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Issues involved: Interpretation of technical know-how as part of plant for allowance of depreciation and development rebate under the Income Tax Act, 1961.
Summary: The High Court of Bombay considered a case involving the acquisition of technical know-how by a company for manufacturing flame-proof electric motors and generators. The company claimed depreciation and development rebate on the cost of the technical know-how, which was contested by the Income Tax Officer (ITO) on the grounds that the company had not commenced manufacturing the products and that know-how was a separate asset. The Appellate Authority Commission (AAC) upheld the ITO's decision, leading the matter to the Income-tax Appellate Tribunal. The Tribunal ruled in favor of the company, stating that the technical know-how constituted a part of the company's plant under section 43(3) of the Income Tax Act, 1961, allowing for depreciation and development rebate. The Tribunal's decision was challenged by the revenue, leading to the High Court's consideration of whether the company was entitled to depreciation and development rebate on the technical know-how acquisition cost. The Court referred to previous judgments defining the term "plant" broadly to include any article or object used in a business, emphasizing the functionality of the apparatus in the business activity. Applying these principles, the Court concluded that the technical know-how supplied by the Tuscan Co. was essential for the company's manufacturing process, thus falling within the definition of "plant" under the Act. Therefore, the Court upheld the Tribunal's decision, allowing for the depreciation and development rebate claimed by the company. In conclusion, the High Court of Bombay affirmed that the technical know-how acquired by the company was integral to its manufacturing process and constituted a part of its plant under the Income Tax Act, 1961. As such, the company was deemed eligible for depreciation and development rebate on the amount paid for the acquisition of the technical know-how.
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