COMMISSIONER OF INCOME TAX vs ESCORTS EMPLOYEES ANCILLARIES LTD.

N. K.Agrawal, J.

The Commissioner has, by this petition u/s 256(2) of the Income Tax Act, 1961 (hereinafter referred to as the ''Act''), sought a direction to the Income Tax Appellate Tribunal, Delhi (hereinafter referred to as the ''Tribunal''), to refer the following question of law, relating to the assessment year 1984-85, to this court for opinion :-

"Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in confirming the order of the Commissioner (Appeals) in directing to allow depreciation on technical know-how as these are not fixed assets.

M/s. Escorts Employees Ancillaries Ltd., Faridabad (hereinafter called the "assessee") was engaged in the business of manufacture and sale of carburettors, fuel cocks, swagged spokes, nipples, etc. At the time of assessment, the assessing officer did not allow depreciation on the amount of Rs. 3,76,932 spent by the assessee on acquiring technical know-how on the ground that no tangible asset had come into existence. In appeal filed by the assessee, the Commissioner (Appeals) noticed that the assessing officer had treated the payment as capital expenditure. Following the view taken by the appellate authority on a similar question in the case of the assessee in the preceding assessment year and relying upon the decision of the Supreme Court in Scientific Engineering House(P) . Ltd. v. CIT (1986) 157 ITR the Commissioner (Appeals) held that the assessee was entitled to claim depreciation on the same. In department''s appeal, the Tribunal upheld the order of the Commissioner (Appeals).

Shri R. P. Sawhney, learned senior counsel for the department, has argued that the Tribunal has declined to refer the question to this Court wrongly following its order relating to the preceding assessment year. In fact, in the preceding assessment year, the matter was not finally decided by the Tribunal and was remitted to the assessing officer for re-consideration. This court also declined to call the question for that specific reason vide order dated 25-1-1999 in ITC No. 31 of 1990, CIT v. Escorts Employees Ancillaries Ltd. Faridabad. Shri Sawhney has submitted that the proposed question should be called from the Tribunal for decision.

Shri A. K. Mittal, learned counsel for the assessee, has, on the other hand, argued that once the amount spent by the assessee on acquiring technical know-how was treated as capital expenditure by the assessing officer, there was no reason to disallow depreciation on it. Shri Mittal has submitted that depreciation has to be allowed on the total actual cost of the plant.

On a consideration of the matter, it is manifest that depreciation u/s 32 of the Act is to be allowed on the total cost of the asset. The total cost shall include the expenditure incurred on the acquisition of technical know-how. In Scientific Engineering House (P) Ltds. v CIT (supra), the Supreme Court considered the expenditures on drawings, designs, charts, plans, processing data and other literature and held that these things fell within the definition of "plant" in section 43(3) of the Act. It was also held that a capital asset acquired by the appellant, namely, the technical know-how in the shape of drawings, designs, charts, plans, processing data and other literature, fell within the definition of "plant" and was, therefore, a depreciable asset.

Since the expenditure on technical know-how forms part of the capital cost of an asset, as held by the Supreme Court in the aforesaid case, the question sought to be called for opinion is no more a referable question of law. It is, however, made clear that the assessing officer shall allow depreciation keeping in view the asset in respect of which expenditure on acquiring technical know-how was incurred by the assessee.

The petition stands disposed of accordingly.

Order accordingly.