COMMISSIONER OF INCOME-TAX VS AHMAD HUSSAIN DILDAR HUSSAIN
1999 P T D 3013
[229 I T R 169]
[Allahabad High Court (India)]
Before Om Prakash and S.L. Saraf, JJ
COMMISSIONER OF INCOME-TAX
Versus
AHMAD HUSSAIN DILDAR HUSSAIN
Income-tax Reference No.60 of 1981, decided on 09/05/1997.
Income-tax---
----Depreciation--Expenditure incurred in earlier years on acquisition of technical know-how---No claim made for depreciation in earlier assessment years---Depreciation allowable in year under consideration---Indian Income Tax Act, 1961, S.32.
An assessee is entitled to depreciation on expenditure incurred in the earlier years on the acquisition of technical know-how in the year under consideration notwithstanding the fact that no such claim was made by the assessee in the earlier assessment years.
Nippon Electronics (Pvt.) Ltd. v. CIT (1979) 116 ITR 231 (Kar.) fol.
CIT v. Elecon Engineering Co. Ltd. (1974) 96 ITR 672 (Guj.) ref.
JUDGMENT
In compliance with the direction given under section 256(1) of the Income Tax Act, 1961 (briefly, the Act), the Income-tax Appellate Tribunal referred the following question for the opinion of this Court:
"Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in allowing depreciation for the first time in the assessment year 1971-72 on account of notional addition of Rs.12,970 made in the assessment years 1965-66 and 1966-67?"
The case relates to the assessment year 1971-72 and the relevant accounting year is the calendar year 1971. The assessee is a company. Before the first Appellate Authority, the assessee, inter alia, raised the following contention:
"The Income-tax Officer has not taken into account the capital investment made in the plant and machinery as has been held by the Income-tax Appellate Tribunal in the appellate orders, dated March 31, 1970, for the assessment years 1965-66 and 1966-67 amounting to Rs.12,917?"
The Appellate Authority considered the above contention and found as follows:
"I find that the Income-tax Appellate Tribunal held that 50 per cent. of the fee paid to Ibcon (P.) Ltd., could be treated as capital expense as it secured benefits of lasting nature. There was no plant and machinery connected with the payment of this fee. I, therefore, do not agree with the learned representative that depreciation should be allowed on this amount as well. This amount was not represented by the addition of any plant and machinery. It was payment of merely a fee and depreciation cannot be allowed on payment of fee though the fee may be capital in nature. Depreciation can only be allowed on plant and machinery and in this case no plant and machinery is represented by this amount on which depreciation is claimed. The claim of the appellant, therefore, is rejected."
On further appeal, the Appellate Tribunal relying on a decision of the Gujarat High Court in CIT v. Elecon Engineering Co. Ltd. (1974) 96 ITR 672, held as follows:
"Respectfully following the decision of the Gujarat High Court referred to above, the know-how in whatever form is included within the meaning of the word 'plant' in section 32. The fact that this know-how was not acted upon by the assessee and no capital asset came into existence would not make any difference. Therefore, depreciation should have been allowed on this capital investment. We do not agree that the assessee should have made a claim in the assessments for the years 1965-66 and 1966-67 or that it cannot be allowed in the year under appeal because the expenditure had been incurred in the earlier years."
Section 32 of the Act relates to depreciation allowable in respect of buildings, machinery, plant or furniture owned by an assessee and used for the purposes of the business or profession. The question for consideration is whether depreciation is allowable on the expenditure incurre4 by the assessee for acquisition of technical know-how, which according to the assessee is plant within the meaning of section 32.
In Nippon Electronics (P.) Ltd. v. CIT (1979) 116 ITR 231, the Karnataka High Court held (headnote):
"Section 43(3) of the Act states that 'plant' includes ships, vehicles, books, scientific apparatus and surgical equipment used for the purpose of the business. The definition is not an exhaustive one. As time passes it is not only tangible assets that depreciate but also intangible assets like technical knowledge that become obsolete as progress is made in scientific research. Moreover, when technical know-how necessary for the business is acquired by incurring expenditure, there is no justification in denying appropriate deduction in respect of its cost while computing taxable profits if it can be brought under the heading 'Plant'. Hence, the word 'plant' when it is construed liberally, includes within its meaning such designs and blue-prints also."
We, agreeing with the view "taken and the reasoning given by the Karnataka High Court and following that decision, hold that the Appellate Tribunal rightly held that depreciation claimed by the assessee on the expenditure incurred on the acquisition of technical know how, was allowable in the year under consideration notwithstanding the fact that the assessee had not claimed that for the assessment years 1965-66 and 1966-67.
In the result, the aforementioned question is answered in the affirmative, that is, in favour of the assessee and against the Revenue.
M.B.A./3075/FC???????????????????????????????????????????????????????????????????????????????? Reference answered.