1982 (5) TMI 189 - AT - Income Tax

Summary

Issues:
1. Depreciation on technical know-how expenditure.
2. Eligibility for relief under section 35 of the Income-tax Act.
3. Nature of expenditure on construction and strengthening of Spent Wash Bund.
4. Disallowance of expenditure claimed to be incurred on advertisement.
5. Deduction under section 80 MM on gross receipt from technical know-how.
6. Deduction under section 80J for the full accounting period.
7. Classification of water storage pond as plant and machinery for depreciation.

Analysis:

1. The first issue pertains to the allowance of depreciation on technical know-how expenditure for the assessment years 1973-74 and 1976-77. The Commissioner (Appeals) directed the ITO to allow depreciation on this expenditure, following the Tribunal's earlier decision for the assessment years 1968-69 to 1970-71. The Tribunal upheld the Commissioner's order, stating that the expenditure on technical know-how was capital in nature and related to setting up new plants, entitling the assessee to depreciation allowance.

2. The second issue involves the eligibility for relief under section 35 of the Income-tax Act for expenditure on a pilot plant to test the viability of producing ABS Resin. The Commissioner (Appeals) allowed the claim, considering the pilot plant's role in research and development necessary for commercial production. The Tribunal upheld this decision, emphasizing that the pilot project constituted research, justifying the allowance under section 35.

3. The third issue concerns the nature of expenditure on construction and strengthening of Spent Wash Bund. The Commissioner (Appeals) held the expenditure to be revenue in nature, disagreeing with the ITO's classification as capital. The Tribunal dismissed the revenue's appeal, agreeing with the Commissioner's view based on the business's nature and assets' value.

4. The fourth issue relates to the disallowance of expenditure claimed as an advertisement but alleged to be a donation to a political party. The matter was remanded to the ITO for further investigation to ascertain the nature of the payment and its purpose, following the lack of essential facts in the orders of the ITO and the Commissioner (Appeals).

5. The fifth issue involves the deduction under section 80 MM on gross receipt from technical know-how. The Commissioner (Appeals) directed the deduction to be allowed on gross receipt, aligning with the Supreme Court decision in Cloth Traders Pvt. Ltd. v. Commissioner. The Tribunal declined to interfere with this decision, as no contrary High Court decision was presented by the revenue.

6. The sixth issue pertains to the deduction under section 80J for the full accounting period. The Commissioner (Appeals) directed the ITO to allow deduction for 12 months instead of 9 months as done initially. The Tribunal upheld this decision, citing the Madras High Court precedent in Commissioner v. Simpson & Co. as the basis for the ruling.

7. The final issue involves the classification of a water storage pond as plant and machinery for depreciation. The Commissioner (Appeals) allowed depreciation, extra shift allowance, and development rebate on the water storage pond, considering its integral role in the manufacturing process. The Tribunal upheld this decision for the assessment years 1975-76 and 1976-77, finding no error in the Commissioner's findings.

In conclusion, the Tribunal partly allowed the appeal for the year 1974-75 and dismissed the remaining three appeals based on the detailed analysis and findings for each issue presented in the judgment.