Dipak Kumar Sen, J.:— This reference arises out of the income-tax assessment of Indian Oxygen Ltd., the assessee, in the assessment year 1976-77 the relevant accounting year ending on September 30, 1975. The Income-tax Officer while making the assessment disallowed deduction claimed under section 80J in respect of a high purity gas manufacturing unit on the ground that the said unit commenced commercial production with effect from April 1, 1975. The Income-tax Officer allowed deduction only for six months in respect of the capital employed in respect of the said plant at the rate of 6%.

2. In respect of other capital, the assessee included in the computation the value of the assets and liabilities at the beginning of the computation period and also the proportionate average of the increase or decrease of assets and liabilities during the year without considering the bank overdraft allocable to the said unit. The Income-tax Officer proceeded on the basis of the assets and liabilities as on the first day of the computation period but did not take into account the average increase or decrease of such assets and liabilities. In the said assessment year, the assessee paid gratuity to one of its directors. In the computation of the total taxable income, the Income-tax Officer found that such gratuity had been paid in excess of the limit permitted under sections 40(c) and 40A(5) of the Act and disallowed the said excess amount. The amount paid by way of gratuity to a retired director was treated as salary for the said purpose.

3. The assessee claimed deduction of expenditure incurred for payment of legal and professional charges. The Income-tax Officer construing section 80VV of the Act of 1961 disallowed an amount of Rs. 39,680 on the ground that the said section 80VV laid down a ceiling of Rs. 5,000 in respect of such expenditure.

4. In the said assessment year, directors and executives of the assessee had made trips to the United Kingdom and the United States of America. The assessee claimed deduction in respect of the expenses incurred in respect of the said trips on the ground that such expenditure was revenue in nature incurred for the business of the assessee. The Income-tax Officer found that some of the trips related to a contemplated new line of business intended to be introduced by the assessee and that such foreign trips had been made in connection with a completely new project, viz., castor oil derivatives heavy chemical project. The Income-tax Officer held that expenditure on account of foreign trips was to be treated as capital expenditure and disallowed deduction of the same.

5. The assessee also made a claim for deduction of surtax liability incurred by the assessee in the said assessment year which had been paid on provisional assessment. The Income-tax Officer disallowed the said claim.

6. Being aggrieved, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The Commissioner (Appeals) held, following the decision of this court in Century Enka Ltd. v. TTO, [1977] 107 ITR 123, that capital for the purpose of section 80J should be determined not only on the basis of assets and liabilities as on the first day of the computation period but also on the average amounts of increase and decrease of the assets and liabilities during the computation period. The Commissioner (Appeals) directed the Income-tax Officer to recomputed the deduction under section 80J in the light of the above decision.

7. The Commissioner (Appeals) held that salary included gratuity and for the purpose of exemption under sections 40(c) and 40A(5), gratuity paid to a retired director had to be treated as salary and if the amount exceeded the limits permitted under the said sections, the same had to be disallowed. The decision of the Income-tax Officer on this point was upheld.

8. The Commissioner (Appeals) also upheld the decision of the Income-tax Officer in disallowing the expenditure incurred on account of legal and professional charges under section 80VV. It was held that the deduction permissible would be limited to Rs. 5,000 only.

9. In respect of the claim for deduction on account of foreign, travelling expenses of the directors and executives of the assessee, the Commissioner (Appeals) found that the object of the foreign visits was, inter alia, for the purpose of discussions on (a) problems of the business of the assessee, (b) progress achieved in obtaining approval of the Government of India for the proposed foreign collaboration agreement for manufacture of cyrogenic equipment, (c) major diversification of the business of the assessee, (d) a basic heavy organic chemical project and for submission of a report to the Government of India, and (e) finalising a draft agreement with details for submission to the Government of India in respect of the said project. He found that the major purpose of the visit was to finalise the proposal of the assessee for a new project, viz., castor oil and castor oil derivative projects. The Commissioner (Appeals) held that the expenditure incurred in connection with the aforesaid was for the purpose of securing to the assessee an advantage of an enduring nature in the shape of a future project. It was held that the expenditure incurred for such future scheme and project should not be treated as business expenditure of the year under appeal. The disallowance of the claim of the assessee in respect of this item by the Income-tax Officer was upheld.

10. The Commissioner (Appeals) also upheld the decision of the Income-tax Officer disallowing the claim of the assessee for deduction of surtax.

11. Being aggrieved by the decision of the Commissioner (Appeals), both the assessee and the Revenue went up in further appeal before the Income-tax Appellate Tribunal. It was contended before the Tribunal on behalf of the assessee that in computing the capital under section 80J of the Act, the deduction in respect of the high purity gas unit should have been allowed for the whole of the previous year and not for six months only. It was contended that deduction was allowable on the capital employed in the undertaking irrespective of the period the undertaking actually worked. Following a decision of the Madras High Court in CIT v. Simpson and Company, [1980] 122 ITR 283, it was held by the Tribunal that the Income-tax Officer was not justified in reducing the quantum of deduction under section 80J on the ground that the relevant industrial undertaking did not work throughout the previous year. It was directed that the assessee should be allowed deduction at the prescribed rate on the capital employed in the relevant industrial undertaking irrespective of the fact that the undertaking started manufacturing only from April 1, 1975.

12. It was further contended before the Tribunal on behalf of the assessee that for the purpose of deduction under section 80J, the value of the depreciable assets should be taken at their cost and not at their depreciated value. Taking into consideration the new sub-section introduced by the Finance (No. 2) Act, 1980, in section 80J with retrospective effect laying down the basis for computation of the capital employed, the Tribunal directed the Income-tax Officer to reconsider the position in the light of the new provision for the purpose of the computation of capital.

13. It was contended on behalf of the Revenue before the Tribunal that the decision of the Commissioner (Appeals) directing that the average of the increase or decrease in the assets and liabilities of the assessee after the first day of the relevant previous year should be taken into account in computing the capital employed in the undertaking for the purpose of section 80J of the Act was erroneous in view of the said new sub-section introduced in section 80J of the Act by the Finance (No. 2) Act, 1980. The contention of the Revenue was accepted by the Tribunal which set aside the orders of the Income-tax Officer and of the Commissioner (Appeals) on this point and directed the Income-tax Officer to reconsider the matter in the light of the provisions contained in the new sub-section and recompute the capital employed.

14. It was contended on behalf of the assessee before the Tribunal that the Commissioner (Appeals) had erred in upholding the decision of the Income-tax Officer to treat the entire gratuity paid to the retired director as salary for the purpose of disallowance under sections 40(c) and 40A(5) of the Act as a part of the same was exempt under section 10(10) and could not be regarded as part of the salary for the purpose of section 40A(5). The Tribunal rejected the contention of the assessee and held that in view of the definition of salary as contained in clause (a) of Explanation 2 to the said section 40A(5), salary included any gratuity and, therefore, the Income-tax Officer and the Commissioner (Appeals) were justified in directing that the entire gratuity paid by the assessee to the retired director should be taken into account for the purpose of section 40A(5).

15. It was contended on behalf of the assessee before the Tribunal that in section 80VV of the Act, the ceiling limit of Rs. 5,000 was fixed in respect of each proceeding before any income-tax authority or the Appellate Tribunal or any court relating to the determination of any liability by way of tax, penalty or interest and not in relation to the amount to be allowed and that in respect of every such proceeding, the assessee would be entitled to a deduction up to Rs. 5,000. The Tribunal did not accept the contention of the assessee and held that on a plain reading of the said section and the proviso thereto, it was indicated that the ceiling had been laid down in relation to the amount of deduction to be allowed in respect of the expenses incurred by the assessee for a particular assessment year. The decisions of the Income-tax Officer and the Commissioner (Appeals) were upheld.

16. The claim of the assessee for deduction of the amount paid towards surtax was also disallowed by the Tribunal and the order of the Commissioner (Appeals) was confirmed.

17. On the respective applications of the Revenue as also of the assessee under section 256(1) of the Income-tax Act, 1961, the following questions have been referred by the Tribunal as questions of law arising out of its orders for the opinion of this court:

Referred at the instance of the Revenue:

“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the high purity gas unit was entitled to relief under section 80J of the Income-tax Act, 1961, for the entire year and not in proportion to the period when the said unit was in commercial production?”

Referred at the instance of the assessee:

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in directing the Income-tax Officer to deal with the issue as to whether for computingi the capital for the purpose of deduction under section 80J of the Income-tax Act, the average of increase and decrease of the assets and liabilities after the first day of the relevant previous year should be taken into account in the light of the provisions contained in the sub-section inserted in section 80J by the Finance (No. 2) Act, 1980, with retrospective effect?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in confirming the treatment of gratuity exempt under section 10(10) of the Income-tax Act as ‘salary’ for the purpose of disallowance under sections 40(c) and 40A(5) of the said Act?

3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the ceiling laid down by the proviso under section 80VV of the Act applies in relation to the aggregate expenses of the nature mentioned in that section taking all proceedings in respect thereof collectively and not in relation to each such proceeding separately?

4. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenses incurred by the assessee on the foreign travel of some of its employees in connection with new projects for manufacture of a new article or thing was an expenditure of a capital nature and as such not admissible as a deduction?

5. Whether, on the facts and in the circumstances of the case, the Tribunal was right in upholding the disallowance of Rs. 7,98,210 paid by the assessee towards its surtax liability?

6. Whether, on the facts and in the circumstances of the case, the Tribunal was right in directing the Income-tax Officer to reconsider the assessee's claim for taking the value of the depreciable assets at cost for the purpose of deduction under section 80J of the Act in the light of the new provision inserted in the Act by the Finance (No. 2) Act, 1980, with retrospective effect?”

18. The controversy in the only question referred at the instance of the Revenue appears to be covered by the decision of the Supreme Court in Lohia Machines Ltd. v. Union of India, [1985] 152 ITR 308. It has been laid down by the Supreme Court that in computing the deduction under section 80J, the capital employed in respect of the previous year would be fixed as on the first day of that year. In that view, if capital is employed in an undertaking, whether the said undertaking actually worked throughout the accounting year or not becomes irrelevant. It is nobody's case that capital for the high purity gas unit of the assessee was not employed on the first day of the year. Accordingly, we answer the question referred at the instance of the Revenue in the affirmative and in favour of the assessee.

19. The said decision of the Supreme Court also covers question No. 1 referred at the instance of the assessee. For the purpose of computing deduction under section 80J, the average of increase and decrease of the assets and liabilities after the first day of the relevant previous year is not relevant. Capital employed in the previous year has to be computed as on the first day of that year. Question No. 1 referred at the instance of the assessee is, therefore, answered in the negative and in favour of the assessee.

20. To appreciate the controversy raised in question No. 2 referred at the instance of the assessee, it is necessary to consider the relevant sections of the Income-tax Act, which are set out as follows:

“10. Incomes not included in total income.— In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included—

(10)(iii) any other gratuity received by an employee on his retirement or on his becoming incapacitated prior to such retirement or on termination of his employment, or any gratuity received by his widow, children or dependants on his death, to the extent it does not, in either case, exceed one-half month's salary for each year of completed service, calculated on the basis of the average salary for the three years immediately preceding the year in which the gratuity is paid, subject to a maximum of thirty thousand rupees or twenty months' salary so calculated, whichever is less.

17. ‘Salary’, ‘perquisite’ and ‘profits in lieu of salary’ defined.— For the purposes of sections 15 and 16 and of this section,—

(1) ‘Salary’ includes—

(i) wages;

(iii) any gratuity;

(2) ‘profits in lieu of salary’ includes—

(i) the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto;

(ii) any payment (other than any payment referred to in clause (10), clause (10A), clause (10B), clause (11), clause (12) or clause (13A) of section 10), due to or received by any assessee from an employer or a former employer or from a provident or other fund (not being an approved superannuation fund), to the extent to which it does not consist of contributions by the assessee or interest on such contributions.

40. Amounts not deductible.— Notwithstanding anything to the contrary in sections 30 to 39, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession”,—

(c) in the case of any company—

(i) any expenditure which results directly or indirectly in the provision of any remuneration or benefit or amenity to a director or to a person who has a substantial interest in the company or to a relative of the director or of such person, as the case may be;

if in the opinion of the Income-tax Officer any such expenditure or allowance as is mentioned in sub-clauses (i) and (ii) is excessive or unreasonable having regard to the legitimate business needs of the company and the benefit derived by or accruing to it therefrom, so, however, that the deduction in respect of the aggregate of such expenditure and allowance in respect of any one person referred to in sub-clause (i) shall, in no case, exceed—

(A) where such expenditure or allowance relates to a period exceeding eleven months comprised in the previous year, the amount of seventy-two thousand rupees;

(B) where such expenditure or allowance relates to a period not exceeding eleven months comprised in the previous year, an amount calculated at the rate of six thousand rupees for each month or part thereof comprised in that period:

Provided that in a case where such person is also an employee of the company for any period comprised in the previous year, expenditure of the nature referred to in clauses (i), (ii), (iii) and (iv) of the second proviso to clause (a) of sub-section (5) of section 40A shall not be taken into account for the purposes of sub-clause (A) or sub-clause (B), as the case may be.

40A. Expenses or payments not deductible in certain circumstances.— (1) The provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provisions of this Act relating to the computation of income under the head ‘Profits and gains of business or profession’

(5)(a) Where the assessee—

(i) incurs any expenditure which results directly or indirectly in the payment of any salary to an employee or a former employee, or

(ii) incurs any expenditure which results directly or indirectly in the provision of any perquisite (whether convertible into money or not) to an employee or incurs directly or indirectly any expenditure or is entitled to any allowance in respect of any assets of the assessee used by an employee either wholly or partly for his own purposes or benefit,

then, subject to the provisions of clause (b), so much of such expenditure or allowance as is in excess of the limit specified in respect thereof in clause (c) shall not be allowed as a deduction:

Provided that where the assessee is a company, so much of the aggregate of—

(a) the expenditure and allowance referred to in sub-clauses (i) and (ii) of this clause; and

(b) the expenditure and allowance referred to in sub-clauses (i) and (ii) of clause (c) of section 40,

in respect of an employee or a former employee, being a director or a person who has a substantial interest in the company or a relative of the director or of such person, as is in excess of the sum of seventy-two thousand rupees, shall in no case be allowed as a deduction

Explanation 2.— In this sub-section—

(a) ‘salary’ has the meaning assigned to it in clause (1) read with clause (3) of section 17.”

21. It was contended on behalf of the assessee that under section 10(10), gratuity received by an employee on his retirement is not includible to the extent as provided in his total income. The said provision also applied in the case of receipt of profits in lieu of salary under section 17(3) of the Act. The learned advocate for the assessee submitted further that under section 40A, if expenditure was incurred directly or indirectly for the payment of salary in respect of an employee or a former employee, who is or was a director, it should mean “salary” ‘within the meaning of section 17. If under section 17 gratuity received by an employee on his retirement is not to be treated as profits in lieu of salary, the same could not be included for the purpose of determining the exemption under section 40A.

22. The learned advocate for the Revenue contended to the contrary. He submitted that money paid on account of gratuity must be deemed to be “salary” as defined in section 17. The definition in section 17 was applicable to the construction of section 40A(5). Therefore, the entire amount paid by way of retirement gratuity should be taken into account in determining the exemption under section 40A(5) which categorically provided that only a specific amount should be allowed and the amount paid in excess of the specified amount cannot be allowed as a deduction.

23. A decision of this court in Hindustan Motors Ltd. v. Commissioner Of Income-Tax, [1985] 156 ITR 223, was cited in this connection. It was contended in that case, inter alia, that gratuity up to the limit of Rs. 30,000, if paid to an employee at or after his retirement, could not be included in the income of the employee as salary under section 10(10)(iii) of the Act. It was contended further that clauses (1) and (3) of section 17 and section 40A(5)(c) should be read along with section 10(10)(iii), and be given a harmonious construction and Rs. 30,000 should be excluded before imposing the limit of Rs. 60,000 as laid down in section 40A(5)(c). This court did not express any opinion on the contention, as it was raised for the first time at that reference. It was observed, however, that what was exempted in the hands of the employee may not be a relevant consideration in determining the limits of deduction in computing the income of the employer.

24. In the instant case, it has been found that gratuity had been paid to a retired director. The nature of this payment has to be examined in the background of the sections of the Act. Under section 17 of the Act, any gratuity paid can be categorised as salary. But a gratuity paid on retirement has been separately treated in section 17 as profits in lieu of salary and it is directed to be excluded from calculating profits in lieu of salary. Therefore, such gratuity, which is specially provided for under clause (3) of section 17, in our view, should govern the case and not the general provisions under section 17(1)(iii) under which all gratuities are included in the expression “salary”. If a gratuity paid to an employee on his retirement cannot be categorised as profits in lieu of salary, it is difficult to understand why the same payment should be treated as salary.

25. The definition of “salary” in section 17 governs the provision of section 40A(5) and if we import the definition into section 17, it has to be held that gratuity which is paid on the retirement of an employee under section 10(10) of the Act may not be included in the salary for the purpose of income-tax. However, in any view, this would be of academic interest on the facts. Under section 40(c), a limit has been fixed regarding the expenditure which results directly or indirectly in the provision of remuneration or benefit or amenity to a director, namely, Rs. 72,000, which is the same as in section 40A(5). Even if the payment which has been made on account of gratuity to a retired director does not come within the definition of salary or profit in lieu of salary within the meaning of section 17, it is nevertheless an expenditure within the meaning of section 40(c) and if the same exceeds the limit as provided by the section, the assessee cannot claim deduction in respect of the excess. The limit being Rs. 72,000, the excess expenditure has to be disallowed under section 40(c) irrespective of the fact that the expenditure cannot be treated as income in the hands of the recipient to the extent prescribed by section 10(10).

26. For the above reasons, we hold that any amount paid by the assessee to its retired director in excess of Rs. 72,000 could not have been allowed as a deduction and return our answer to question No. 2 referred at the instance of the assessee in the affirmative and in favour of the Revenue.

27. To appreciate the controversy raised in question No. 3 referred at the instance of the assessee, it is necessary to consider the provisions of section 80VV which are set out hereafter:

“80VV. Deduction in respect of expenses incurred in connection with certain proceedings under the Act.— In computing the total income of an assessee, there shall be allowed by way of deduction any expenditure incurred by him in the previous year in respect of any proceedings before any income-tax authority or the Appellate Tribunal or any court relating to the determination of any liability under this Act, by way of tax, penalty or interest:

Provided that no deduction under this section shall, in any case, exceed in the aggregate five thousand rupees.”

28. On a plain reading of the said section, it appears that an assessee can claim deduction of expenditure incurred by him in the relevant accountin year in respect of any proceedings either before any Income-tax Authority or the Appellate Tribunal or any court. The proceedings must, however, relate to the determination of any liability under the Income-tax Act on account of tax, penalty or interest.

29. Under the proviso, it is laid down that no deduction under this section shall, in any case, exceed in the aggregate Rs. 5,000. We note that in the first part of the section, the expression used is “any proceedings” whereas in the proviso, the expression used is “in any case”. It has been contended on behalf of the assessee that the expression “in any case” means any proceedings. It was contended, therefore, that in respect of each proceeding, the assessee would be entitled to claim deduction of expenditure up to the prescribed limit of Rs. 5,000. In support of his contentions, the learned advocate for the assessee drew our attention to the new section introduced in the Act, namely, section 40A(12), in which the matter has been clarified and a ceiling of Rs. 10,000 has been fixed for deduction in respect of such expenditure.

30. The learned advocate for the Revenue contended to the contrary and submitted that the expression “in any case” should mean “in the case of any particular assessee” referred to in section 80A which reads, as follows:

“80A. Deductions to be made in computing total income.— (1) In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this Chapter, the deductions specified in sections 80C to 80VV.

(2) The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee.”

31. The learned advocate for the Revenue submitted that the expression “in any case” should be considered and construed in the context of section 80A.

32. On a consideration of the section and the submissions made on behalf of the parties, it appears to us that the construction which has been suggested on behalf of the Revenue is more acceptable. The fact that the expression “case” was introduced in the proviso to section 80W whereas in the first part of the said section, the expression used was “proceedings” indicates the intention of the Legislature. In our view, the expression “in any case” as appearing in section 80W would mean, in any case of computation of deductions from total income allowable under Chapter VI-A of the Act. On the said construction, in our view, the maximum deduction permitted under section 80VV is Rs. 5,000 in the aggregate.

33. For the above reasons, we answer question No. 3 in the affirmative and in favour of the Revenue.

34. On question No. 4, referred at the instance of the assessee, the facts which have been found or admitted, have been noted earlier. The facts as found are shortly that the directors and the executives of the assessee travelled abroad in connection with negotiations to be carried on by them outside India for the purpose of setting up a new project for the manufacture of a new article or thing. Such finding has not been challenged by the assessee and has become final.

35. It was submitted by the learned advocate for the assessee that in the instant case, the expenditure incurred has not resulted in the acquisition of any capital asset of enduring benefit to the assessee. The learned advocate submitted that the expenditure incurred was for activities of an exploratory nature by the assessee for the intended future projects. Therefore, the expenditure incurred should be held to be revenue expenditure and allowed to be deducted.

36. The learned advocate for the Revenue contended to the contrary. He submitted that the expenditure incurred was in respect of a new project and for manufacture of new articles or things which had no connection with the existing business of the assessee. In the event the negotiations materialised, a new project would have been launched. The expenditure would be attributable to the same and in no event could the same be treated as a revenue expenditure in the existing business.

37. In support of the respective contentions, a large number of decisions were cited at the Bar which are considered hereafter:

(a) Ambica Mills Ltd. v. CIT, [1964] 54 ITR 167 (Guj). In this case, the assessee, a manufacturer of textiles, authorised a tour by its director and its mills' superintendent to make an on the spot study of the latest developments in such manufacture in the United Kingdom and other countries and to make a report on their return with their recommendation whether such development should be adopted and whether new machines should be purchased. Subsequently, new, improved and modern machinery were imported by the assessee for its mills.

On these facts, it was held by the High Court of Gujarat that the tour, though for the purpose of a preliminary survey of new methods and for purchase of new machinery at a later stage, would be one for the purpose of bringing into existence capital assets and the expenditure would be capital in nature.

(b) Bombay Steam Navigation Co. (1953) Pvt. Ltd. v. CIT, [1965] 56 ITR 52 (SC). This decision was cited for the proposition laid down by the Supreme Court that if an expenditure is made in respect of a transaction which is so closely related to the business that it could be viewed as an integral part of the conduct of the business, the same may be regarded as revenue expenditure laid out wholly and exclusively for the purpose of the business. The Supreme Court further held that the question whether a particular expenditure is revenue expenditure incurred for the purpose of the business must be viewed in the larger context of business necessity or expediency. If the outgoing or expenditure was so related to the carrying on or conduct of the business that it may be regarded as an integral part of the profit earning process and not for the acquisition of an asset or a right of permanent character the possession of which is a condition to the carrying on of the business, the expenditure may be regarded as revenue expenditure.

(c) CIT v. Alembic Glass Industries Ltd., [1969] 71 ITR 752 (Guj). In this case, the assessee, who manufactured glassware, deputed three of its technicians to the U.S.A to obtain practical training in the manufacture of heat-resisting glassware. The assessee paid an amount to an American company by way of fees and further amounts were spent for travelling, lodging and other expenses of the employees. On these facts, the High Court of Gujarat upholding the decision of the Tribunal held that the outlay in question was not made for the initiation of a new business, nor for expansion of its business, nor for a substantial replacement of the equipment of the business. It was held further that the expenditure was not made for acquiring and bringing into existence an asset or an advantage of enduring nature to the business but for running the business more efficiently so as to produce higher profits. The amounts spent were held to be revenue expenditure.

(d) Produce Exchange Corporation Ltd. v. CIT, [1970] 77 ITR 739 (SC). This decision was cited for the proposition laid down by the Supreme Court that a decisive test whether one or more business is being carried on was not the nature or the lines of the business. The decisive test was the unity of control.

(e) Standard Refinery and Distillery Ltd. v. CIT, [1971] 79 ITR 589 (SC). In this case, the Supreme Court considered whether a business of sugar manufacturing and distillery and a business of dealing in shares constituted the same business. It was held in the facts that the said two businesses constituted one business within the meaning of section 24(2) of the Indian Income-tax Act, 1922.

(f) Sayaji Iron & Engineering Works Pvt. Ltd. v. CIT, [1974] 96 ITR 240 (Guj). The assessee in this case carried on the business of manufacture, inter alia, of electric hoists of a particular lifting capacity. Two directors and the production manager of the assessee were sent to Germany to acquire technical know-how for manufacturing electric hoists of a different design and greater capacity and also for studying and obtaining training in the manufacture of conveyor leaders. On these facts, it was held by the Gujarat High Court that the expenditure having been incurred for a limited purpose, viz., to obtain new design of a hoist and to study new and modern manufacturing process, and no capital assets having been brought into existence or intended to be brought into existence, the expenditure incurred was held to be deductible as a business expenditure.

(g) Hyderabad Allwyn Metal Works Ltd. v. Commissioner Of Income-Tax, A.P, [1975] 98 ITR 555 (AP). In this case, a director of the assessee had gone to Japan with the object of negotiating a technical collaboration agreement with a Japanese company for the manufacture of scooters which the assessee did not manufacture till then. On the facts, it was held by the Andhra Pradesh High Court that as the expenditure was incurred to start a new line of business and which had no connection with the expansion of the old business, the expenditure should be treated as capital and not as business expenditure.

(h) CIT v. Associated Electrical Industries (India) Pvt. Ltd., [1975] 101 ITR 844 (Cal). In this case, under an agreement between the assessee, a 100% subsidiary, and the holding company, the assessee agreed to manufacture and supply goods to the holding company and the holding company agreed to supply to the assessee all manufacturing information, designs and data from the foreign principal of the holding company on payment of costs by the assessee for such supply. The assessee obtained designs from the holding company against payment.

On these facts, a Division Bench of this court, upholding the decision of the Tribunal held that as the agreement was for a limited period of the licence during which the information acquired was to be treated as confidential by the assessee and that the designs and data were required to be returned by the assessee on the termination of the agreement; that the licence was to be used for the manufacture of products by the assessee to be sold to the holding company and no new machinery was acquired or installed, the expenditure was of a revenue nature.

(i) Antifriction Bearings Corporation Ltd. v. CIT, [1978] 114 ITR 335 (Bom). In this case, the Bombay High Court held that payment made for obtaining know-how in a business provided in a restricted manner for a restricted use to the assessee and where no transfer and acquisition of any asset was involved must be held to be a revenue expenditure even if incidentally some machinery had been selected as proper and suitable for the project. The travelling expenses incurred by the representatives of the assessee in this connection should also be treated as revenue expenditure.

(j) Agarwal-Hardware Works (P.) Ltd. v. CIT, [1980] 121 ITR 510 (Cal). In this case, the assessee had obtained a licence for use of patents, registered in Luxembourg, relating to steel wires and bars used for reinforced concrete construction against payment. It was held that the assessee had acquired a non-exclusive licence to use the patents which were terminable on a reasonable notice and that the assessee had no right to continue the use of the patents thereafter. It was held on these facts by a Division Bench of this court that the assessee had not acquired any capital asset, that the expenditure had been incurred wholly or exclusively for the purpose of the assessee's business and was a revenue expenditure.

(k) CIT v. Mc Gaw Ravindra Laboratories (India) Ltd., [1981] 132 ITR 401 (Guj). In this case, the assessee manufactured blood transfusion equipment with the collaboration of a foreign company. It deputed one of its representatives to negotiate with the foreign company for changes in the agreement to cover ancillary products and for export of its products to other countries. It also deputed one of its technicians for training for setting up a blood bank project. On these facts, it was held by the Gujarat High Court on a concession by the assessee that half of the expenses of the tour of the representatives was in connection with the establishment of a new unit and was not deductible as revenue expenditure but the balance would be revenue expenditure. The expenditure incurred on travelling by the technician was held to be entirely capital in nature as it was incurred to start manufacture of a new product.

(l) CIT v. Elecon Engineering Co. Ltd., [1981] 132 ITR 752 (Guj). In this case, the assessee deputed one of its directors to go abroad for selection of foreign engineers with a view to start manufacture of aerial ropeways which the assessee did not manufacture. It was found by the Gujarat High Court that designing techniques and processes for the purpose of manufacturing ropeways were known to the assessee and it was for the better and more efficient utilisation of its existing profit-earning apparatus that the directors wanted to diversify their existing business. As there was no proposal to add to the fixed capital of the assessee even at a later date and the object was to utilise the existing machinery and knowledge of the company more efficiently, the expenditure incurred on the foreign tour was held to be a revenue expenditure.

(m) Cooper Engineering Ltd. v. Commissioner Of Income-Tax, Bombay City-I [1982] 135 ITR 597 (Bom). In this case, it was found that there was no evidence on record to show the purpose for which the expenditure on foreign tour was actually incurred and on that ground the disallowance of two-thirds of the amount spent was upheld.

(n) Kdramchand Premchand Pvt. Ltd. v. CIT, [1982] 137 ITR 209 (Guj) In this case, a director of the assessee, a managing agent, went on a foreign tour in order to enter into a collaboration agreement with a foreign concern on behalf of one of the companies managed by the assessee which had an expansion scheme involving capital expenditure of a substantial amount. The assessee claimed deduction of expenditure on the travelling expenses incurred on the foreign tour. On these facts, it was held by the Gujarat High Court that the object for which the assessee had incurred the expenses was to increase its own income by expanding the existing business or starting a new business for the managed company. By incurring the expenses, the assessee did not acquire any capital asset nor had any benefit of an enduring nature accrued to it. The fact that by reason of such expenditure benefit of an enduring nature might accrue to the managed company was not relevant. It was held that the expenditure incurred on such travelling was allowable as business expenditure.

(o) CIT v. National Rayon Corporation Ltd., [1985] 155 ITR 413 (Bom). In this case, the assessee acquired a letter of intent for setting up a plant to manufacture nylon industrial yarn on condition that the assessee would utilise the technical know-how available in the country to save foreign exchange as much as possible. The assessee had received a proposal from an Italian company as also from an American company for supply of plant and machinery. In order to reduce the expenditure on foreign exchange, the assessee deputed its representatives to visit Italy and the U.S.A On these facts, it was held by the Bombay High Court that the principal purpose of the visit being to reduce the foreign exchange component in the expenditure to be incurred in setting up the plant, the expenditure incurred was revenue in nature.

(p) Hindusthan Aluminium Corporation Ltd. v. Commissioner Of Income-Tax, [1986] 159 ITR 673 (Cal). In this case, the assessee erected a factory for the manufacture of aluminium and started production during the accounting period. During the same period, the assessee incurred expenditure in sending a number of its employees to the United States of America for practical training and experience. The employees concerned agreed to work for the assessee at least for a period of five years at a settled remuneration after they returned from abroad. On these facts, it was held by a Division Bench of this court that the expenditure incurred for the sending and training of its employees abroad was to enable the assessee to run its factory efficiently and competently. The expenditure was directly linked to the profit-earning process and was a revenue expenditure. The fact that a portion of the expenditure was incurred during the pre-production stage was not conclusive nor decisive.

38. On a consideration of the facts and circumstances of the case and in view of the law laid down from time to time by the courts in this country as noted earlier, it appears to us that in the facts of this case, it cannot be said that a substantial part of the expenses incurred by the assessee for the foreign travel of its directors and executives was integrated with the existing profit-earning process of the assessee. The Tribunal has allowed a part of the expenditure which, it has been held, was incurred for the purpose of discussion on the existing business problems of the assessee. It has been held, so far as the balance expenditure is concerned, that the same was incurred for discussions and negotiations relating to finalisation of agreements of foreign collaboration, submission of such agreements for approval and sanction by the Government of India and also for submission of reports on the new project to the Government.

39. Ex facie, this part of the expenditure had no relation whatsoever with the existing business which was being carried on by the assessee. Such expenditure was incurred in contemplation of a new project and new lines of manufacture to be undertaken in future. In the event the negotiations came to a successful conclusion, the assessee would have entered into an agreement with foreign parties and would have undertaken a new project by setting up the required plants.

40. Law stands well-settled by more than one decision that the expenses incurred for the purpose of launching a new project or initiating a new line of business, separate from the existing business cannot be held to be revenue expenditure incurred in connection with the existing business. For the reasons as aforesaid, we answer question No. 4 in the affirmative and in favour of the Revenue.

41. Question No. 5 referred at the instance of the assessee is covered by a decision of this court in Molins Of India Ltd. v. Commissioner Of Income-Tax, West Bengal-Iii., [1983] 144 ITR 317. Following the same, we answer question No. 5 in the affirmative and in favour of the Revenue.

42. Question No. 6 is also covered by a decision of this court in Income-tax Reference No. 9 of 1981 intituled Indian Aluminium Co. Ltd. v. Commissioner Of Income-Tax, [1986] 162 ITR 788. The judgment was delivered on April 8, 1986. Following the said judgment, we answer the said question by stating that under rule 19A(2)(i) of the Income-tax Rules, in determining the value of the assets for the computation of capital employed, if the assessee is entitled to depreciation, the written down value would be taken into account. It is settled that in the case of assets acquired in the accounting year, the written down value means the actual cost of the assets. In the case of assets acquired before the accounting year, the written down value would mean the actual cost of acquisition less the aggregate of all deductions of depreciation actually allowed and not merely allowable to the assessee in the past years. To that extent as above, the depreciation already allowed would have to be considered.

43. The learned advocate for the assessee orally prayed for a certificate for leave to appeal to the Supreme Court on the question whether the surtax liability of the assessee was a permissible deduction in computing the income of the assessee for the purpose of income-tax. The learned advocate stated that such certificate has been given in Molins of India Ltd. by this court. As in answering question No. 5, we have followed Molins of India Ltd., [1983] 144 ITR 317, we allow the prayer of the assessee. Let a certificate under section 261 of the Income-tax Act, 1961, be issued on the following question of law:

“Whether the surtax liability under the Companies (Profits) Surtax Act, 1964, can be allowed as a permissible deduction in computing the income of the assessee under the Income-tax Act, 1961?”

44. Let the order for the issue of the certificate be drawn up separately.

45. The reference is disposed of as above. There will be no order as to costs.

Monjula Bose, J.:— I agree.