1985 (12) TMI 79 - AT - Income Tax

Summary

Issues Involved:
1. Nature of technical know-how fees paid by the assessee-company.
2. Depreciation claim on technical know-how fees.
3. Depreciation not claimed by the assessee in the revised return.

Detailed Analysis:

1. Nature of Technical Know-How Fees Paid by the Assessee-Company
The first issue concerns whether the technical know-how fees paid by the assessee-company should be classified as revenue expenditure or capital expenditure. The assessee-company paid technical know-how fees to Arthur White Process Plant Ltd. and Rosenblads. The Income Tax Officer (ITO) initially classified these payments as capital expenditures, arguing that they provided an enduring benefit. The Commissioner (Appeals) upheld this classification for Arthur White but allowed the fees paid to Rosenblads as revenue expenditure, referencing the Bombay High Court decisions in CIT v. Tata Engg. & Locomotive Co. (P.) Ltd. and Kirloskar Pneumatic Co. Ltd. v. CIT. The Tribunal upheld the Commissioner (Appeals)'s decision, affirming that the technical know-how fees paid to Rosenblads were of a revenue nature.

2. Depreciation Claim on Technical Know-How Fees
The second issue pertains to whether the technical know-how fees paid to Arthur White Process Plant Ltd. qualify for depreciation as 'plant'. The Commissioner (Appeals) allowed depreciation on these fees, following the Bombay High Court decision in CIT v. Emco Electro (P.) Ltd. and the Gujarat High Court decision in CIT v. Elecon Engg. Co. Ltd. The Tribunal upheld this decision, referencing the Supreme Court's approval of the Gujarat High Court's decision in Scientific Engg. House (P.) Ltd. v. CIT.

3. Depreciation Not Claimed by the Assessee in the Revised Return
The third issue involves whether the ITO can allow depreciation not claimed by the assessee in the revised return. Initially, the assessee claimed depreciation, but in the revised return, they did not claim it, seeking instead to set off losses from previous years. The ITO allowed the depreciation, which the Commissioner (Appeals) later disallowed, following the Special Bench decision in Someshwar Sahakari Sakhar Karkhana Ltd. v. ITO. The Tribunal, however, reversed the Commissioner (Appeals)'s decision, citing the Allahabad High Court decision in Ascharajlal Ram Prakash v. CIT and the Madras High Court decision in Dasaprakash Bottling Co. v. CIT, which mandate that the ITO must allow depreciation to arrive at the true profits and gains of the business.

Conclusion:
1. The Tribunal upheld the Commissioner (Appeals)'s decision that the technical know-how fees paid to Rosenblads were revenue expenditures.
2. The Tribunal confirmed that the technical know-how fees paid to Arthur White Process Plant Ltd. qualify for depreciation as 'plant'.
3. The Tribunal reversed the Commissioner (Appeals)'s decision regarding the non-claimed depreciation, affirming that the ITO must allow depreciation even if it was not claimed in the revised return, based on the Allahabad and Madras High Court rulings.