Sabyasachi Mukharji, J. - (1.) This reference under Section 66(1) of the Indian Income-tax Act, 1922, relates to the assessment year 1955-56, the corresponding previous year being the year ended 31st March, 1955. For the aforesaid assessment year, the assessee had claimed deduction in respect of Rs. 20,065 spent on account of the travelling expenses, etc., of three technicians of Messrs. Reynolds Metal Company of America, who came to India for the purpose of examining the assessee's manufacturing plants. The Income-tax Officer disallowed the expenditure on the ground that it was capital in nature. There was an appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that as a result of the recommendations made by the technicians of Messrs. Reynolds Metal Co., the assessee had gained an advantage of a permanent and an enduring nature. It will be necessary to set out the relevant portion of the order of the Appellate Assistant Commissioner: "7. The next ground relates to the disallowance of a sum of Rs. 20,065 being the fare and other expenses of three technicians of Messrs. Reynolds Metal Company sent out to India for the purpose of examining the appellant's plant. These technicians have submitted very elaborate reports which I will discuss below. Sri Bagadthey argues that these expenses were incurred only to improve the existing plant and that no extension of the plant was involved. In reply to my query Sri N.L.V. Subramaniam stated that the production of the plant rose from 1,700 tons to 2,400 tons per annum as a result of the implementation of the recommendations made by the technical experts. He also stated that the recovery from the rejects increased substantially. 8. I have gone through the reports submitted by the technical experts and in particular the report of Mr. H. W. Shoemaker. He went through various aspects of the manufacturing process like extraction, calcination and recovery of cryolite, etc., and has made recommendations for the substantial increase of the production as well as for the economic running of the plant. In his recommendations on the process of extraction, Mr. Shoemaker has stated that the premixer should be duplicated by another unit and that the three autoclaves were not sufficient. He has recommended certain additions to the autoclaves. It is not necessary to discuss the report. in greater detail as it is evident that the recommendations involved extension of the plant, modification of certain items of plant and improved methods of running the plant. Mr. Shoemaker suggested that the recovery of cryolite should be carried out as a bye-product. It is, therefore, clear that a permanent advantage has accrued to the appellant as a consequence of the recommendations of the experts. This advantage is obviously of an enduring nature as can be seen from the foregoing discussion. To put the whole matter in a nutshell, I would describe the expenditure incurred on these extensions as an expenditure incurred for the purchase of technical 'know-how'. As such I would treat this expenditure as having been incurred for acquiring a valuable asset. In this view of the matter, I hold that the Income-tax Officer was justified in treating these expenses as of a capital nature."
(2.) Being aggrieved by the aforesaid decision of the Appellate Assistant Commissioner the assessee preferred an appeal before the Income-tax Tribunal. The Tribunal after discussing the report of the Appellate Assistant Commissioner observed as follows : "We are unable to agree with the view taken by the Appellate Assistant Commissioner on the matter. We do not think that any asset or benefit of an enduring character was brought into existence as a result of the recommendations made by the technical experts of Messrs. Reynolds Metal Company. It is true, no doubt, that the technicians suggested some improved methods of manufacture, but the suggestions did not confer any permanent or enduring benefit to the assessee. The methods suggested could become obsolete and out of date very soon on the evolution of better technique of manufacture. The technical know-how which the appellant-company undoubtedly acquired in consequence of the recommendations made by the technicians cannot, therefore, be regarded as an enduring asset of the appellant-company. We were informed that the output of the appellant's plants rose from 1,700 to 2,400 tons per annum upon the implementation of the recommendations and we have no doubt that the entire expenditure of Rs. 20,065 must be considered as having been laid out wholly and exclusively for the purpose of business and allowable under Section 10(2)(xv)."
(3.) After an application had been made, the Tribunal has referred the following question under Section 66(1) of the Indian Income-tax Act, 1922: "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenditure incurred by the assessee amounting to Rs. 20,065 on account of the travelling and other expenses of the three technicians of Messrs. Reynolds Metal Company was not capital in nature and was allowable under Section 10(2)(xv) of the Indian Income-tax Act, 1922, as a deduction ?";