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TMI Blog1980 (7) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... claim depreciation on the amount of Rs. 38,180 ? The facts leading to this reference are as follows: The assessment year under reference is 1967-68, the previous year being the financial year ending on March 31, 1967. The assessee is private limited company. It entered into a collaboration agreement with M/s. McGaw Laboratories of the United States of America. Under the said agreement, the assessee-company was entitled to market its products in India and two foreign countries, namely, Ceylon and Pakistan. The assessee-company, however, wanted to export its products to other countries, mainly in the middle east and far east. It was, therefore, decided to depute Mr. Rohit Chinubhai to negotiate changes in the collaboration agreement so as to enable the assessee-company to market its products in the middle east and the far east. The resolution to that effect was passed by the board of directors of the assessee-company at its meeting held on June 22, 1966. The assessee-company also decided to depute Mr. H. P. Gupta, its laboratory controller, to the collaborators' associates, M/s. Dade Reagents Inc., Miami, Florida, U.S.A., for training in the manufacture of blood bank products lik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llocation made by the assessee-company. He further found that the value of the raw materials included in technical know-how had no relation to the value of raw materials imported or to the capital outlay on the building and machinery. According to the ITO, the allocation made by the assessee-company was not supported by any evidence. He, therefore, disallowed the whole of the amount of Rs. 1,92,000 paid by way of technical know-how fees to the foreign collaborator. He, therefore, did not allow the depreciation and development rebate on the amounts allocated to the building and machinery account. The assessee-company had also incurred an expenditure of Rs. 39,180 on roads, in the year of account relevant to the assessment year under reference. The assessee claimed that the said expenditure was revenue expenditure. The ITO, however, disallowed the claim of the assessee. Against the decision of the ITO, the matter was taken in appeal before the AAC, Special Range-I, Ahmedabad, by the assessee. As regards the claim of the assessee-company with regard to the foreign tour expenditure of Rohitbhai, the AAC held that the foreign tour undertaken by Rohit Chinubhai was for two purposes ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee-company wanted to start altogether a new business involving manufacture of new products. The Tribunal further held that H.P. Gupta's training with M/s. Dade Reagents and Rohit Chinubhai's discussion with them were connected with the testing of chemicals. It was further held that since the assessee-company was already manufacturing blood transfusion equipment it could not be said that the expenditure incurred in connection with the manufacture of testing chemicals was capital in nature. The Tribunal further held that H. P. Gupta was an employee of the assessee-company and, therefore, there was no question of the assessee-company acquiring any benefit of enduring nature by getting him trained by M/s. Dade Reagents. It was held by the Tribunal that no part of the expenditure incurred on the foreign tour of H. P. Gupta and Rohit Chinubhai could be disallowed as capital in nature. Hence, the Tribunal allowed the claim of the assessee-company in full in respect of the said expenditure. As regards the amount of Rs. 1,92,000 paid by way of technical know-how fees to M/s. McGaw Laboratories, the Tribunal held that the AAC was right in making allocation of the expenditure of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointed out above, it was stated that " we are also having in view an agreement in principle from M/s. Dade Reagents Inc. of Miami, Florida, an associate of our collaborators, for the manufacture and distribution of blood serum as part expansion programme of this company ". This aspect of the case was pointed out by the AAC and in its order the Tribunal has pointed out in para. 5 that it was not disputed that the assessee-company was engaged in the business of manufacture of hospital equipment and one of the equipments manufactured by it is blood donation or transfusion equipment. It was already manufacturing, equipments for collecting, preserving and administering blood. It wanted to manufacture one more product, namely, testing equipment, which was connected with blood transfusion equipment. In fact, the Tribunal was informed that the equipment for collecting, preserving, administering and testing formed one unit of the blood transfusion equipment. The testing equipment was, therefore, only a part of the blood transfusion equipment. It was only in order to complete the manufacture of blood transfusion unit that the assessee-company decided to manufacture testing equipment which fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacture of a new product. Under the circumstances, he does not oppose the contention of Mr. Desai regarding the expenditure for foreign tours. Under these circumstances, since the Tribunal has adopted the test of altogether a new business involving the manufacture of new product while considering this item of expenditure of foreign tour, in our opinion, Mr. Desai's contention is correct. Hence so far as the expenditure on foreign tour was concerned, half of the expenditure incurred by the assessee-company in connection with Rohit Chinubhai's visit to the U. S. A. was allowable as revenue expenditure and the remaining half was not allowable as revenue expenditure as claimed by the assessee-company. The entire amount of expenditure incurred by the assessee-company in connection with Gupta's visit to the U.S.A. was not deductible as revenue expenditure, so far as the assessment year under reference was concerned. As regards the item of Rs. 1,92,000, this amount was spent by the assessee-company by way of payment for technical know-how fees to M/s. McGaw Laboratories of the U.S.A under the collaboration agreement. The ratio of 9: 5: 2 was arrived at by the AAC, as regards the allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e books and surgical instruments are expressly included in the definition of plant in s. 43(3) of the Act. It includes any article or object, fixed or movable, live or dead, used by a businessman for carrying on his business. It is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business. It would not, however, cover the stock-in-trade, that is, goods bought or made for sale by a businessman. It would also not include an article which is merely a part of the premises in which the business is carried on. An article to qualify as " plant " must furthermore have some degree of durability and that which is quickly consumed or worn out in the course of a few operations or within a short time cannot properly be called plant. But an article would not be any the less plant because it is small in size or cheap in value or a large quantity thereof is consumed while being employed in carrying on the business. In the ultimate analysis, the inquiry which must be made is as to what operation the apparatus performs in the assessee's business. The relevant test to be applied is, does it fulfil the function of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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