was in reality a sharing of profits. For his conclusion, he drew support from the decision of the Judicial Committee of the Privy Council in the case of Pondicherry Railway Co. Ltd. v. Commissioner of Income-tax [1931] 5 ITC 363 (PC).

In assessee's further appeals to the Appellate Tribunal which were heard by the Bombay Bench, the assessee claimed that the payments were essentially made on revenue account by way of remuneration payable to the German company for its services rendered in terms of the separate agreement. It was alternatively claimed that even if a capital asset had been acquired as a consequence of these payments, the payments nevertheless constituted revenue expenditure. Reliance was placed in support of such submission on the decision of the Supreme Court in the case of Travancore Sugars and Chemicals Ltd. v. Commissioner of Income-tax [1966] 62 ITR 566 (SC). It was further maintained that there was no case of a division or sharing of profits simpliciter. Reliance was placed on the ratio laid down in the case of British Sugar Manufacturers Ltd. v. Harris [1939] 7 ITR 101 (CA). The Tribunal accepted the contention of the assessee that the rule in the Pondicherry Railway Company's case [1931] 5 ITC 363 (PC) had no application and it was not a case of division or sharing of profits simpliciter. The Tribunal also accepted the contention advanced by the revenue that the payments had ultimately brought into existence a capital asset, yet it came to the conclusion that the expenditure was revenue in character in view of the rule indicated in the case of Travancore Sugars and Chemicals Ltd. [1966] 62 ITR 566 (SC). Accordingly, the Tribunal allowed deductions of the claims in the several years.

In the assessment year 1963-64, the Income-tax Officer had disallowed expenditure of a sum of Rs. 1,25,190 incurred by the assessee for obtaining a complete technical know-how report. The Tribunal took note of the inclusive definition of "plant" in the Act and relying on certain authorities came to hold that the depreciation and development rebate in respect of technical know-how report was admissible.

During the assessment year 1964-65, the assessee had claimed a sum of Rs. 1,44,755 under the head Workmen's Staff Welfare Expenses. The Income-tax Officer disallowed a sum of Rs. 45,000 out of the said amount on a finding that Rs. 25,000 out of it had been contributed by the assessee to the Ardeshir Dalal Memorial Hospital for erecting one air-conditioned cabin and Rs. 20,000 had been donated to the Tata Memorial Hospital for providing hospitalisation facilities to the employees of the assessee and these according to the Income-tax Officer were investments of capital nature. The disallowance was upheld in first appeal. The Tribunal, however, took into consideration broad features available on the record and came to hold that these were admissible expenses.

(3.)WE shall first examine the tenability of the claim for depreciation and development rebate in respect of the technical know-how report and the contributions made to the hospitals. The Tribunal has found in the assessment year 1963-64 that the assessee claimed under the head of operational and other expenses a sum of Rs. 1,25,190. Out of this amount, the Income-tax Officer found that Rs. 481 had been spent in connection with execution of the agreement relating to the use by the assessee in their factory at Belpahar of the patent devised by one Mr. Russel P. Hauer. The balance amount had been paid for preparation of the technical know-how report as per Clause 5(a) of the agreement dated December 12, 1961. The Income-tax Officer treated this as a capital expenditure and the Appellate Assistant Commissioner upheld that conclusion. The Tribunal in paragraph 28 of its appellate decision came to hold:
"The assessee's representative took us through the agreement of December 12, 1961, between the assessee-company and R, P. Hauer and admitted that the agreement was for the acquisition of the complete know-how report relating to the basic refractory bricks. Hauer agreed to train not more than three men at the company's expenses in the U.S.A. According to Clause V of the agreement the company paid to R. P. Hauer a sum of Rs. 25,000 for making lay-outs, drawings, designs, blueprints, to give effect to the collaboration visualised in the agreement.....," and after dealing with the contentions advanced on behalf of the revenue came to find that the report for the acquisition of which the payment had been made contained wealth of information about the design, lay out, et cetera. Relying on the definition of " plant" given in Section 43(3) of the Act which includes "books", the Tribunal held that the report containing the know-how could be equated with a book as included in the definition and, therefore, it came to hold that the report was a part of "plant" as defined in the. statute. It accordingly directed that depreciation and development rebate as admissible under the Act may be given.

There is no dispute before us that plant has an inclusive definition which obviously reflects the legislative intention that the term has to be given a wide meaning. The Tribunal has rightly used this as the basis to hold that the report containing the know-how be treated as a part of plant. We do not think that the Tribunal committed any mistake-in coming to its conclusion on this point. We are not called upon to examine whether the claims on the head of depreciation and development rebate are admissible because they are matters yet to be examined by the Income-tax Officer. Our answer to the question referred, therefore, is in the affirmative, that is-

The depreciation and development rebate were allowable to the assessee in respect of the technical know-how, provided the statutory requirements are satisfied.

The next question for examination is as to whether the contributions made by the assessee in favour of the two hospitals were deductible as revenue expenditure. During the assessment year 1964-65, the assessee had paid a sum of Rs. 25,000. to A. D. Memorial Hospital for erecting one air-conditioned cabin and Rs. 20,000 to the Tata Memorial Hospital for providing hospitalisation facilities for the assessee's employees. These deductions were disallowed by the Income-tax Officer and the disallowance was upheld in appeal by the Appellate Assistant Commissioner. The Tribunal found :

"It is pointed out to us that the assessee did not become the owner of those cabins and no capital asset belonging to the assessee was brought into existence as a result of this expenditure. This was incurred only as a part of the staff welfare expenses. These contributions made by the assessee enabled its employees to take advantage of the hospitalisation facilities provided in those air-conditioned cabins in the two hospitals. Beyond that the assessee did not derive any further advantage. The cabins continued to belong to the hospital authorities. The departmental representative on the other hand emphasised the contents of the letter addressed by the assessee-company to TISCO wherein the two amounts were admitted to have been contributed towards the capital cost of the cabins.

We are of the opinion that in this case no capital asset of the assessee has come into existence as a result of the contributions made by the assessee. The amounts were spent only as a part of labour welfare expenses. As a result of this expenditure, the employees of the assessee can avail themselves of the hospitalisation facilities extended by the hospital authori ties on a concessional basis. Even if we assume that there was some enduring advantage, we cannot hold that the expenditure was on capital account. It has been pointed out by the Supreme Court in the case of Goian Lime Syndi cate v. Commissioner of Income-tax [1966] 59 ITR 718, 727 (SC) that in every case where an enduring advantage is obtained, the expenditure for securing it need not necessarily be treated as capital expenditure. In the first place, we do not hold that any enduring advantage was obtained by the assessee in the sense in which it was understood by the department. Secondly, even if there was a substantial advantage gained by the assessee, we may do no better than to rely upon the observations of the Supreme Court in the aforesaid decision as reproduced below :

.

"It is not the law that, in every case, if an enduring advantage is obtained, the expenditure for securing it must be treated as capital expenditure, for, as pointed out by Channell J., in Allianza Company v. Bell [1904] 2 KB 666, 673 :

'In the ordinary case, the cost of the material worked up in a manufactory is not a capital expenditure; it is a current expenditure, and does not become a capital expenditure merely because the material is provided by something like a forward contract, under which a person for the payment of a lump sum down secures a supply of the raw material for a period extending over several years '.

This illustration shows that it is not in every case that an expenditure in respect of an advantage of an enduring nature is capital expenditure.... "

We have been referred to a decision of our own court in Commissioner of Income-tax v. Rupsa Rice Mill [1976] 104 ITR 249 (Orissa), wherein the question for consideration was whether a sum of money donated by the assessee for the construction of a primary health centre building was admissible as business expenditure. On an examination of several authorities the court upheld the claim of the assessee on a finding that the erection of a health centre near the factory premises would provide treatment to ailing workmen. The Tribunal appears, in our view, to have recorded a clear finding of fact and in the face of such a finding, no question of law at all arose for determination. This question should not have been referred for the opinion of the court, as, in our view, the finding recorded by the Tribunal was one of pure fact. Accordingly, we discharge the reference on this question and decline to record any answer.

This leaves for consideration the main question common to all the years which we shall now proceed to examine. It may be stated here that the two questions referred by the Tribunal regarding this aspect are indeed one and if we find that the assessee is not entitled to succeed in its claim of the expenditure being revenue in character, the other would not arise.

First, we propose to indicate the legal position; then examine the find ings reached by the Tribunal and, lastly, formulate the answer to the question.