TMI Blog1996 (4) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... 17 of 1983. The questions which have been referred to this court for decision are as under : " 1. Whether the Tribunal was correct in holding that the assessee would be entitled to depreciation on the amounts of Rs. 1,66,54,990, Rs. 11,50,981 and Rs. 11,52,709 incurred by the assessee during the assessment years 1974-75, 1975-76 and 1976-77, respectively ? 2. Whether the finding of the Tribunal that the abovementioned amounts had been spent by the assessee on acquiring patents and drawings is vitiated ? 3. Whether the Tribunal was correct in law in holding that the assessee was entitled to deduction of Rs. 84,834 and Rs. 1,51,033 incurred on giving tea to its customers for the assessment years 1975-76 and 197677, respectively ? " Whereas, the questions framed by the High Court at Patna in the assessee's reference application are as under : Assessment year 1975-76 (Tax Case No. 18 of 1983) : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that a sum of Rs. 11,50,981 paid to the foreign collaborators on account of licence fees, engineering services fee and foreign technicians services was not deductible as revenue expendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount equal to 4 1/4 per cent. of the net sales comprised of all contract articles designed and manufactured by the H. S. L. This H. S. L. had a unit known as Central Engineering and Design Bureau (for short, "the Bureau") which unit was giving technical consultancy to others and for which purpose H. S. L. had entered into the aforesaid agreement with the foreign company. On the formation of Metallurgical and Engineering Consultants (India) Limited (in short, "the assessee"), H. S. L. assigned all its rights and benefits under the agreement dated February 11, 1969, with the foreign company for an outright consideration of Rs. 1.49 crore under an agreement dated September 13, 1973 (relating to the assessment year 1974-75). For the year 1974-75, the assessee paid a sum of Rs. 16,55,980 as licence fee, royalty, etc., to the foreign company after the agreement was assigned to it by the H. S. L. for the use of the technical know-how. Initially, the assessee claimed the entire amount of Rs. 1.49 crore and Rs. 16,55,980 as the revenue expenditure. Subsequently, however, it revised its return claiming Rs. 136 lakhs as revenue expenditure and Rs. 30 lakhs was capitalised and depreciatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a in terms of the agreement, the foreign collaborator agreed to render "documentation service" by supplying to the assessee an up-to-date and correct complete set of each of the five types of documents like manufacturing drawings, processing documents, designs, charts, plans, etc. The foreign collaborator was also required to render training and imparting of knowledge of the know-how technique of manufacturing instruments. The assessee debited the amount of Rs. 1,60,000 under the head "Library". It claimed a sum of Rs. 12,000 by way of depreciation on library. This was claimed on the ground that the payment of Rs. 1,60,000 had been made for the outright purchase of designs, drawings charts and other literature which constituted the pages of a book and the assessee had claimed depreciation at the appropriate rate. The Assessing Officer was of the view that the amount of Rs. 1,60,000 did not represent the value of books purchased by the assessee but, in fact, represented the price paid for acquiring the technical know-how which amounted to a capital expenditure but since no tangible or depreciable asset was brought into existence, no depreciation could be allowed. On appeal by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constituted a "book" and fell within the definition of "plant" in section 43(3) of the Act. "Plant" under section 43(3) includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purposes of the business or profession but does not include tea bushes or livestock. After the decision of the Supreme Court in Scientific Engineering House (P.) Ltd.'s case [1986] 157 ITR 86, the appeal of the Commissioner of Income-tax, Gujarat, in Elecon Engineering Co.'s case [1974] 96 ITR 672 (Guj) also came before the Supreme Court.-It is reported in CIT v. Elecon Engineering Co. Ltd. [1987] 166 ITR 66. The Supreme Court affirmed the decision of the Gujarat High Court in CIT v. Elecon Engineering Co. Ltd. [1974] 96 ITR 672 and the appeal of the Revenue was dismissed. In view of the aforesaid decisions of the Supreme Court, it has to be held that acquisition of technical know-how is entitled to depreciation and thus the amount of Rs. 1.49 crore paid by the assessee to H. S. L. would not be treated as revenue expenditure. The question thus sought by the assessee has to be answered in favour of the Revenue and the decision of the Tribunal is upheld. This answer also take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation have to be answered in favour of the assessee by holding that the Tribunal was not right in holding that the said payments were not deductible as revenue expenditure. This would be so in view of the judgment of the Supreme Court in Indian Oxygen's case [1996] 218 ITR 337. As a corollary the question raised at the instance of the Revenue in this respect has to be answered in the affirmative, i.e., in favour of the Revenue and against the assessee by holding that the Tribunal was not correct in coming to the conclusion that the assessee was entitled to depreciation on these payments. In CIT v. Patel Brothers and Co. Ltd. [1995] 215 ITR 165 (SC), the court was considering the term "entertainment expenditure" prior to Explanation 2 to section 37(2A) of the Act which was applicable with effect from April 1, 1976. The court referred to the provisions of sub-section (2A) of section 37 of the Act which was inserted with effect from October 1, 1967, and to Explanation 2 inserted by the Finance Act, 1983, retrospectively with effect from April 1, 1976. We do not think it is necessary to set out these provisions as the Supreme Court has held that the provision of ordinary meals to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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