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Issues:
1. Nature of expenditure under a collaboration agreement for technical know-how. 2. Apportionment of expenditure between capital and revenue nature. 3. Treatment of technical know-how as 'plant' for depreciation. Analysis: The judgment pertains to an assessment dispute for the year 1966-67 involving Sudarshan Chemical Industries Pvt. Ltd., which entered into a collaboration agreement with a foreign company for technical know-how. The Income-tax Officer initially treated the payment as capital expenditure, disallowing the deduction claimed by the assessee. The Appellate Assistant Commissioner, however, deemed the amount as revenue expenditure. The matter was further appealed to the Income-tax Appellate Tribunal, which bifurcated the expenditure into capital and revenue nature, allocating one-fifth as capital and four-fifths as revenue expenditure. The Tribunal also considered the technical know-how as a form of 'plant' for depreciation purposes. The High Court analyzed the case in light of established precedents, emphasizing that technical know-how cannot be treated as a capital asset due to technological advancements. The court noted that the collaboration agreement aimed at acquiring technical information for product enhancement and new item manufacturing over a limited period. Citing previous judgments, the court held that such agreements constitute revenue expenditure. The court highlighted that the form of payment, in this case, shares issued to the foreign company, does not alter the nature of the payment. Regarding the apportionment of expenditure, the court referenced overruled decisions relied upon by the Tribunal, affirming that the majority of the expenditure should be considered revenue in nature. Consequently, the court answered question two in favor of the assessee, declining to address question one due to the immateriality of the payment form. Additionally, the court addressed the treatment of technical know-how as 'plant' for depreciation, citing previous decisions that included know-how within the definition of 'plant'. The court concluded that the technical information obtained under the agreement qualifies as 'plant' for depreciation purposes, aligning with previous court rulings. In conclusion, the High Court ruled in favor of the assessee, affirming that the expenditure incurred for technical know-how acquisition should be treated as revenue expenditure. The court also upheld the classification of technical know-how as 'plant' for depreciation benefits, based on established legal interpretations.
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