TMI Blog2001 (9) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... w and licence fee' forms part of the cost of the new plant and machinery and as such is entitled to depreciation in the assessment year 1976-77 ?" The dispute relates to the assessment year 1976-77. The factual background in a nutshell is as follows: The assessee-company manufactured insecticides. During the assessment year in question for which the accounting-period ended on March 31, 1976, a claim was made for Rs.2,18,484 spent on account of licence fee, prior to the assessment year 1972-73, as capital expenditure. Consequently a claim for depreciation was made on the ground that it formed part of the cost of machinery and plant. As the claim was not accepted by the Assessing Officer, the assessee preferred an appeal before the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... House P. Ltd.'s case [1986] 157 ITR 86. It was, inter alia, held that technical know-how falls within the definition of "plant" and is a depreciable asset. The classic definition of "plant" was given by Lindley L. J., in Yarmouth v. France [1887] 19 QBD 647, a case in which it was decided that a cart-horse was plant within the meaning of section 1(1) of the Employers' Liability Act, 1880. The relevant passage occurring at page 658 of the report runs thus: "There is no definition of plant in the Act: but in its ordinary sense, it includes whatever apparatus is used by a businessman for carrying on his business, not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the part which a dry dock played in the assessee-company's operations and observed: "It seems to me that every part of this dry dock plays an essential part ... The whole dock is, I think, the means by which, or plant with which, the operation is performed." Lord Guest indicated a functional test in these words: "In order to decide whether a particular subject is an 'apparatus' it seems obvious that an enquiry has to be made as to what operation it performs. The functional test is, therefore, essential at any rate as a preliminary' " In Scientific Engineering's case [1986] 157 ITR 86 (SC), it was, inter alia, held as follows: "In other words, the test would be: Does the article fulfil the function of a plant in the assessee's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acturing activity and these documents really formed the basis of the business of manufacturing the instruments in question. True, by themselves, these documents did not perform any mechanical operations or processes but that cannot militate against their being a plant since they were in a sense the basic tools of the assessee's trade having a fairly enduring utility, though owing to technological advances, they might or would in course of time become obsolete. We are, therefore, clearly of the view that the capital asset acquired by the assessee, namely, the technical know-how in the shape of drawings, designs, charts, plans, processing data and other literature falls within the definition of 'plant' and is, therefore, a depreciable asset ..... X X X X Extracts X X X X X X X X Extracts X X X X
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