COMMISSIONER OF INCOME-TAX Vs. SUPER STEELS

JUDGEMENT

(1.) SUPER Steels had been manufacturing wires from the assessment year 1973-74 onwards. To start with, it was manufacturing mild steel and hard bright wires. In the accounting year, which ended on June 30, 1974, relevant to the assessment year 1975-76, it acquired technical know-how to manufacture different types of wires and also to improve its polishing technique. For acquiring technical know-how, Rs. 50,000 was paid to Metallurgical and Mech, (P.) Ltd. During the assessment proceedings, the assessee claimed the deduction of. the aforesaid amount as revenue expenditure but the Income-tax Officer concluded that by obtaining technical know-how, the earning capacity improved considerably which resulted in benefit of enduring nature and as such treated it as capital expenditure and did not allow the deduction. The Appellate Assistant Commissioner upheld the order of the Income-tax Officer but, on further appeal, the Income-tax Appellate Tribunal, Delhi, took notice of the Full Bench judgment of the Karnataka High Court in Mysore Kirloskar Ltd. v. CIT [1978] 114 ITR 443, and observed that the facts were very close to the facts of the case in hand and concluded that the expenditure was of revenue nature. They also found that the decisions of the Bombay High Court in CIT v. Caltex Oil Refining (India) Ltd. [1979] 116 ITR 404 and CIT v. Tata Engineering and Locomotive Co. Pvt. Ltd. [1980] 123 ITR 538, supported the assessee's claim. As a result, the appeal was allowed and the deduction was treated as revenue expenditure. On these facts, the Tribunal has referred the following question for opinion :

(2.) ON a consideration of the matter, we are of the opinion that the Tribunal came to the right conclusion that the amount paid to the consultants for obtaining know-how was of a revenue nature. The assessee was a manufacturing concern and while their manufacturing process was on, they wanted to diversify the manufacturing of wires of different qualities with improved technique and for doing so, obtained technical know-how. Not only did it obtain technical know-how, as found by the Income-tax Officer, but the production and sales also increased. The expenditure for obtaining know-how for a running concern can never be said to be capital expenditure for acquiring an asset of enduring nature. For this decision of ours, we find support from the decision of the Calcutta High Court in CIT v. B. N. Elias and Co. (P) Ltd. [ 1987] 168 ITR 190 and Mysore Kirloskar Ltd. 's case [1978] 114 ITR 443 (Kar) [fb].

(3.) ON behalf of the Revenue, reliance was sought to be placed on the decision of the Supreme Court in Scientific Engineering House P. Ltd. v. CIT [1986] 157 ITR 86, to support the decision of the Income-tax Officer. The facts of that case were entirely different. There, the assessee had obtained certain documents on payment of a lump sum and debited the amount in its account books under the head "library" and during the assessment proceedings, claimed Rs. 12,000 by way of depreciation on "library". The Supreme Court came to the conclusion that all the documents obtained by the assessees constituted a "book" and fell within the definition of "plant" contained in Section 43 (3) of the Act and since depreciation was allowable on all items contained in that section, the assessee was entitled to depreciation on the documents which constituted "book". There, the assessee himself had considered the expenditure for obtaining the documents constituting "book", as expenditure of a capital nature and claimed depreciation. Hence, the point before us was not considered there.