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TMI Blog1991 (6) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... ate in India all the present and future know-how, the use of patents and all technical details with complete workshop drawings for manufacture of their engineering products, on the terms and conditions set out in the agreement. Such technical collaboration was for a period of ten years from the date of incorporation of the said limited liability company or from the date effective steps were taken in execution of the agreement, whichever was later. It was provided in the agreement that, notwithstanding the expiry of the agreement, after the stipulated period of ten years, the said limited liability company was to continue to use the patents licensed under the agreement for the unexpired period of the patents for which it is valid under the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50,000 for workshop drawings was paid on November 27, 1963, and the second instalment of Rs. 50,000 on November 15, 1968. The assessee-company commenced production under the said collaboration agreement in December, 1963, and the first sale was effected in 1969. It may be mentioned here that allotment of equity shares of the value of Rs. 2,50,000 was made on May 8, 1965. The board of directors of the assessee-company passed the following resolutions on April 24, 1972: "RESOLVED that cost of drawings of Rs. 1,00,000 which was not written off in the year 1969 because of insufficiency of profits, be written off in the accounts of the year 1971 and that necessary steps be taken for claiming the deduction of the same in income-tax assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifth of Rs. 2,50,000 being the value of equity shares (equivalent to 10 per cent. of the initial issued capital of the assessee-company) allotted for consideration other than cash to the said foreign company in terms of clause 9(a) of the said collaboration agreement dated December 28, 1961, on account of technical know-how, etc., (ii) Rs. 1,00,000 in terms of clause 9(b) of the said collaboration agreement paid in cash of two instalments of Rs. 50,000 against workshop drawings and Rs. 50,000 after the factory had gone into production. The Income-tax Officer disallowed the claim of the assessee-company for the amount paid towards technical know-how as revenue expenditure. He also rejected the assessee-company's claim to treat the workshop d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee-company was not the owner of the workshop drawings placed at its disposal. The assessee-company was not liable to return the workshop drawings that were placed at its disposal. The Tribunal also referred to the finding which the Income-tax Officer recorded in the assessment order for the assessment year 1970-71, that the workshop drawings could be the assessee-company's own property for being exploited for all times to come. According to the Tribunal, workshop drawings were plant and, therefore, the assessee-company was entitled to depreciation on the sum of Rs. 1,00,000 paid by it for the said workshop drawings under section 32 of the Act in the assessment year 1970-71, and, on the written down value thereof, in the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1970-71 ? (4) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessee was entitled to depreciation in respect of technical know-how on the cost of Rs. 1 lakh referred to in question No. 3 ?" So far as question No. 1 is concerned, in the course of arguments, learned counsel for the assessee-company submitted that the assessee company was entitled to claim depreciation on the sum of Rs. 1 lakh allocated for the use of patents under Circular No. 16(XI-A), dated May 31, 1961, issued by the Central Board of Direct Taxes. It is submitted that the question of allowing expenses incurred on the purchase of patents, for the purposes of income-tax assessments, either a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gn company bound themselves not to engage in manufacture either unilaterally or in collaboration with any party in India, Pakistan, Burma, Ceylon, Nepal, Malaya, Indo-China and Thailand of the same or similar machinery and plant to be manufactured by the assessee company. It would appear from the terms of the collaboration agreement that neither the foreign company nor any other company could have used the patents of the foreign company for manufacture of the engineering products of the foreign company. It would, therefore, appear that the assessee-company had acquired an exclusive right for the use of the patents in respect of the engineering products of the foreign company. Therefore, prima facie, they could be said to have purchased the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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