2001 (8) TMI 100 - HC - Income Tax

Summary

Issues Involved:
1. Whether an order under section 154 of the Income-tax Act, 1961, can be passed to give effect to the law laid down by the Andhra Pradesh High Court in another case.
2. Whether technical know-how such as drawings, designs, plans, processing data, etc., constitutes a capital asset and is eligible for depreciation.

Issue-wise Detailed Analysis:

1. Rectification under Section 154:
The primary issue was whether the Appellate Assistant Commissioner (AAC) could rectify his order under section 154 of the Income-tax Act, 1961, to align with a decision of the Andhra Pradesh High Court that was not initially considered. The AAC originally allowed depreciation on technical know-how, but later rectified this decision upon realizing it contradicted a binding judgment of the jurisdictional High Court. The Income-tax Appellate Tribunal (ITAT) set aside this rectification, deeming the issue debatable and not an apparent mistake. The High Court, however, referenced the Supreme Court decision in S. A. L. Narayana Row, CIT v. Model Mills Nagpur Ltd. [1967] 64 ITR 67, which allowed rectification based on subsequent judicial decisions, affirming that the AAC's rectification was within his powers.

2. Depreciation on Technical Know-how:
The core of the dispute was whether technical know-how, including drawings and designs, qualifies as a capital asset eligible for depreciation. The ITAT initially supported the assessee's claim for depreciation, which was contested by the Revenue based on an earlier High Court decision. However, the High Court referred to the Supreme Court's ruling in Scientific Engineering House P. Ltd. v. CIT [1986] 157 ITR 86, which held that technical know-how documentation constitutes "plant" under section 43(3) of the Act and is eligible for depreciation. This judgment underscored that such documentation is essential for the manufacturing process and has enduring utility, thus qualifying as a depreciable asset.

Conclusion:
The High Court concluded that the AAC's rectification, although aligned with the jurisdictional High Court's decision at the time, was ultimately inconsistent with the Supreme Court's subsequent ruling. Therefore, the assessee was entitled to depreciation on the technical know-how. The High Court answered the reference in favor of the assessee, emphasizing the overriding authority of the Supreme Court's interpretation of the law.