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Issues:
Interpretation of collaboration agreement for technical know-how and workshop drawings; Claim of depreciation on technical know-how and workshop drawings; Applicability of Circular No. 16(XI-A), dated May 31, 1961; Exclusive rights acquired under collaboration agreement; Referral back to Tribunal for further consideration. Analysis: The case involved an agreement between two Indian individuals and a foreign company for technical collaboration in manufacturing engineering products. The agreement included provisions for the transfer of know-how, patents, and technical details in exchange for equity shares, cash payments, and commission. The Indian limited liability company was formed to carry out the collaboration, with the first sale made in 1969 following production commencement in 1963. The company sought to write off payments made for technical know-how and workshop drawings as revenue expenditure or claim depreciation under the Income-tax Act, 1961. In the assessment for the years 1970-71 and 1971-72, the Income-tax Officer disallowed the depreciation claim on technical know-how and workshop drawings. The Appellate Assistant Commissioner upheld this decision, leading the company to appeal to the Income-tax Appellate Tribunal. The Tribunal rejected the revenue expenditure claim but allowed depreciation on workshop drawings, considering them as plant assets owned by the company. The Tribunal also addressed the allocation of payments for different aspects of the collaboration agreement. The questions referred to the High Court under section 256(1) of the Income-tax Act, 1961, pertained to the depreciation claim on patents, allocation of payments, and the applicability of Circular No. 16(XI-A), dated May 31, 1961. The Court analyzed the collaboration agreement, noting the exclusive rights acquired by the company for using the patents. The Court found that the company could be considered as having purchased the patents under the agreement, making Circular No. 16(XI-A) potentially applicable. Following a Supreme Court decision, the Court referred the matter back to the Tribunal for further examination in light of the circular. Regarding the other questions, the Court confirmed the Tribunal's decision on the allocation of payments and allowed depreciation on technical know-how and workshop drawings based on the Supreme Court precedent. The Court's decision was in favor of the company on these issues, providing a comprehensive analysis and resolution based on legal principles and precedents. In conclusion, the High Court's judgment addressed the complex issues surrounding the collaboration agreement, depreciation claims, and the application of relevant tax laws and circulars. The detailed analysis provided clarity on the interpretation of the agreement and the company's entitlement to depreciation on specific assets, ensuring a fair and legally sound resolution of the dispute.
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