1982 (4) TMI 56 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of the agreement dated February 21, 1969, regarding whether the three manuals acquired by the assessee are books constituting tools of the trade attracting depreciation and development rebate as plant.
2. Justification of the Appellate Tribunal in fixing the cost of the three manuals at Rs. 25,000.

Issue-wise Detailed Analysis:

Issue 1: Interpretation of the Agreement and Classification of Manuals as Books
The primary issue revolves around the interpretation of the agreement dated February 21, 1969, and whether the three manuals acquired by the assessee can be classified as books, thereby constituting tools of the trade that attract depreciation and development rebate as plant under the Income-tax Act.

The court examined the collaboration agreement between the Indian firm and the U.S. company, which included provisions for technical know-how, patents, processes, and trade-mark rights. The assessee argued that the amount of Rs. 18.75 lakhs represented the value of books containing technical know-how, which should be considered as "plant" under Section 43(3) of the Income-tax Act.

The Tribunal applied three tests to determine whether the manuals were books:
1. Whether the manuals were in the form of books.
2. Whether the manuals functionally served as books.
3. Whether the manuals were substantively books.

The Tribunal concluded that the manuals satisfied all three tests, thereby classifying them as books. Consequently, the manuals fell within the definition of "plant," allowing the assessee to claim depreciation and development rebate on their value. The court upheld this view, stating that the manuals contained all necessary technical information for the assessee-company to set up its plant and commence production, thus satisfying both the form and functional utility tests.

Issue 2: Fixation of the Cost of the Manuals at Rs. 25,000
The second issue concerns the justification of the Appellate Tribunal in fixing the cost of the three manuals at Rs. 25,000.

The assessee contended that the entire technical know-how, valued at Rs. 18.75 lakhs, was contained in the three manuals. However, the court rejected this argument, noting that the agreement also covered patent rights, trade-mark rights, additional technical know-how, and training of personnel. The Tribunal found that the payment of Rs. 18.75 lakhs was not solely for the manuals but for acquiring various rights from the U.S. company, including present and future know-how.

The Tribunal determined the cost of the manuals at Rs. 25,000, allowing depreciation and development rebate on this amount. However, the court found this valuation to be arbitrary and unsupported by facts. Both the revenue and the assessee challenged the fixation of the cost at Rs. 25,000, and the court agreed that the determination lacked a factual basis.

Conclusion:
1. The court affirmed the Tribunal's decision that the three manuals were books and thus constituted "plant" eligible for depreciation and development rebate, ruling in favor of the assessee and against the revenue.
2. The court found the fixation of the cost of the manuals at Rs. 25,000 to be arbitrary and unsupported by facts, answering the question in the negative and not in favor of either party.