B.P.SARAF J. - (1.) BY this reference under section 256(1) of the Income -tax Act, 1961, at the instance of the Revenue, the Income -tax Appellate Tribunal has referred the following two question to this court for opinion : '1. Whether, on the facts and in the circumstances of the case apprentices employed by the assessee in terms of the contract of apprenticeship were in law the assessee's employees and such the assessee was entitled to initial depreciation at 20 per cent. of the actual cost under section 32(1)(iv) in respect of the apprentice school building and apprentice shop building ?'
(2.) WHETHER the sum of Rs. 1,73,849 paid by the assessee to Messrs. Harnischfeger Corporation, U. S. A., in terms of the agreement is admissible revenue deduction for the assessment year 1968 -69 ?' 2. The first question is common to the assessment years 1968 -69 and 1969 -70, whereas the second question is confined to 1968 -69 only. As is evident from the question set out above, the dispute in the first question pertains to allowability of initial depreciation under section 32(1)(iv) in respect of amounts spent by the assessee on the construction of school and shop building for its apprentices. The real controversy is as to whether apprentices can be person employed in the business of the assessee within the meaning of section 32(1)(iv) of the act. The dispute raised in the second question relates to the allowability of the amount of royalty paid by the assessee to a foreign company for various technical services provided by it. The admitted position is that the payments of royalty made in pursuance of the very same agreement during the assessment year 1969 - 70 have already been allowed. The dispute in this case is confined to the payments made during the year 1968 -69.
(3.) WE take up question No. 1 first. The contention of the Revenue is that apprentices are not 'persons employed in the business of the assessee and, as such, the benefit of initial depreciation under section 32(1)(iv) of the act is not available to the assessee in the case of the school building and shop building constructed for their welfare. To put it differently, the contention is that apprentices are merely trainees who receive stipend during the period of apprenticeship; such apprentices, during the period of apprenticeship, cannot be held to be employees though, on completion of the period of apprenticeship, on being appointed by the employer, they may become so. In that view of the matter, the stand of the Revenue is that the school and shop building constructed for the welfare of the apprentices do not meet the requirements of section 32(1)(iv) of the Act.;