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TMI Blog1977 (11) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... m being at the instance of the Commissioner and the second question being at the instance of the assessee. These three questions may now be set out being designated respectively as questions Nos. 1, 2 and 3, question No. 1 being the original question referred under s. 61(1) and questions Nos. 2 and 3 being the questions directed to be referred under s. 66(2) at the instance of the Commissioner and the assessee, respectively. Question No. 1. "Whether, on the facts and in the circumstances of the case, the fencing round the refinery processing units constituted 'plant ' so as to be entitled to depreciation and rebate ?" "Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that 50% of the sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereas the latter was for a period of 10 years. In 1957, a royalty amount of Rs. 2,49,829 was paid to Calresearch and Rs. 47,586 to Esso. Before the ITO, the company claimed depreciation on these amounts treating them as part of the cost of machinery. The ITO held that the payments were for use of process and could not be added to the cost of machinery. In appeal before the AAC, the decision of the ITO was confirmed, the AAC observing that the expenditure could not be allowed as revenue expenditure because it had been incurred prior to the commencement of the business and further because it had been capitalised by the company itself. In further appeal before the Tribunal, the company was able to prove that the expenditure was incurred only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to us at the instance of the Commissioner. The Tribunal then considered the balance of 50% of this amount. It observed that to the extent that commuted royalty payment was for the supply of know-how, there would be no justification for increasing the cost of machinery and accordingly it divided the balance of 50% into two equal parts allowing 25% (i.e., 1/2) as capital expenditure on which depreciation and development rebate were admissible and holding that the balance 25% was capital expenditure on which neither depreciation nor development rebate were admissible. It is this decision which has aggrieved the assessee at whose instance question No. 3 has been referred to us. The licence agreement between the assessee and Calresearch, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been paid on capital account. It was accordingly submitted that the Tribunal was in error in allowing 50% of this amount as a full deduction treating the payment as having been made on revenue account. We have carefully considered the provisions of cl. 7.3. It undoubtedly talks of the assessee-company being entitled to utilise even after the period of the agreement the fully paid licence(s), but when one turns to art. 6.0 referred to in this article or even to Sch. "B", which is referred to in art. 6.1, which is the only article in 6.0, we do not find any provision for an outright purchase of a licence of the collaborator by the assessee. Merely on the basis of the theoretical provision without a further provision for such outright purch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed on that basis. On going through the order of the Tribunal, we do not find any real basis for apportioning this balance of 50% treated as on capital account into two equal parts of 25% of the total amount and allowing depreciation and development rebate only on 25% and not on the full balance of 50%. The Tribunal has very briefly stated that this was done taking all the facts into consideration. It would appear to us that there was no material before the Tribunal to hold that any part out of this 50% treated as on capital account was not pertaining to the erection of the plant or to the design and know-how for running thereof. If that be the correct view, then on the material before the Tribunal there was no warrant for treating any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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