SUNIL SYNCHEM LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(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.

(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.