1993 (3) TMI 47 - HC - Income Tax

Summary

Issues:
1. Capitalization of expenses for technical know-how and drawings.
2. Allowance of depreciation on the expenditure incurred.
3. Inclusion of travelling expenses in the actual cost of the asset for depreciation calculation.

Analysis:
The case involved the assessee entering into an agreement with a foreign company to obtain technical know-how and drawings for manufacturing certain products in India. The assessee capitalized the expenses incurred for this purpose, including the amount paid to the foreign company and travelling expenses. The Income-tax Officer initially rejected the claim for depreciation on the ground that the expenses should have been capitalized when initially incurred. However, the Tribunal, relying on precedent, allowed the assessee's appeal, stating that the expenses could be capitalized as done by the assessee and depreciation was allowable on the asset. The Tribunal also considered the travelling expenses as part of the actual cost of the asset for depreciation calculation.

The first question raised was whether the assessee was entitled to depreciation on the expenditure incurred for technical know-how and drawings. The High Court, following the decision of the Supreme Court in a similar case, confirmed that depreciation was allowable on such expenditure. The second question revolved around the inclusion of travelling expenses in the actual cost of the asset for depreciation calculation. The Tribunal, supported by the decision of the Bombay High Court and the Supreme Court, held that all expenditure necessary to bring the assets into existence should be included in the actual cost. Therefore, the travelling expenses incurred by the assessee were rightly considered as part of the actual cost for depreciation calculation.

In conclusion, the High Court ruled in favor of the assessee on both issues, allowing depreciation on the technical know-how expenditure and including travelling expenses in the actual cost of the asset for depreciation calculation. The decision was based on established legal principles and previous court judgments.