JUDGMENT
Ramaswami, J.
1. The following two questions are referred to in the above tax case:
“(1) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the indirect expenses of Rs. 27,548 incurred in setting up the clutch plate and tie rod divisions of the assessee-company should be added to the cost of the plant and machinery for granting depreciation and development rebate ? and
(2) Whether the Tribunal was right in law in restoring the matter to the Appellate Assistant Commissioner for the examination and determination of the point with regard to the nature of the lump sum payment of Rs. 1,00,234, i.e., whether it was capital expenditure or revenue expenditure, when the subject-matter of the appeals before the Appellate Assistant Commissioner and the Tribunal did not include the contention that it was admissible as revenue expenditure ?”
2. The relevant findings relating to the first question are :
3. A sum of Rs. 6,067 was paid as salaries and wages to the technical staff in charge of the erection of plant.
4. A sum of Rs. 18,672 was paid as travelling expenses to the technical personnel and to a director which was incurred by them for selection of machinery.
5. A sum of Rs. 1,000 was paid to the architects for preparing a lay-out of the plant and another sum of Rs. 1,809 was spent for re-doing the defective foundation for erection of the plant.
6. These expenditures totalling Rs. 27,548 were incurred towards the installation of the machinery. On these findings relying on the authority in Challapalli Sugars Ltd. v. Commissioner of Income-tax , the findings of the Tribunal that they could be capitalised had to be upheld. We accordingly answer the first question in the affirmative and against the revenue.
7. The second question related to a sum of Rs. 1,00,234 paid by the assessee to M/s. Small & Parks Ltd., United Kingdom, who had supplied the know-how for the manufacture of tie rods and clutch discs. The assessee claimed to capitalise this amount also as pre-production expenditure incurred in connection with the erection of the machinery and plant
for the manufacture of tie rods and clutch discs. The Income-tax Officer was of the view that the expenditure was relatable to the acquisition of initial know-how in the manufacture of tie rods and clutch discs, though a capital expenditure cannot be considered as forming part of the cost of the plant and machinery so as to be eligible for depreciation and development rebate. In that view, he held that it cannot be included in the cost of plant and machinery.
8. But, on appeal, the Appellate Assistant Commissioner thought that this amount was paid to the collaborators for advice rendered as regards the lay-out of factory, types of machine tools required, selection of discs and fixtures, inspection of clutches and maintenance plant required and that, therefore, this payment also related to the erection of the plant and machinery. In that view, he held that the sum of Rs. 1,00,234 also could be capitalised and included in the cost of machinery and plant.
9. The revenue filed an appeal to the Tribunal against this finding. The Tribunal went into the agreement between the collaborators and the assessee and came to the conclusion that the amount was paid as consideration for the collaborators in agreeing not to export their products to India and also agreeing not to supply any technical information in connection with the manufacture of this item to any other person in India. The Tribunal considered that this is an agreement commonly described as “keep-out agreement”, but without going further into the question as to what would be the effect if the agreement is to be considered as a “keep-out agreement” and on the question as to whether the sum of Rs. 1,00,234 is to be included in the cost of machinery and plant or not, simply remanded the matter with an observation that the authorities below had not considered the import of the agreement and whether the payment would be of the nature of capital expenditure or revenue expenditure on the facts and circumstances of the case and decided cases. The question of remand to the Appellate Assistant Commissioner would arise only if the Tribunal disagrees with the finding of the Appellate Assistant Commissioner on the question of includibility of this pre-production expenditure in the cost of machinery and plant. In the absence of a clear finding that this amount could not be capitalised as a pre-production expenditure and included in the cost of plant and machinery, merely from the fact of remand, we are unable to imply such a finding as requested by the revenue in the reference before us. Even if the agreement were to be treated as a keep-out agreement, still the Tribunal will have to give a finding as to whether the sum in question could be included in the cost of plant and machinery for the purpose of depreciation and development rebate. We are, therefore, of the view that the Tribunal will have to give a finding
before it finally disposes of the appeal before it. But, for the sake of completeness, we may note in this order that the argument of the revenue was that the only question before the Tribunal related to the question of addition of this amount in the cost of plant and machinery as pre-production expenditure and that, therefore, the question whether it is a capital expenditure or revenue expenditure need not be gone into by the Tribunal or the Appellate Assistant Commissioner. But, on the other hand, the learned counsel for the assessee contended that he did raise the alternative question that if the amount could not be included in the cost of plant and machinery for the purpose of depreciation and development rebate, he is entitled to treat this amount as a revenue expenditure in the relevant assessment year. Since we are remanding the matter to the Tribunal, we are not going into these rival contentions. We may also point out that the revenue also contended that the entire amount of Rs. 1,00,234 was not spent in the relevant year 1962-63, that a portion of it was in 1961-62, and that could not have been dealt with in the assessment year 1962-63. This question also was not specifically gone into by the Tribunal. We are not, therefore, expressing any view on that question. With these observations, we technically answer the reference in the negative and in favour of the revenue, but with a direction that the Tribunal will go into the matter afresh. In the circumstances of this case, parties will bear their respective costs.