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TMI Blog1978 (7) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is a company in which the public are not substantially interested. It was incorporated on June 12, 1967. One Mr. M. S. Nagappa is its managing director. Prior to the incorporation of the company, Mr. Nagappa entered into an agreement with M/s. Nippon Communication Industrial Company Ltd., Japan, on December 27, 1966. The agreement was for collaboration in the erection of a manufacturing plant for production of capacitors. Under art. 3(b)(i) of that agreement the said Japanese company agreed to provide designs, plans, drawings, specifications and engineering know-how to enable the licensee to construct a manufacturing plant and to commence production of the capacitors. The Japanese company also agreed to assist the assessee in other ways such as furnishing information with regard to specifications and procurement sources of the machinery and equipment required for the production of capacitors and rendering assistance in the testing of material procured by the assessee in accordance with the recommendations and specifications furnished as stated above. Under art. 6 of the agreement in consideration of the services and assistance to be rendered in accordance with the agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the information passed on even after the expiry of the period of the agreement. Thus, admittedly it is a capital asset. But the assessee has allocated this expenditure on buildings and plant and machinery. This procedure is irregular for the reason that the value of the land, building, has not been increased by the assessee possessing certain technical information. Thus, the procedure of capitalising this payment to plant and building is not correct. It is an item of capital expenditure on which no depreciation can be claimed. Hence, the claim for depreciation on this is not allowed. In the revised working this amount has been excluded for the purposes of depreciation and depreciation has been allowed only on the net figures." In the appeal filed by the assessee, the AAC did not deal with this issue at all though he allowed some relief in other respects. On further appeal, the Tribunal held : "We find it difficult to hold that designs and blue-prints constitute plant for the purpose of depreciation. In any case, on the basis of the agreement the payments are not for designs and blue-prints as such but for diverse considerations, the major one of which appears to be know-how", an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the form of fixed assets or circulating capital. Ordinarily, any expenditure which is not of capital nature incurred in the course of business or trade is treated as revenue expenditure, but so far as the fixed assets which are utilised for the purpose of business are concerned, a certain percentage of their value is deducted periodically in the course of computation of the profits made by him. The amount so deducted is popularly known as "depreciation". Without taking into account such depreciation, it would not be possible to arrive at the true profits. It is only on account of this the statute has provided for depreciation allowance being allowed in certain respects under s. 32 of the Act subject to certain conditions. That section specifically refers to four items on which depreciation can be allowed, namely, buildings, machinery, plant or furniture owned by the assessee and used for the purpose of the business. There is no dispute that the items with which we are concerned, namely, designs, drawings, plans and technical data do not come within the category of buildings, machinery and furniture. Under s. 43(3) of the Act an inclusive definition of the "plant" is given. It state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible to erect the factory for manufacturing capacitors and switches. s. 32(1) provides that depreciation is allowable in respect of plant. The Supreme Court has held in CIT v. Taj Mahal Hotel [1971] 82 ITR 44, that the expression "plant" should be given a wide meaning. In that connection it observed : "Now it is well settled that where the definition of a word has not been given, it must be construed in its popular sense if it is a word of every day use. Popular sense means 'that sense which people conversant with the subject-matter with which the statute is dealing, would attribute to it '. In the present case, s. 10(5) enlarges the definition of the word 'plant' by including in it the words which have already been mentioned before. The very fact that even books have been included shows that the meaning intended to be given to 'plant' is wide. The word 'includes' is often used in interpretation clauses in order to enlarge the meaning of the words or phrases occurring in the body of the statute. When it is so used, these words and phrases must be construed as comprehending not only such things as they signify according to their nature and import, but also those things which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s proceeding by an analogy which can easily break down owing to the inherent differences that separate 'know-how' from the more straightforward elements of fixed capital. For instance, it would be wrong to confuse the physical records with the 'know-how' itself, which is the valuable asset: for, if you put them on a duplicator and produce one hundred copies, you have certainly not multiplied your asset in proportion. Again, as the facts of the present appeal show, 'know-how' has the peculiar quality that it can be communicated to or shared with others outside the manufacturer's own business, without in any sense destroying its value to him. It becomes, if you like, diluted, and its value to him may be affected, though, in my view, it begs the question to say that that value is necessarily reduced because the asset is used for outside instruction. These considerations lead me to say that, although 'know-how' is properly described as fixed capital by way of analogy, it is the kind of intangible entity that can very easily change its category according to the use to which its owner himself decides to put it." The meaning of the expression "plant" was considered in Jerrold v. John ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 as distinguished from a part of the plant with 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 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 plant in the assessee's trading act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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