Commissioner Of Income-Tax vs Brake Linings Ltd.
2000 Latest Caselaw 1305 Del

JUDGMENT

Arijit Pasayat, C.J.

1. Pursuant to the direction by this court, the following question has been referred for the opinion of this court by the Income-

tax Appellate Tribunal (in short, "the Tribunal") under Section 256(2) of the Income-tax Act, 1961 (in short, "the Act") :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the expenditure of Rs. 1 lakh incurred by the assessed for technical know-how was attributable to particular capital assets and was, therefore, to be added to the capital asset such for the purpose of depreciation ?"

2. The basic issue related to the question as to whether technical know-how for which rupees one lakh was paid was revenue expenditure or capital expenditure. The Tribunal, in the appeal filed by the assessed, held that it was a capital expenditure, and, therefore, the claim as revenue expenditure had been rightly disallowed. While holding so, the Tribunal held that the sum so disallowed as capital expenditure will have to be added up to the cost of the assessed-company's business asset on a pro rata basis. A prayer for reference under Section 256(1) of the Act was rejected but subsequently on being moved under Section 256(2) of the Act, this court directed the question, as set out above, to be referred.

3. We have heard learned counsel for the Revenue. There is no appearance on behalf of the assessed in spite of notice, Learned counsel for the Revenue submitted that the directions are incapable of being worked out as it is not known as to which particular asset, that expenditure so incurred has to be added.

4. We find that the forums below, including the Tribunal, have taken into account the following aspects to determine that the expenditure has to be capital in nature, they are as follows :

(i) The know-how from the UK company had been acquired for enabling the assessed-company to establish and operate in India a plant of the manufacture of the range of linings, which were being manufactured, till before the agreement, by the UK company.

(ii) The UK company had undertaken to make available to the asses-see-company any improvements or modification in the methods of manufacture of the range of linings, and

(iii) The agreement was for an unlimited period.

5. Obviously, the addition on pro rata basis has to be vis-a-vis the plant and machinery and nothing else. That exercise shall be undertaken by the Assessing Officer, who shall determine the amount, which has to be added to the cost of plant and machinery.

6. The reference is accordingly disposed of without being answered.