TMI Blog1980 (8) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... he agreement dated 10th June, 1964, to be capitalised for the purpose of allowing development rebate and depreciation as per sections 33 and 32, respectively, of the Income-tax Act, 1961, and in rejecting the assessee's claim in respect of the balance 80% of the aforesaid payment? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that 20% of the lumpsum payment of Rs. 1,93,790 was allocable for services rendered under cl. 1 of the agreement dated 10th June, 1964, for treating it as actual cost of plant and machinery and directing the ITO to allow development rebate and depreciation thereon ? " The material facts giving rise to this reference briefly are as follows The assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the agreement entered into by the promoters of the company with the collaborators and held that the payment made to the collaborators was not merely for the purpose of technical know-how and that only twenty per cent. of the amount of expenditure so incurred should be capitalised towards the actual cost of plant and machinery. The Tribunal, accordingly, directed the ITO to allow development rebate and depreciation thereon subject to other requirements of law to be satisfied. Aggrieved by the order passed by the Tribunal, the assessee as well as the revenue sought reference to this court. That is how, the first question has been referred to this court for its opinion at the instance of the assessee and the second question has been referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of technical services in Switzerland, Hiranand shall pay to Secheron during the currency of the agreement in Swiss francs in Switzerland a royalty fee on all products covered by this agreement manufactured by the company, irrespective of whether such products are or are not built in accordance with the know-how and/or technical assistance granted by Secheron calculated on the net selling price at the rate of 2 1/2%." It is thus clear from the terms of the agreement that the amount of Swiss francs 175,000, equal to the amount of Rs. 1,93,790 payable under the agreement to the collaborators was in consideration of the supply of know-how so that the assessee may be able to erect and commission the plant. For the assistance to be rendered d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plant " is given. In this connection, we may usefully refer to the following observations of the Gujarat High Court in CIT v. Elecon Engineering Co. Ltd. [1974] 96 ITR 672, 698 : " On reviewing these authorities, a broad consensus emerges from which the essential characteristics of plant can be clearly gleaned. The word 'plant', in its ordinary meaning, is a word of wide import and in the context of section 32 it must be broadly construed. It includes any article or object, fixed or movable, live or dead, used by a businessman for carrying on his business. It is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business. It would not, however, cover the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctronics (P.) Ltd. v CIT [1979] 116 ITR 231 as follows (p. 239): " The time has now come when we may have to revise our views in some respects regarding the distinction which is being observed so far between tangible assets and intangible assets while considering the question of depreciation allowance. We cannot forget that as time passes, it is not only that tangible assets that depreciate but also intangible assets like technical knowledge become obsolete as progress is made in scientific research. Moreover, when technical know-how is acquired by incurring expenditure, there is no justification in denying appropriate deduction in respect of its cost while computing taxable profits if it can be brought under the heading `Plant'." We re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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