1999 (2) TMI 27 - HC - Income Tax

Summary

Issues:
- Whether depreciation can be allowed on technical know-how as it is not considered a fixed asset?

Analysis:
The case involved a dispute regarding the allowance of depreciation on technical know-how acquired by the assessee for the assessment year 1984-85. The Assessing Officer initially disallowed depreciation on the amount spent on acquiring technical know-how, stating that no tangible asset had come into existence. However, the Commissioner of Income-tax (Appeals) reversed this decision, allowing depreciation based on the view taken in a previous assessment year and supported by the Supreme Court's decision in Scientific Engineering House P. Ltd. v. CIT [1986] 157 ITR 86. The Tribunal upheld the Commissioner's order, leading to the Department's appeal.

During the proceedings, the Department's senior counsel argued that the Tribunal erred in not referring the question to the court, especially considering that the matter was not conclusively decided in the previous assessment year. On the other hand, the assessee's counsel contended that since the Assessing Officer treated the amount spent on technical know-how as capital expenditure, depreciation should be allowed on the total actual cost of the plant.

The court analyzed the matter and concluded that depreciation under section 32 of the Income-tax Act should be allowed on the total cost of the asset, which includes expenditure on acquiring technical know-how. Citing the Supreme Court's decision in Scientific Engineering House P. Ltd. v. CIT [1986] 157 ITR 86, the court held that technical know-how constitutes a depreciable asset falling within the definition of "plant." Therefore, the question of allowing depreciation on technical know-how was not a referable question of law. The court directed the Assessing Officer to allow depreciation while considering the asset for which the expenditure on acquiring technical know-how was incurred by the assessee.

In conclusion, the court disposed of the petition, emphasizing that depreciation should be allowed on technical know-how as part of the capital cost of the asset, in accordance with the Supreme Court's interpretation and the provisions of the Income-tax Act.