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TMI Blog1979 (3) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 KV transformers upto 30 MVA. The ITO held that the above expenditure was not laid out for research in connection with the assessee's business. 2. On appeal, the AAC confirmed the disallowance of Rs. 1,45,718. Before the AAC assessee claimed that in case the above claim was not accepted, depreciation should be allowed on the above item treating it as capital expenditure. The AAC observed that the assessee is entitled to depreciation on plant and machinery under s. 32 of the IT Act only if the plant and machinery are owned and used by the assessee in the business. He held that the plant and machinery were not used by the assessee in its business. In this view, he held that the assessee was not entitled to depreciation. As regards the clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of the technical knowledge of the foreign company and that the assessee had acquired under the agreement merely a right to draw for purposes of carrying on its business upon the foreign company for that limited period and that further the foreign company did not part with any assets of its business nor did the assessee receive any advantage of an enduring nature. He strenuously urged that one drawing can be used only once and it cannot be used for others. He submitted that in these circumstances there was no enduring advantage to the assessee and that the expenditure was clearly revenue in nature. He referred us to the following rulings:- (1) Fenner Woodroffe Co. Ltd. vs. CIT (1). (2) Transformer Switchgear Ltd. vs. CIT (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se relating to the above claims are fully set out in the order of the AAC. Briefly stated, the facts are as under. Originally by agreement, dt. 28th Dec., 1956, the assessee entered into a collaboration agreement to manufacture transformers and other allied products upto 33 KV capacity with Dominitwerke G.M.B.H. Hoppecks Krs. Brilon, West Germany (Hereinafter to be referred to as "DOMINIT"). Initially, the period of agreement was 10 years, which could be extended for a further period of five years. As per the said agreement, the foreign company agreed to help the assessee-company to establish a factory in India for the manufacture of transformers and also supply of technical know-how for the same and also send some technical personnel to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreed to give assistance for the manufacture of 66 KV and 132 KV transformers and to give training to the engineers of the assessee-company. In October, 1972, the new merged foreign company informed assessee company that there were still further developments. It was stated that the Swedish firm AUGUST LEPPER" and the "DOMINIT" group had agreed to combine their lines of business to be called as the firm "AUGUST LEPPER G.M.B.H." In June 1973, the company CEAG DOMINIT informed the assessee-company that the Swedish management of AUGUST LEPPER which is the controlling company had decided not to continue the collaboration agreement between the CEAG DOMINIT and the assessee-company in respect of manufactures of 66 KV and 132 KV transformers. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, which are different. The ruling of the Madras High Court in 110 ITR 890, on the other hand supports our above view that the expenditure is capital in nature. The ruling of the Full Bench decision of the Karnataka High Court reported in 114 ITR 443 was rendered on the facts of that case. In that case the foreign companies did not part with any of their assets even for a limited period of time. In the instant case, it is common ground that the drawings and other technical materials, received from the company were retained by the assessee and not returned to the foreign company. For the foregoing reasons, we agree with the AAC that the expenditure in question was capital in nature. 7. The point that now survives for consideration is whet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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