1979 (2) TMI 89 - HC - Income Tax

Summary

Issues Involved:

1. Whether the payments made to M/s. Calor-Emag, Germany, are of a revenue nature.
2. Whether depreciation and development rebate can be allowed in respect of capital expenditure incurred for acquiring drawings, designs, etc., from M/s. Gilbert, Gilkes & Gordon Ltd., London.

Issue-wise Detailed Analysis:

1. Payments to M/s. Calor-Emag, Germany:

The primary issue is whether the payments made to M/s. Calor-Emag, Germany, for drawings, designs, etc., are of a revenue nature. The court examined the terms of the collaboration agreement between the assessee and the German company. The agreement indicated that the property in the drawings, designs, etc., did not pass to the Indian manufacturer. The payments were made for the use of these assets during the subsistence of the license, and at the end of the license period, the drawings, designs, etc., were to be returned or destroyed. The court referenced the Supreme Court decision in CIT v. Ciba of India Ltd. [1968] 69 ITR 692, which held that payments for technical knowledge and experience available for a limited period were of a revenue nature. Similarly, in CIT v. S.L.M. Maneklal Industries Ltd. [1977] 107 ITR 133 (Guj), it was emphasized that payments for workshop drawings, etc., were revenue expenditures when the property did not pass to the assessee. Based on these precedents and the specific terms of the agreement, the court concluded that the payments to the German company were of a revenue nature.

2. Depreciation and Development Rebate for Payments to M/s. Gilbert, Gilkes & Gordon Ltd., London:

The second issue concerns whether the assessee is entitled to depreciation and development rebate for capital expenditure incurred on acquiring drawings, designs, etc., from the English company. The Tribunal had upheld the contention of the assessee that these payments were of a capital nature and thus entitled to depreciation and development rebate. The court referred to its earlier decision in CIT v. Elecon Engineering Co. Ltd. [1974] 96 ITR 672 (Guj), where it was held that drawings, patterns, designs, etc., are considered "plant" and thus eligible for depreciation. The court also cited CIT v. S.L.M. Maneklal Industries Ltd. [1977] 107 ITR 133 (Guj), which supported the view that such expenditures, being of a capital nature, are admissible for depreciation and development rebate. Consequently, the court affirmed that the payments made to the English company for acquiring drawings, designs, etc., were capital expenditures and the assessee was entitled to depreciation and development rebate.

Conclusion:

Both questions were answered in the affirmative, in favor of the assessee and against the revenue. The payments made to M/s. Calor-Emag, Germany, were held to be of a revenue nature, and the assessee was entitled to depreciation and development rebate for the capital expenditure incurred for acquiring drawings, designs, etc., from M/s. Gilbert, Gilkes & Gordon Ltd., London. The Commissioner was directed to pay the costs of the reference to the assessee.