Scientific Englneering House (P) Ltd v. Comissioner Of Income Tax, Andhra Pradesh

agicine sataatia gisa (site) fafaesaarT AIARL ATTA, ALT NTT (1 Aaraz, 1985) (earagia ato sto GURIGTRT AIT Bena Fast) epee afeafzan, 1961 (1961 Bt Fo 43)— ae 2/14),(47) —ataer—aaina aifea— faatfrat saat gre fratfateh aotS ar nea A feed fefhiat B goat &fafantor & faz agata & at wuz fer wA- FU F ageaz faatfcal grat waged qaufr & gaia & aee ten faay,feargay, arel, vant aife at sara awe fede seat srefaatfzat at staat Gat cara Hl Bra— HUT B agar argAare faaticat sort gre anaifea dt mal—star-aargaat Var at, wafesea aa vast araaina ara ai—aa: faaticel ar<r staat Gat & fag feat qar eaq gt gq-BUT TATA Bl AHAlHl HABIT H Gsiina afer alsa Hzfasan cay gat i araat afaftan, 1961 (1961 et Ao 43)— ener 32,43(3)—aaa—aalet—anatatl saat gra szat—wiz t go fafadat & yaar aart & faa tarfeai,festgal, ai2t, veal att veg aifeea Sr sai HH faraaaattt HAT ster faaitrat wl ahaa Bar sary By ArAi—Val ceaaa Sar geasrareFo she Brawn st afte a oHaaa @—aa: featfeet wera dts ¥ fae wRareFt faaifeat asifan soaxnl aixafaal aa srl, gaa,taf tea, fradfesaeciaaife ar fafraio set 2) garqenedh att ealzianeza ar fafeain ge aera % far get foeaad afedag giftaa efem want Bara gem-gamaera UTCfercae Heya ca feesemi)TaFt A 8-8 Ear aT aera UTC (dat ward % aedta Har cHA 1,60,000 BIg) F Fay F shaneH ga stato & fatraton & fae aravan anes cadet aravafratheat at aa ar were Pear ary stat were ar Beeq faaifedtal un fafafera fafedat & saa soneo ar fafaain ae F anyvara ar alt ae afta Fratfedt A aay fast eqraefag (ze-nie) att ay & fatal sarasat at aqafta (UHo alo ToGIT) F eats var orac ar area F fate we ar xfzareart ara FH sh Fea ar afirare afsa He feat at| sa saRcotSI gta ot & fafanig aca F faalfedy st ant qart ® fagfacet agaht aoat + aver ara & ara-ara Preheat st cia sareat aearaal ar aaa att at oH ger dz (Fe fataato tarfzg,Ta eRsens, fearga, ard, aa aur area arfzea, feast wea% wig 3 9 ate afan fata wr 8 seta fear qa @) Tara Ateot,THAT Fras Far argare Tara HA fata aT agahtt Hue fe satar ar, at s ga soart ow ale & dt fafrator sagal cadet ararard 2% ate oferetor 83% fare carfkez Pear aayary ga HU F apa A featfedt a fase saat aq a1,60,000 eau HT Tor aarq He fear ate faeet aaa a fsarzay,aayVenfaal, seats areal, F aaet gt Gz ate Tay que HH (3) THaT F fae Bar ae gz aq at arise 1 Fraifeadt afga+ 1,60,000 7g at gaufe “gerataa” MG F seata fashee((fazy1,60,000 Fe ery a a gaat aaurfa fratfedt Seay areradial 2 ogg ohfelfes af geaat Pear wr geqfeefaa wa aedl afer aadtet araart afsa at % fae gaayer at autet &, wt qsitna aaa at wife F andl 2; fara afin argote at saad afer aferea% aal ars oh, eafar fHat sh ara.aay alae ar tat aa fear at amar. Praifeat arer adta greaHa Ot Beas wryta (att) J az afafraifea Prat fefaatfedl + at Go fears ag fate sat qe po sfres tar.‘fast, wel, vant afe at aa ate 21 sa aeaaat st usang dafad act & wa gers aa we dh, fra oe aaron, aaaait antrd at aifa, aghraaxe & aqia garafsacoe ¥12,000 way at alata gftz aera We R wtadi, afenUsed eH STH aH aT xa ATE war aaaH aTgat (Ha) S mae st ghe ae a 1 afraer F aT aTeT Y TIT MTT FFsoraraa at frat ex fear | sea earaTAA J 7 wAAT, 1973 Faaa frota ¥ ag afafratica fran fir fratfedt aaerrer alae & Be3 ay caea ogy 3g feat dl agqaie at gacrt ag FI BHATTSUTATAT aI ATT ATT BW BU,| SCIENTIFIC ENGlNEElUNG l!OUSE (P) LTD. v. COltilSSIONER OF INCOME TAX, ANDllRA PRADESH NOVEMBER 1, 1985 [V,D, TULZAPURKAR AND SABYASACHI MUKHARJI, JJ.] Income Tax Act, 1961 sectiona 32, 34 and 43 (3) - llefini-tiona of ''Book", "Plant" - Whether the technical know-how in the shape of drawings and designs, charts, plants, processing litera-ture etc. comprised in "documentation service" falls within the definition of "Book", "Plant" - Whether the said "documentation service" not only "a capital asset" but also "a depreciable asset[11]• l'he appellant-asaessee manufactures scientific instruments and apparatus like Dumpy levellers, levelling staves priamatic compass, etc. It entered into two separate collaboration agree-ments, one dated 15th March, 1961 and the other dated 31st March 1961 with M/s. Metrimpex Hungarian Trading Company, Budapest for undertaking the manufacture of microscopes and theodolites, under which the said collaborator, in consideration of payment of Rs.80,000 each (Rs. 1,60,000 under both the agreements together), agreed to supply to the asse8see all the technical know-how required for the manufacture of tliese instruments. To ensble the assessee to manufacture these inatruments in India, the foreign collaborator inter alia agreed to render "documentation service" by supplying totiie"""'iiSseasee en up-to-date and correct complete set each of the five types of documents (such as manufacturing drawings, processing documents, designs, charts, plans and other literature more specifically detailed in clauae 3 of the agreements) and to render training and imparting of knowledge of the know-how technique of manufacturing these . inatruants. Pursuant to the agreements the appellant-assesaee lllBde full pay-ment of Rs. 1,60,000 to the foreign collaborator and the latter rendered "documentation service" by supplying complete sets of all the documents including designs, drawings charts, plallll and other literature as per clause 3, The sum of Rs. 1,60,000 waa debited by the asseasee under the head "Library". For the assessment year 1966-67 for which relevant account-ing year ended on 30th September, 1965 the aasessee claimed a aum of Rs. 12,000 by way of depreciation on "Library". The Income Tax Officer held that the sum of Rs. 1,60,000 did not represent the value of books purchased by the assessee represented the price paid for acquiring the technical know-how which amounted to capital expenditure but since no tangible or depreciable asset was brought into existence no depreciation allowance could be claimed. On appeal preferred by the assessee, however, the Appellate Assistant.Commissioner held that what the assesse had done was to make an outright purchase of certain specimen drawings, charts, plans, etc. on special papers, that these docu-ments when collected together constituted a book on which depre-ciation as in the case of plant and machinery, would, be at the appropriate rate be allowable and he directed the Income Tax Officer to allow the depreciation claimed. In the further appeal preferred by the Department the Tribunal took the view that clauses 2,3,4,S and 10 of the agreements did not lend support to the stand taken by the assessee that payments (Rs, 80,000 each) had been made mainly for the supply of designs, drawings, charts, etc., that the services to be rendered by the foreign collabora-tor covered a wide field and that the supply of designs, draw-ings, charts, etc. was incidental and only in furtherance of other services which the foreign collaborator was expected to render. And that since the supply of designs, drawings, charts, etc. was only incidental and the payment of Rs, 1,60,000 could not entirely be held to represent the purchase price of those documents it was unnecessary for them to go into the question whether the said documents fell within the meaning of the expres-sion 'books' and whether depreciation was, therefore, admissible thereon. The Tribunal however, held that the agreements showed that some of the services which the foreign collaborator was required to render to the assessee were on revenue account (as for example, the provision which required the foreign collabora-tor to depute their experts to correct any flaws or irregularities that might be encountered in the course of the production) and that therefore the payment of Rs, 1, 60, 000 was partly on capitalaccount and partly on revenue account and that even if it were to hold that the part of the payment was allowable as revenue expenditure the allowance could not exceed Rs, 12,000, being the deduction allowed by the Appellate Assistant Commissioner. Thus, the Tribunal confirmed the deduction of Rs. 12,000 not as depreciation allowance but as revenue expenditure and in this manner it confirmed the order of the Appellate Assistant Commissioner. Both the assessee and the revenue sought a reference to the High Court. On a consideration of the terms and conditions of the two collaboration agreements the High Court took the view that the payment of Rs.1,60,000 did not mainly represent the purchase price of the deaigna, clrawinp, charts, etc. that the rendering of "doc.-ntation service" vu incidental, ~hat no part of the expenditure waa on r-account but the whole of it was of a capital nature bringing into existence an asset of enduring benefit to the asaeasee, but what waa brought into existence was a non-depreciable a .. et and, therefore, the asseasee was not entitled to any relief in tha case. Following the aforesaid decision rendered by the High Court in relation to the assesllllll!nt year 1966-67 the uaesaee vu denied aimilar relief claimed by it in the two subsequent aaaess-ment years, 1968-69 and 1969-70. Hence the appeala by apecial leave of the Court. Allowing the appeal, the Court, -—aafafaerifcr serra Ure & avs 3 ate 6(H) FT TH ATAgan & ag eqee sala at seat fe ave 3 % fafafase seat aargsera stat fads, seat aot are fraifedt at a area ateit* geaa qen ar at afte ave 6(a) F eve foray g 80-80 EAare at carga day (aT FTA F saa 1,60,000 eq) tatSat gaia HU B fat ar, Bs 5(7) FATA faor F ee Tet& ofa sit fader 2 frat ag wer ware fie “HAT aaTaTa HUT Ttwd FATA IATA TH TAAAT BT Yea sate 80,000 ere HT FareStar 1” sega: Bs 4 aT SH afnat Bea Gare argafrn sataarnt & avife eat & Go Fare 74 at sat atfga ot aa fratheatgiz aifea at ate frre fag faatfcet a aayFY cay aga aitacc HU BT BUT PIT aT HUD H BEAT g AMG TAT FAT SFfis fafen zearaT TA TIAA AAT % afeafaa rtatfaa, fearea,ad, aad, TAHT, AAS ae ae aTfgea }, faa vara aT TAfade agatal aaa FHT BT TAAT frat at, qarfan er a aatarre &, farrar saat TH TTHTT aay ar arcare frettedgra fear sat aT att 84 zeaiaal & afc tal aaetat.areal wer wet F fare GagRT FAT BT feat Tat at | gatgeal 8, TeadH HUT F AeTTA 80,000 UITaaa Talaa: THATSar seta HUT B fae ary aa: ag ease ff faaifedl 7 aq eatgue 3H fafatace saa@a Bar ¥ aarfase Varfaa, feargal, Az,aaa, TERT aiHSl ate area arfeca st aaa F wT A fHaetar) aa: ag 2am faeaag isitna sHfe FT aT, aah wareret faat-feat F Varfaal, fesrgal, aret, saal, TACHLT, ainel att oeraifzea arfwT A aarlat arava aT qafing afer sree ata1 (Fat 9) ugaa” & arate Bat aE feat ar afer fat at Aa aeg ar cata wT arfaet star, fraar STAT eTATTAL ATAT HTRATT watt FT Ha F ale ae savas ae Ss fe az cH arfirr aa atatfna gt, frat soar aifae afsatett at sfRarait & fa fearara g aaar aifra ar alatfite reat H glaT SME aeg ailaaa art at Taal g Tt GAH caTheea st He arar at) garweal H, watel ag gli : ear ag aeg freaifedt & earqre at afa-fafaat F cw daa HT TA Te Ha B ? aa ag saw sqrqrye FTVar& Mt stare ag daa 3, gar) fraa ag (Fe arar AL arate ate 12) aarat g ? afe sax at” F afe squad Halal UT F aos 3 -F fafafacr seaaq FarFH aarfase tarfaat, fesrgai,are’,saat,cadence afasl atxwen afaer & tata F ary at are at afraraa: wal frond freerfr un gera HwT Ta ease aaa” at ofearw F aaaarea| aa are H faare sat fear ar agar fH arqign qfse &YaT eaag Ual eearagt BT oH GeaH HVTsare A HTH AAT Val aay seaT 1 sae Tar & fa gerat fratheet He Brsara faaifedt wt catstarge att qenael aaTATYat gaatsararel afafafa arte BA H TAY sATAT ar ale Faw Hrs azzwal gt anar fe & cearasy gt oH & fafraty F cH agergqoywry weal at|sega: geal Gor ale saat eeaTaat F gt Fel araeraar & fratheal acat fafaator afafafey areca ax eat ateeearag areata A ceara ToT aT fafrator Hw B Brae HTarart a tag StH g fe & eearasy aay ara Hig aifsa afar arper ral weal at, faeg ga ara sl sas aaa gat F shana sgaTwat feat ar anat, aaifs a an ag & fratfedt earare F oHarareyd stare f aatfs gaat aga carat saarinar al, araifessanfite searft F areaesq s Herat FT GUA Ts anal F at gsweit 1aa:faatfedd are sea gatia afer aaia terfaa,festa,ariel, aml, saeacy aiast ate aeqarfger F eq Faaa rH Vara” st afeara H aeataT areal %,ale gat- faq un aaardt afer 21 (Fer 13) atgfefas gsito gga To MAT ayaa [Fao FaAIGTET] 901 Haat Bt ate aat do Uo Mar ate FAT Toqarfgoty arate ar froa eqragiat ato eo gamgTHt HX fear | aarania JaaryTat— at iatfrattor alat 47 ¥ 1966-67, (farat araa 1968-69 Yar att aafir 1969-70 wT: & dafra 30-9-1965, aA:HT30-9-1967 UH Ql TT at BeTeT 30-9-1968 gat at galt ara ag ag g& 2 fe— et) gurt faarerd fafz CHa alae F Teal F gare ge ate saat ofefeafrayH car fraifedt ate gartee feng tad afendaa gtfeaa| Sfsm aad & ate gu again werd ar adt frdaa wer qxfretfeat aver faeah agattt seq a 1,60,000 vag araarqaaa aT aaeal afer 2?” F asia F gfe Pear war TTT: AT ATTA: lll!LD : 1.1 The expenditure incurred by the appellant aa and by way of purchase price of drawings, designs, charts, pl.au, processing data and other literature etc. comprised in "dOCUlllentation service" specified in clause 3 of the AKr-ta, was of a capital nature as a result whereof a capital asset of technical know-how was acquired by the assessee. [713 B-C) 1.2 From the relevant te1'118 of the two agreements, it is clear, that the "documentation service" undertaken to be rendered by the foreign collaborator to the assessee was not incidental and that the payment of Rs· 1,60,000_ could only be regarded aa being mainly for and by way of purchase price of the drawinga, designs, charts, plans and all the documents comprised in "documentation' service" specified in clause 3 of the agree111111ts. [710 &-CJ 1.3 Reading Clauses 3 and 6(a) of the agreements together, it is clear, that the rendition of documentation services speci-fied in Clause 3 was really the main service to be rendered by the foreign collaborator to the assessee and the Clause 6 (a) categorically states that the lumpsum payment of Rs. 80,000 (Ra, 1,60,000 under the two agreements) was for rendition of aucb service. Clause S(c) makes the position clear where it has been stated that the «purchaser is to pay the value of the full documentation in question, namely Rs· 80,000 according to the stipulation of the present agreement." In fact the other services mentioned in Clauses 4 and 5 appear to be incidental aa aome of these were undertaken to be rendered as and when desired by the assessee and for which the assessee had agreed to bear and pay the expenses separately. But the tenor of the agreements clearly shows that the various documents such as drawings, designs, charts, plans, processing data and other literature included ir. documentation service, the supply whereof was undertaken by the foreign collaborator, more or less formed the tools by uaing which the business of manufacturing the instruments was to be done by the assessee and for acquiring such technical blow-how B through these documents lumpsum payment was made. [ 712 F-B; 713 A-CJ 2.1 Plant would include any article or object fixed or movable, live or dead, used by businessman for carrying on his businssa and it is not necessarily confined to an apparatus which ia used for mechanical operations or processes or is employed in c mechanical or industrial buaines1. In order to qualify aa plant the article must have some degree or durability. [714 B-c) Y&J:llDilth v. France, [1887) 19 Q.B.D, 647; Bf.ntoll v. !!eden ' Ireland Ltd., 39 I.T.R, 357; Jarrold v. JobD Good ad Sou Lbdted, 1962, 40 T,C, 681 C.A.; InlllDd lle¥enl1e t:mnfH1-ra V• llarclay, Cm:le ' Co. Ltd,, 76 I.T.R. 62 quoted with approval. Comiaaioner of Inccme Tu, ADdbra Phdmh Vo Taj llaba1 Hotel, 82 I.T.R, 44 referred to. 2.2 An Article to be treated as a "Plant" within the meaning of section 43(3) of the Act must answr in the E affirmative the functional test, namely does article fulfil the function of a plant in the assessee's trading activity? And is it a tool of his trade with which he carries on his businasa? [714 G-B; 715 A] 2. BH TT BY TTT HW ay Tea, Aat X ga watswad aafefan eitfrater grasa (sretz) fafats (fad cat sazqearg “fratfeay”’ wer aat g) darts scant ate arial Fzsrtl caad, tafan caren, fraafen aera ante ar fafrator azat@ lsat qeraaih alt ealstargea ar fafratr ge at & fregate feat tad afeted gtfeaa 2fea sqdt B arg TTH-JaR atMEAT BUIT—OHaa 15 arg, 1961 ary aieaT arte 31 ard,1961 art wut faq fare ata sa fate agatit aqdt 2%80-80 BATT VIE (Atal HU F sella Ha HT 1,60,000 eIg) Faaa & sfene F ga srncnt % fafanin F fae arava wareaadtat araare fratfedt at at ar ger feat aryatal werd“pr seea faatfeadt ay fafeaa fafadet & gaq stazit wr fafratorBU Faas TATA aT ake vam adie faatfedd seaqdtfasitsarait-frg (gs are) ate ara & fade carnal atagai (qr0@to Uo sa) F geht saa seHcaT aT area H Frater Hy wTafaart att area Fe Fay Hr afienre afsa we fat arsaSHUT HT aw-aet gare ae da & fafaatoy wed F fraifedy ataay aaa & fau fate agatt aga a seaetal B ara-are seam eararaa facia afrat [1986] 1 Ao fa do faatfedt a ota gare at aearael BT gaat ate aa UF TU ae (#3 fafaato tarfaa, aeRO TATAT, feared, alt, Tat Taraa atfgca, faaat wud F avs 3-H ate afrs fare wT asete feat até)sare STR ‘ae@a Far Tard HT FT FUT—fisar at. gat vm ate at araer on, fra agare facet agayayaigqedt alga gaact & fafaator at aeetat oaraard 24 attofirerer 23 & fare eqrface frat aan at) ga wed F agaen Tfaatfedt & fade agatit saat ST 1,60,000 vag ar ToT aata(sete Hue F sata 80,000 er) we fear ale facet FAT 4feargal, tarfaat, aret, aaat ate ave (3) F fac ae ea aferafga ast aearaat Sgt dz gare STH TaaaT-AaT wart Ftfauifeat %1,60,000 wag st aacifn “qeapraa” wie & wertfanfaa (sfaz) at a| 3. fraizo ay 1966-67 & fac, frat far gata war ay 30 faaeaz,1965 at aurea gut at, fratfeat 4 ORTHTAT TTaaa & wr HF 12,000 ee at Ufa ar ara fHar | Ca aaeraoar arat Sa arate gt fear war fe 1,60,000 erg HT Fala Fea:feargal, tatfaal, aref ate acaarigea ay get ade % farfeat qar 3, wt aga afan at ate aeartl fraal woere at a7gaT ga aT ale eah TH ata TaET a CH TT GetH TT TT aT HTfauifedt & agfar et & saeran aT erat fear atl aazHTafaardtag afafratfca fearfis 1,60,000 eve at earerferfralfedt arr attat we geaal ar qea afar aval wral, aferanda saad afar arte faw dea gear at anict 2, aqaitta cay at alfe Hardt @, fag af arg ote at araerat aferafeaca H adl arg at, gafac feat a aaa ale aT cat aefear at anat| fag fratfedtaren adler arg Hea TT agaangaa (ait) + ag afafratfer feat fa fratfedt + at Fo fear@, ag fate arrat ax go sfaeq tarfeal, arel, vaat anf aywa qda ats; ag fH ea cearaal a oH ang adalat wT aun gears aa Tg 2, fare aaa, aaa ate ata at atfa,agfad ec at aqta ataa: vaNaraat afear) aralalea aTAIT agara Her wr fade fears faart are Brea ay Danak :ave| aigiefaas Esto ITA Fo AHL MYA [FATo Faget] IOP Danak TZ au atta F afew a ag aa acarar fH wud ¥ aves 2,3,4, 5 ate10 fasifedt& sa arate & faa agin at gfaera (scm 80,000 s7x)yeaa:feargal, tarfaal, aret arteevar s far far aes;ae fe facet agatal woat gre varaat art ately Fatal ar TH carve aa ar att.ag fe feareat,taifaal, art anfe ar sare argafte at ate ara Qarat ay giawear & faa dt ar,fares 8a at fare agarat aol & scare starat a 1 ara gt, sar ag at wa acarar fe af feargal, taefast, wet anfe ar sare aa arqcfre ar atz 1,60,000 are &aaa he ata ag sal Aral a awa fe ae aqua war vqaearaay & wa-ysa BY autdl ge, safer sah fay ga ser qefaart Heat araeag asl & fH saa stares “gray” oeay Fareal gar aal att saat Haar adaa gs azar aatfar wtafracn a ag afufaatica fear fe wut & ag cat waar & fefatesav & wat go tse & fathead Ae Ft at (FB, st varecars, Aart sara ag at srau, stat fas atfera aqare a,fadelt agaraoadl a seqraa Behera seated Ala are} HTS Hatat afaafaaar # gare Hea se fat aa fares at sfafaqermeat aif at)ate ag fe gafae1,60,000 ere at daryMITT: TH TT AS aT AT arTg: tseg Ta gale atta eHfeagir at 7é at, + fe fratfeat gra ate fear saa qua feafa Faval et ana, frat ag ga ana at, ga saa aate at al, gafacafaazn 4 ag afafaaifea fear fe afe ag aa afafaatita wearfa dala Ht oH MT WATT ay H BIH aq g, at al ag ala12,000 equ a, ifs aglan argza (atta) are agqara Fetal z,afaa adelgt aaat1 gat meat H, afar a12,000 eq atmed at gfse aaa Ale H STA ae! afew Uses car F BqPal att ge ate yar agray argaa (ata) F area at gfezHT aT| A, fagifeey att trace faata, cal a, sea earareaa ay fade wea at scar atfaatfedt a afew Faver Great fagqu fade aaeat F at aeftat ox ate fear: (w) ag fH fretfeatfade agaiil aadt aT dat1,60,000 BIE AY aeGa wHT gz 904 waaay earataa facta ofaat [1986] 1A fro go qeararay (getH) Bl ANY Tea AaAIT BT sat HUT Bl THAT&; att (a) afanwn at ag fafafase frond frarcat atfgd atfe csitia exe al aula art feadt tar ot waean faa aHaT& ate fraifedta gr celal & aafaa aghaa set sort ars 1gat faqda, user four a ay acta ge ate fear:(i) safray qe qgat gz fF 1,60,000 ate ar daa Ht a ARaera afer afeaca F agl are, fancy at sant ate argora:Hat seat area atx Fraifedt a ats agate et fear at aaa,wat (ii) aferacr FT seal rite wr farerer Het aa Was aaT% eq F 12,000 ee at gaufe agara ees caralfaa art fear,fataat aa safe sae ane ga art F Car ery ger wal gorarwar at fe ag uses faure at uE ae @, alt say sa acetal aaafaa statseat sort Weaexera, afracr a aay ata aseed fazafafad aq sea eararay at fading we feat— ‘aay aay a azats arare qe ate gaat ofe-feafaatl H car faaifedt ate getter fear Fad afentaagufead efem aoat,F Ma ee aaaty Hue ar aa faaHUA TT 1,60,000 ag wr Bara waa: saat afta Fait & fre ar atte waa: waea sya F fae aarar arqua:aaa afer & asta F fat at?” 5. Agata F at wu F fragat ate wat at faare Hewqy Fate Gey aaa A aE AT AraratfH 1,60,000 eae ar aarazfeargat, Ratfaat, aref nfs at saaataa al yeaa: afer satmca, wat fe faatfedt aaaite dd; az fe yeaa Far saraarar nagifre 3;ag fe erg ar arg it ara waea Ae aa aT,afer ag arqaa: osttrat vafe at ar, faa® arer faatfedt & faemiaaise afer afeaca FH ars at, fag wt ago afeaca F arg af,ae Un aaaetla anfea ot ate gafau faaifedd ga ear F feat sftHTTNT at Rae velFt Zar weal H, ges eqraraa § 7 gaa,1973 & aga fata y aa afafaaifea fear fe fathead waaralae & BT A ar uses cag Ae feat at agate at Hart ae 31 6. Fratton a4 1966-678 ada ¥ sea armaa ¥ qatarfafaraa at aga att gq fratfeat at at aearaadt faster oh|7| ast 1968-69 att 1969-70 H aratHa dar A aaaty 82 a eearzHt fear aar t fratfedt A sea eqrqrara % fafaeaa a qatdt 2aEU scars aia Great at Ez 2.3 Applying the functional. test to the drawings, de1igna, F charts, plans, processing data and other literature compriaed in the "documentation service" as specified in clauae 3 of the Agreement, these documents as constituting a book would fall within the definition of "Plant", These doc.-nts regarded collectively will have to be treated alao es a "book", 'lbe purpose of rendering such documentation service by aupplying G these documents to the essessee was to enable it to undertake ita trading activity of manufacturing the theodolites and microscope• end therefore, these documents had a. vital function to parfora in the lllll!IUfscture of these instruments. In fact it is with the aid of theae complete end upto-date sets of doc.-nts that the esseasee was able to commence its manufacturing activity and H these documents really formed the basis of the buainssa of manufacturing the instruments in question. It is true, by themselves these documents did not perform any mechanical operations or processes but that cannot militate against their being a plant since they were in a senae the basic tools of the assessee's trade having a fairly enduring utility, though owing to technological advances they might or would in course of time become obsolete. Therefore, the capital asset acquired by the assessee falls within the definition of "Plant" and therefore a depreciable asset. (715 B-G] Conmissioner of lncOE Tax, Gujarat v. Elecon Engineering Co. Ltd., 96 I.T.R. 672 (Gujarat) approved. CIVIL APPELLATE JUliISDICTION: Civil Appeals Nos. 262 (NT) of 1974 etc. From the Judgment and Order dated 17.1.1973 of the Andhra Pradesh High Court in Case Referred No. 21 of 1971. · G.C. 8harma and A. Subba Rao for the Appellant. C.M. Lodha and Miss A. Subhashini for the Respondent. The Judgment of the Court was deli '·•red by 'IULZAPlll!KAR, J. These three appeals relating to assessment years 1966-67, 1968-69 and 1969-70 respectively (the accounting period in respect whereof ended on 30. 9.1965, 30. 9.1967 and 30.9.1968 respeetively) raise a colDlllOn question of law for our determination namely: Whether on the facts and in the circumstances of the case and on a true interpretati~n of the collaboration agreements between the assessee and M/ s Metrimpex Hungarian Trading Company Budapest the payment of Rs. 1,60,000 by the assessee to the foreign collaborator was attributable partly or wholly towards the acquisi-tion of a depreciable asset? · Briefly stated the facts giving rise to the question are these. M/s Scientific Engineering House (P) Ltd. (hereinafter called the assessee) manufactures scientific instruments and apparatus like !Ximpy levellers, levelling staves, prismatic compass, etc. It entered into two separate collaboration agree-ments, one dated 15th March 1961 and the other dated 31st March 1961 with M/s Metrimpex Hungarian Trading Company, Budapest for undertaking the manufacture of microscopes and theodolites, under which the said foreign collaborator, in consideration of payment of Rs. 80,000 each (Rs. 1,60,000 under both the agreements together), agreed to supply to the a•sessee all the technical know-how required for the manufacture of these instruments. The object of both the agreem~nts was to enable the assessee to manufacture the said instruments of certain specifications and the assessee thereunder acquired the right to manufacture in. India under its own trade r.iark and name but under the licence -MOM Hungary - of the foreign supplier the said instruments and the right to sell the same in India. To enable the assessee to manufacture these instruments in India in the manner just indicated the foreign collaborator, inter alia, agreed to render 'documentation setv:f ce' by supplying to the assessee an up-to-date and correct complete set each of the five types of documents (such as manufacturing drawings, processing documents, designs, charts, plans and other literature more specifically detailed in clause 3 of the agreements). There was also a provision enjoining the foreign collaoorator to render training and imparting of knowledge of the know-how technique of manufacturing these irtstruments. PUrsuant to the agreements the assessee made full payment of Rs. 1,60,000 (Rs. 80,000 under each of the agreements) to the foreign collaborator and the latter rendered 'documen-tation service' by supplying complete sets of all the documents including designs, drawings, charts, plans and other literature as per clause 3. The sum of Rs. 1,60,000 was debited by the assessee under the head 'Library'. For the assessment year 1966-67 for which relevant account-ing year ended on 30th September 1965 the assessee claimed a sum F of Rs· 12,000 by way of depreciation on 'Library'. Such deprecia-tion was claimed on the ground that the payment of Rs. 1,60,000 had been made really for the outright p~rchase of designs drawings, charts and other literature which were voluminous occu-pying almirah-full of storage space and these collectively constituted the pages of a book and the assessee had claimed G depreciation at the appropriate rate. The Income-Tax Officer held that the sum of Rs. 1,60,000 did not represent the value of books purchased by the assessee but represented the price paid for acquiring the technical know-how which amounted ~" .:pital expenditure but since no tangible or depreciable ass was brought into existence no depreciation allowance er i be H claimed. On appeal preferred by the assessee, however, the Appel-late Assistant Commissioner held that what the assessee had done oh|7| 7. atiat &aagta t faaifedd & arger F seq earataTSr ag aa artfaar fe aq(sal way ® sata 80-80 eaxRIT) aT RE At ae Uae ae aa aT ate vast argqoy waagala safe at dt, fag sat ag acta a fe afsaco att 33aearaTag sat A day wud F fadaal at aaa aaaart ag afa-faatfta feat a fe shea kar set wear argufrn & aar1,60,000 erg ar Aare sara:tarfasl,feargal,aret, watate ae arfaer anfe at ma-alaa ay afea val Bra| BISAATT at wut F gana|@vsl Hr agt ws Hea a ag eqse gfa svaz tar ag cara a qex dar et,at