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TMI Blog2017 (9) TMI 733X X X X Extracts X X X X X X X X Extracts X X X X ..... and in the circumstances of the case, the Tribunal was justified in law in allowing depreciation on boiler valued at Rs. 1.65 crores leased by the assessee to M/s. Bombay Dyeing & Mfg. Co. Ltd. even though the lease transaction was a colourful device to avoid the tax and rightly rejected the claim of the assessee by applying the ratio of the Hon'ble Supreme Court in the case of Mc Dowell (154 ITR 148)? ii) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in allowing the technical know how fees amounting to Rs. 25,68,323/ as revenue expenditure, even though the expenses resulted in bringing into production of new types of machines and know how was to become the property of the assessee which clearly amounts to capital expenditure? 6. Mr. Suresh Kumar would invite our attention to the observations in the order of the Assessing Officer. He would submit that the Assessing Officer has based his conclusion on the admitted facts. According to Mr. Suresh Kumar, as far as the first question is concerned, there was a clear device to avoid the tax. The transaction, understood in it's entirety, would mean that the assessee claims depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this agreement enabled the Assessing Officer to conclude that M/s. Bombay Burmah (assessee) would be entitled to use the Cynamide Technology after expiry of the period stipulated in the agreement for manufacturing and sale of the said products in India. Thus, the expenses resulted in bringing into effect and production new type of know how, that was to become the property of the assessee. In the circumstances, this was a capital expenditure and treating it as a revenue expenditure was an obvious error of law and apparent on the face of record. For these reasons, he would submit that the Tribunal's order be set aside. 8. On the other hand, Ms. Vissanji, learned counsel appearing on behalf of the assessee would support the order of the Tribunal. She would submit that the appreciation and appraisal of the factual materials by the Tribunal has not led to any perversity, nor any error of law apparent on the face of record. She has, on the first issue, invited our attention to the principles which emerge from the judgment of the Hon'ble Supreme Court in the case of Mcdowell (supra). However, the principle laid down therein has no application in the facts and circumstances of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n boiler valued at Rs. 1.65 crores leased by the assessee to M/s. Bombay Dyeing & Manufacturing Company Limited. 13. The Assessing Officer termed this as a colourable device to avoid tax. The Assessing Officer has noted the facts and the rival versions. He held as under : "The assessee has claimed 100% depreciation on Boiler leased out to M/s. Bombay Dyeing & Mfg. Co. Ltd. Amounting to Rs. 1,65,00,000/. The assessee has contended that it had purchased and leased out to M/s. Bombay Dyeing & Mfg. Co. Ltd. A boiler having efficiency factor of 78.8 + 2.5% of GCV of Coal and 84.6 + 2.5% of GCV of Oil. Hence it is claimed to be an energy saving device eligible for 100% depreciation. Apart from discussing the eligibility of the rate of depreciation it is necessary to consider the full facts and circumstances under which the assessee company had purchased and leased out the boiler. The full facts are that M/s. Bombay Dyeing & Mfg. Co. Ltd. had placed an order for the said boiler with Isgec John Thompson in July 82, through their Engg. Consultants M/s. Tata Projects Ltd. The said boiler was to be installed at the site of DMT plant of M/s. Bombay Dyeing & Mfg. Co. Ltd. at Patal Ganga. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost was to be incurred by M/s. Bombay Dyeing and if there were financial constraints, then, this was not possible. It is in these circumstances, the transaction is termed as dubious and colourable device. The Tribunal, in appreciating these rival versions, came to the conclusion that the boiler was given on lease on 27th September, 1984. The date of Memorandum is 23rd March, 1984. The Assessing Officer's inferences are based on the two closely connected companies trying to help each other. Disallowance was confirmed by the CIT (A). However, there was a factual error in the assessment order which was pointed out by the assessee. The boiler was not installed in March, 1984, but was installed in September, 1984. It was pointed out that the initial lease period of 8 years was extended twice for 5 years on each occasion to show that the asset was not ultimately sold to M/s. Bombay Dyeing at reduced price. The lease rentals earned by the assessee were subjected to tax till the date of the Tribunal's order and they were allowed as deduction to Bombay Dyeing in the assessment years 19851986 and 19861987. Then onwards the same has been disallowed. 15. The Tribunal has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenses of Rs. 25,68,323/. That was a payment made on 13th October, 1983 to M/s. American Cynamide Limited. That was claimed as revenue expenditure by the assessee. The Assessing Officer, on perusal of that agreement, arrived at a conclusion that the assessee has acquired a new process and which gives an enduring benefit. The advantage gained by the assessee was of durable and permanent nature. Hence, the expenses would be capital expenditure and in that regard, relied upon a case of Assam Bengal Cement Co. Ltd. (supra) Pertinently, in the said case, the Hon'ble Supreme Court noted that the assessee acquired from the State Government a lease of certain limestone quarries for the purpose of carrying on the manufacture of cement. The lease was for 20 years commencing on 1st November, 1938, with a clause for renewal for a further term of 20 years. In addition to payment of rent and royalties, two further sums were payable under the special covenants contained in clauses 4 and 5 of the lease as 'protection fees' and in these clauses, the protection was in respect of another group of quarries. The lessor undertook not to grant any lease, permit or prospecting licenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion in the process and technology in some areas of the enterprise and if that is supplemental to the existing business, then, there is no new or fresh venture. The Tribunal has found in this case that the Assessing Officer was in error in holding that the expenditure was not a revenue expenditure. The findings in that regard would denote that the agreement was entered into with M/s. American Cynamide which agreed to provide expertise, skill, knowhow and technical data to the assessee company for the manufacture of various types of laminates and other industrial products. The argument of the assessee was that if the agreement is referred with its preamble, then, it would be clear that the assessee was already in possession of the technology which required updation. The updated technology was mainly aimed at reduction and control of heat requirement, upgrading of existing equipment and general cost production. In the case of this very assessee, for the assessment year 19841985, the Tribunal had rejected the claim for deduction of this very amount on the ground that the liability was not incurred in that year. Hence it was argued that the deduction be allowed in the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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