1977 (11) TMI 24 - HC - Income Tax

Capital Or Revenue Expenditure, Collaboration Agreement, Depreciation And Development Rebate, Income Tax Act

Summary

Issues:
1. Interpretation of whether the fencing around refinery processing units constitutes 'plant' for depreciation and rebate entitlement.
2. Determination of the deductibility of 50% of royalty charges as revenue expenditure.
3. Inclusion of 25% of royalty payments in the cost of machinery and plant for depreciation and development rebate.

Analysis:

Issue 1:
The court ruled that the fencing around the refinery processing units qualifies as 'plant' for depreciation and rebate entitlement based on precedent CIT v. Caltex Oil Refining (India) Ltd. [1976] 102 ITR 260 (Bom).

Issue 2:
Regarding the deductibility of royalty charges, the Tribunal allowed 50% of the total sum as revenue expenditure, considering the collaboration agreement's technical assistance aspects. The court found the Tribunal's decision reasonable and upheld it in favor of the assessee.

Issue 3:
The Tribunal divided the remaining 50% of royalty payments into two parts, allowing 25% as capital expenditure for depreciation and development rebate. The court found no basis for this division and held that the entire 50% should be added to the cost of the plant. Therefore, the court ruled in favor of the assessee on this issue.

In conclusion, the court answered the questions as follows:
- Question 1: Affirmative and in favor of the assessee.
- Question 2: Negative and in favor of the assessee.
- Question 3: Affirmative and in favor of the assessee. The parties were directed to bear their own costs.