TMI Blog1977 (7) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... ee with Smt. Dinaben Khorsedji ? The assessment year in question was 1969-70, previous year being from January 1, 1968, to December 31, 1968. The assessee claimed ₹ 15,000 as expenditure for technical know-how but for reasons recorded in the earlier assessment orders, the ITO had disallowed the same. The AAC also found that the assessee had agreed under the agreement in question at annexure B dated October 12, 1967, to pay ₹ 51,000. Out of this amount ₹ 21,000 were paid in the earlier assessment year and it was treated as capital expenditure and a further sum of ₹ 15,000 was paid in this year. Therefore, the terms of the agreement were held to indicate that it was payment for the purchase by the assessee from the owner and for utilising this technical know-how of the process for manufacture of High Vacuum Transfer Foils. As such payment was found not to be dependent upon or relating to the return on the use of the capital know-how it was held to be a capital expenditure. The AAC, however, held that, as no capital asset had been brought into existence, no claim of depreciation could be allowed and the claim was disallowed for depreciation as well and he con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on that question as the reference is not pressed by the assessee. As regards the second question, the Tribunal has not stated in the statement of the case the requisite basic facts which are absolutely necessary for answering such reference. In a series of references because of this faulty practice where the Tribunal does not set out proper findings of fact, we are required to wade through all the orders. We do not find proper findings of fact which should have first been arrived at before applying the ratio in Elecon Engineering Co.'s case [1974] 96 ITR 672 (Guj). The Tribunal has proceeded on the assumption that according to the guidance given by this court in the decision in Elecon Engineering Co.'s case [1974] 96 ITR 672 (Guj), whenever there is clearly capital expenditure, the assessee is entitled to depreciation on the same. Except noting what the AAC had stated in his order that the terms of the agreement clearly indicated that this was the payment for the purchase and utilisation of the technical know-how and was not dependent upon or related to the return on the use of capital know-how, and that, accordingly, it was in the nature of capital expenditure, nothin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uch time consuming process would not be necessary in other references, which would defeat the whole legislative process, only because of laxity in the process adopted by these Tribunals, who are expected to do substantial justice by expeditious disposal of these tax matters. We shall first in this case point out what is the real ratio of the Elecon Engineering Co.'s case [1974] 96 ITR 672 (Guj), and what are the basic facts which should be first found so that that ratio could be applied. In the decision in CIT v. Elecon Engineering Co. Ltd. [1974] 96 ITR 672 (Guj), it had been laid down by this court that under s. 32 of the I.T. Act, 1961, depreciation can be claimed, (i) in respect of buildings, machinery, plant or furniture, (ii) owned by the assessee and used for the purposes of his business or profession, (iii) subject, however, to the provisions of s. 34. While considering these three conditions, so far as the plant was concerned it was pointed out that the relevant test to be applied was : Does it fulfil the function of plant in the assessee's trading activity ? Is it the tool of the tax-payer's trade ? If it is, then the finding would be that it was Plant, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own, namely, that it fulfils the function of a plant in the assessee's trading activity by being a tool of the taxpayer's trade and the relevant other conditions must be clearly found, viz., that this plant was owned by the assessee and was used for the purpose of his business or profession and that the depreciation allowance claim would fulfil the third contention that it was claimed subject to the provisions of s. 34. Therefore, the relevant finding of fact must make it clear that this relevant test was fulfilled; that this know-how asset in the present case fulfilled its function as a plant in the assessee's trading activity by being a tool of the trade and, secondly, that it was owned by the assessee and was used for the purposes of the business or profession. In the other decision in CIT v. S. L. M. Maneklal Industries Ltd. [1977] 107 ITR 133 (Guj), the importance of this question was further examined. First, the Elecon Engineering Co.'s case [1974] 96 ITR 672 (Guj) ratio was explained at page 152 that it is only when the know-how and the physical embodiments of that know-how were included in the term plant as explained in the ratio, and the plant was owned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the further question whether the assessee had owned the same or merely acquired a licence to use the same. Therefore, if both these decisions are clearly borne in mind in the context of such cases when the serious dispute is raised between the parties as to whether it was capital expenditure or revenue expenditure and whether depreciation allowance was admissible, as it is clear in the present case because both the questions are referred, it is obvious that the Tribunal could not proceed except after recording proper findings. In order to apply the ratio of Elecon Engineering Co.'s case [1974] 96 ITR 672 (Guj),theTribunal had first to record the necessary findings as earlier indicated, and thereafter if it is found after applying this test that this technical know-how in question satisfied the requirement of a plant by being a tool of the trade of the assessee and that it was owned and utilised by the assessee for the purpose of his business that Elecon Engineering ratio could be applied. In the present case, however, both the sides have made it clear that there is no dispute as regards the relevant facts at this stage because Mr. Shah does not even press the first que ..... X X X X Extracts X X X X X X X X Extracts X X X X
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