TMI Blog1983 (6) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... econ Engg. Co. Ltd. [1974] 96 ITR 672. Therefore, respectfully following the said decision we uphold the claim for allowance of depreciation on technical know-how. 8. Now we turn to the other claim relating to Extra Shift Allowance (ESA) on technical know-how. The ITO disallowed the claim of the assessee on the ground that the technical know-how was not exigible to depreciation while in appeal the Commissioner (Appeals) accepted the assessee's contention that book contained know-how for the operation of the plant and could not be treated as an independent item of plant apart from machinery or plant to which it relates, inasmuch as the know-how was of no use to the assessee by itself apart from the plant. Since the knowledge contained in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rival submissions. In accordance with the decision of their Lordships of the Gujarat High Court in the case of Elecon Engg. Co. Ltd., the technical know-how in book form is to be treated as plant and is exigible to depreciation allowance. But so far as the claim for ESA is concerned, we are afraid we cannot accept the claim of the assessee. In this connection we may usefully refer to the observation contained in the case of Elecon Engg: Co. Ltd. : " Know-how is a peculiar kind of asset. It is the accumulated fund of knowledge acquired by years of observation, research, experimentation and experience. The whole of it is not in an intangible form even while it is in the process of being acquired and very often it takes a physical form as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isted above include not only those relating to physical deterioration but also those referring to the suitability of the asset as an economically productive unit after a period of time. Apart from accounting practice, section 32(1)(iii) itself speaks of allowance in the case of any plant which is 'discarded' in the previous year and the word 'discarded' has been understood to cover the case of obsolescence. Know-how in whatever form it may be is capable of diminishing in value over the years by obsolescence. It would, therefore, be included within the meaning of the word 'plant' in section 32. The assessee acquired drawings and patterns for the manufacture of gear units and conveyor idlers from foreign collaborators. The agreement between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luded in the know-how formed the basis of manufacturing the machinery and as such they are tools of the assessee's business and as such they fall within the expression 'plant'. The concept of ESA postulates the working or mechanical operations of the machinery or plant which are subjected to more wear and tear due to continuous use. The same position, however, does not hold good in case of know-how in a form of book which gets obsolete due to technological advance and not due to wear and tear. The concept of obsolescence due to technological advance cannot be placed on same footing as wear and tear by actual user of machinery and plant, though this concept may be useful in determining the question whether know-how is to be treated as a 'pla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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