1978 (7) TMI 85 - HC - Income Tax

Summary

Issues Involved:
1. Interpretation of agreements regarding payments for designs and blue-prints.
2. Classification of designs and blue-prints as "plant" for depreciation allowance u/s 32 of the Income-tax Act, 1961.

Summary:

Issue 1: Interpretation of Agreements
The court examined whether the payments of Rs. 1,95,300 were solely for designs and blue-prints or for diverse considerations. The Tribunal had held that the payments were for diverse considerations, primarily know-how. However, the court found that part of the payments must be treated as having been made for designs, drawings, plans, and technical data. Therefore, the Tribunal erred in its conclusion. The court answered the first question in the negative, indicating that the payments were indeed partly for designs and blue-prints.

Issue 2: Classification as "Plant"
The second issue was whether the designs and blue-prints constituted "plant" for the purpose of depreciation allowance u/s 32 of the Income-tax Act, 1961. The court noted that s. 32(1) allows depreciation for buildings, machinery, plant, or furniture used for business purposes. The definition of "plant" u/s 43(3) is inclusive and broad, encompassing items like ships, vehicles, books, scientific apparatus, and surgical equipment. The court emphasized that "plant" should be given a wide meaning, as established in CIT v. Taj Mahal Hotel [1971] 82 ITR 44, and that it includes items necessary for carrying on business, such as technical know-how.

The court referred to various judgments, including Rolls-Royce Ltd. v. Jeffrey and CIT v. Elecon Engineering Co. Ltd., which supported the view that technical know-how and related items could be considered "plant." The court concluded that designs and blue-prints, being essential for the erection of the factory, fall within the meaning of "plant" and are eligible for depreciation allowance.

In conclusion, the court answered the second question in the affirmative, recognizing designs and blue-prints as "plant" for the purpose of depreciation u/s 32 of the Act. The parties were directed to bear their own costs.