1. The Tribunal has referred the following question under s. 256(1) of the I.T. Act, 1961, at the instance of the assessee, for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, depreciation is admissible on the sum of Rs. 1,60,000 paid by the assessee to M/s. Metrimpex Hungarian Trading Company, Budapest, treating it as expenditure incurred on the acquisition of library for the assessment year 1973-74 ?"

2. The Tribunal and other authorities under the Act have negatived the assessee's claim for depreciation on the ground that the judgment of this court in R.C. No. 21 of 1971, dated January 17, 1973, clearly negatives such a claim, and hence it cannot be allowed.

3. Mr. Y. V.Anjaneyulu, the learned counsel for the assessee, contends before us that the authorities and the Tribunal have erred in understanding the judgment of this court as covering the question now at issue. He submits that the said decision did not consider this aspect and did not pronounce upon the precise question now at issue, and hence the said judgment cannot be treated as conclusive upon the question referred. To appreciate this contention, it is necessary to state a few facts :

The assessee, a private limited company carrying on business in scientific instruments, entered into two separate collaboration agreements dated March 15 and March 31, 1961, with M/s. Metrimpex Hungarian Trading Company at Budapest, for the manufacture of microscopes and theodolites. Under these agreements, the Hungarian company agreed to supply the requisite technical know-how for the manufacture of the above instruments. Under the agreements, the assessee acquired the right to manufacture the the odolites with certain specifications, under the Hungarian company's trade mark and name, as well as the right to sell them in India. For this purpose, the Hungarian company agreed to supply to the assessee one complete set of up-to-date, correct and legibly reproducible manufacturing designs and full processing documents of all components of the instrument, and the lists of parts in metric system in English language, of all jigs, fixtures, special tools, special guage and special machines used and built by MOM for manufacture, assembly, inspection and testing of the components parts of theodolites, in addition to other particulars specified under the agreement. Clause 6 of these agreements provided that the assessee shall pay a sum of Rs. 80,000 in the manner specified therein by way of consideration for the said technical know-how. For the assessment year 1966-67, the assessee claimed a sum of Rs. 12,000 towards depreciation on library. The assessee's case was that the payment of Rs. 1,60,000 made to the Hungarian company has been debited under the head "Library", and, therefore, it is entitled to depreciation thereon under s. 32 of the Act. This claim was rejected by the ITO who held that the price paid for acquiring technical know-how amounts to capital expenditure and since no tangible or depreciable asset was brought into existence, the claim for depreciation is unsustainable. On appeal, the AAC held that, inasmuch as the assessee had purchased outright the specimen drawings, charts, plans, etc., on payment of Rs. 1,60,000 and since they can be termed as "books", the assessee is entitled to depreciation. Aggrieved by the decision of the AAC, the Department went up in appeal to the Tribunal. The Tribunal, however, disposed of the appeal on a point not urged either by the assessee or by the Department. The Tribunal held that the sum of Rs. 1,60,000 was paid partly on capital account, and partly on revenue account. It held that the sum of Rs. 12,000 fairly represents the payment made on revenue account and has to be deducted as such for that assessment year. Aggrieved by this decision of the Tribunal, both the assessee and the Department asked for a reference to this court. It would be appropriate to refer to the two questions which the assessee wanted the Tribunal to refer for the opinion of this court.

They were :

"(1) Whether, on the facts and in the circumstances of the case, the assessee is entitled to claim depreciation at the rate applicable to 'library' on the whole or any portion of the sum of Rs. 1,60,000 paid to Metrimpex Hungarian Trading Company, Budapest ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in not giving a specific finding as to what would be the amount representing capital expenditure entitled to depreciation ?"

4. It would not be out of place to refer to the two questions which the Department wanted to be referred.

They were :

"(1) Whether, on the facts and in the circumstances of the case, and having come to the conclusion that the payment of Rs. 1,60,000 did not bring into existence a depreciable asset, the Appellate Tribunal was justified in dismissing the Department's appeal challenging the direction by the Appellate Assistant Commissioner to grant depreciation at the rates applicable to book ?

(2) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in allowing a sum of Rs. 12,000 as revenue expenditure while disposing of the departmental appeal, particularly when the point urged before the Appellate Tribunal was not whether it was a revenue item of expenditure, or not ?"

5. The Tribunal, however, referred only the following consolidated question for the opinion of this court :

"Whether, on the facts and in the circumstances of the case and on a true interpretation of the collaboration agreements between the assessee and M/s. Metrimpex Hungarian Trading Company of Budapest, the payment of Rs. 1,60,000 was attributable partly to the acquisition of a depreciable asset and partly to revenue expenditure or wholly towards the acquisition of a depreciable asset ?"

6. A reading of the question referred by the Tribunal would show that the main thrust of the question was whether the said payment represented a capital payment wholly or whether it was partly on capital account and partly on revenue account. No doubt, the expression "depreciable asset" was used, but the question whether the assessee is entitled to depreciation on the said amount under s. 32(1) was not referred to this court, though it was specifically requested for by the assessee. The Bench of this court, therefore, mainly dealt with the question, whether the said payment is on capital account or on revenue account, and held finally that it was on capital account. After discussing the several clauses of the agreement, the Bench recorded the following finding :

"In our view, the expenditure in question brought into existence an asset of enduring benefit to the assessee and, therefore, the entire expenditure is of a capital nature."

Having so held, the Bench proceeded to observe :

"In a case where the capital expenditure does not bring in a depreciable asset, the assessee is not entitled to claim any depreciation or any expenditure of revenue nature liable to be deducted. The present transaction, when judged from its substance but not form, must be held to be an out-and-out sale of technical know-how as the main object and purpose of the agreements is to enable the assessee to manufacture theodolites and to acquire the right to sell them; and the other clauses are only auxiliary or incidental. The use of the words "supplies" and "supply" in clause 3 and the word "services" in clause 6(m) of the agreement support the plea advanced on behalf of the Department, that the designs, drawings and charts are illustrative of the services rendered by the foreign collaborator. It theory of sale or purchase of designs, drawings and charts, etc.," It is these observations which are relied upon by the authorities and the Tribunal below as concluding the question now at issue. We are, however, of the opinion that the said observations cannot be treated as concluding the issue, viz., "whether the assessee is entitled to depreciation on the said amount treating the same as having been spent for acquiring the technical know-how". We must reiterate that the question whether the assessee is entitled to depreciation or not, was neither expressly referred, nor was it dealt with as such. The above observations must be understood as amounting only to obiter. It is brought to our notice that a number of High Courts in this country have uniformly held that the know-how acquired by an assessee is also an asset, and it falls within the expression "plant". It has been held that know-how is the accumulated fund of knowledge acquired by years of observation, research, experimentation and experience, and that the whole of it is not in an intangible form even while it is in the process of being acquired, and very often it takes a physical form as it grows in the shape of formulae, drawings, patterns, blue prints, specifications and so on. It has also been held that the material form it takes not only facilitates preservation, collation and ready reference, but also makes it perceptible and visible and easily capable of being transmitted to others. Accordingly, it is held that "know-how" is entitled to depreciation as a "plant" under s. 32 (See CIT v. Elecon Engg. Co. Ltd. ; Nippon Electronics (P.) Ltd. v. CIT ; CIT v. Emco Elector Pvt. Ltd. [1979] 118 ITR 864 (Bom); CIT v. Festo Elgi P. Ltd. ; Catalyst & Chemicals India (West Asia) Ltd. v. CIT [1982] 137 ITR 110 (Kar); D & H Secheron Electrodes v. CIT [1981] 132 ITR 1 (MP) and CIT v. Belpahar Refractories Ltd. [1981] ITR 610 (Orissa).

7. A reading of the judgment of this court in R.C. No. 21 of 1971 as also a reading of the agreement which have been placed before us, clearly shows that the payment of Rs. 1,60,000 under the two agreements is clearly for and on account of the technical know-how which the Hungarian company imparted to the assessee in the shape of drawings and designs. Following the uniform authority in this country, we must hold that the drawings and designs so acquired by the assessee constitute "plant" within the meaning of s. 32 of the Act and are entitled to depreciation accordingly.

8. We, therefore, answer the question referred to us, in the affirmative, i.e., in favor of the assessee and against the Department. The referred case is disposed of accordingly. No costs.