Dwarka Prasad, J. - (1.) THIS is an application under Section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), seeking a direction that 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. 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. 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 training expenses, 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. 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. 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 [1985] 152 ITR 308, 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.
(3.) 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. In Challapalli Sugars Ltd. v. CIT [1975] 98 ITR 167 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. In CIT v. J. M A Industries Ltd. [ 1981 ] 129 ITR 373, 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 [ 1975] 98 ITR 167, 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. ;