COMMISSIONER OF INCOME TAX Vs. HINDUSTAN INSECTICIDES LIMITED

JUDGEMENT

(1.) ACCEPTING the Revenue's prayer for reference under S. 256(1) of the IT Act, 1961 (in short the 'Act'), following question has been referred for opinion of this Court by the Income tax Appellate Tribunal, Delhi Bench 'C', Delhi (in short 'Tribunal') :

(2.) FACTUAL background in a nutshell is as follows : Assessee company manufactured insecticide. During the assessment year in question for which accounting period ended on 31st March, 1976, a claim was made for Rs. 2,18,484 spent on account of licence fee, prior to the asst. year 1972 73, as capital expenditure. Consequentially claim for depreciation was made on the ground that it formed part of the cost of machinery and plant. As the claim was not accepted by the AO, assessee preferred appeal before the Commissioner of Income tax (Appeals) [in short 'CIT(A)'] Following the views expressed in Scientific Engineering House (P) Ltd. vs. CIT (1986) 49 CTR (SC) 386 : (1986) 157 ITR 86 (SC) : TC 29R.512, CIT(A) held that the amount in question represented a capital expenditure and, therefore, depreciation was to be allowed. Revenue challenged the matter in appeal before the Tribunal which upheld the views expressed by the CIT(A). On being moved for reference, question as set out above has been referred for opinion of this Court.

(3.) BASIC question which arises is whether the expenditure in question resulted in acquisition of any plant, machinery, etc. by the assessee. Under S. 32 of the Act the depreciation allowance is to be granted subject to the provision of S. 34 and such allowance is permissible only in respect of certain assets specified therein i.e. building, machinery, plant and furniture, etc. owned by the assessee and used for the purpose of business.