Chandurkar, J.:— By an agreement dated 16th April, 1963, a company by name Gandhi Electric Industries Pvt. Ltd., had entered into two agreements with Tuscan Engineering Co. Ltd., of United Kingdom for manufacturing and distributing flame proof motor and generators. One of the two agreements was known as a royalty agreement and the other was known as the technical know-how agreement. The royalty agreement made a reference to the know-how agreement by which the Tuscan Co. had agreed to sell and Gandhi Electric had agreed to purchase from Tuscan Co. all technical and other information known to Tuscan Co. relating to the agreed products. Clause (c) of the preamble to the technical know-how agreement recited that the Tuscan Co. had agreed for the consideration in terms therein set out “to grant and impart to Gandhi Electric all technical know-how in its possession relating to the agreed products”. Clause 2 of the technical know-how agreement provided for payment of consideration for the technical know-how which in the assessment year in question 1965-66 worked out to Rs. 19,423. Under the agreement, Gandhi Electric was required to treat as confidential all engineering drawings, data, photographs, specifications, instructions and information made available to it by Tuscan Co. and to utilise the same solely for the purpose for which they were supplied. In pursuance of this agreement, Gandhi Electric paid full consideration of Rs. 19,423 to Tuscan Co. and received in return from the latter a sealed packet of papers containing the technical know-how. The Gandhi Electric Industries Pvt. Ltd. was amalgamated with Emco Electricals Pvt. Ltd., with effect from 1st May, 1963. The Emco Electricals Pvt. Ltd., then by an agreement dated 14th December, 1963, sold to the assessee-company which is Messrs. Emco Electro Pvt. Ltd., Bombay, its business as a going concern including all immovable assets consisting of plant and machinery, furniture, goodwill, quota rights of import of goods and materials, manufacturing licence and other privileges. The assessee-company then started production of various types of flame-proof electric motors and generators during the relevant previous year and transferred out of its profits adequate amounts to the development rebate reserve.
2. The assessee-company claimed before the ITO, depreciation and development rebate on the said sum of Rs. 19,423, being the cost to the technical know-how, on the ground that it formed a part of the cost of its machinery and, in the alternative, in any event, it formed a part of its plant within the meaning of the term as defined under s. 43(3) of the I.T Act, 1961. An alternative claim was made that in case allowance of depreciation and development rebate was not permitted, the said amount should be allowed as revenue expenditure.
3. The ITO disallowed the assessee's claim on the ground that the assessee had not commenced manufacturing electric motors and generators for which it had acquired the technical know-how and, secondly, on the ground that no rebate of depreciation for know-how has been prescribed under the I.T Rules. He also took the view that know-how was a separate asset and could not be lumped with plant and machinery and that know-how cannot be installed as required for the purposes of allowing development rebate. Even the alternative claim with regard to the revenue expenditure was rejected.
4. The AAC, before whom an appeal was filed by the assessee, confirmed this order of the ITO. The matter was then taken to the Income-tax Appellate Tribunal by the assessee. The Tribunal declined to treat the amount of Rs. 19,423 as capable of being added to the price of the machinery purchased by the assessee. It took the view that merely because the machinery could not be used without the aid of the know-how, there was no reason for holding that the know-how was a part of the machinery. The Tribunal, however, held in favour of the assessee that the technical know-how, which was condensed into printed material which conformed to the description of a book in its normal and natural sense, was sold to the assessee under the agreement and it constituted a part of the assessee's plant within the meaning of the term as defined in s. 43(3) of the I.T Act, 1961, and the assessee was, therefore, entitled to an allowance of depreciation and development rebate thereon.
5. On these facts, at the instance of the revenue, the following question has been referred to this court under s. 256 of the I.T Act, 1961:
“Whether, on the facts and in the circumstances of the case, the assessee-company was entitled to allowance of depreciation and development rebate on Rs. 19,423 the price paid for the acquisition of technical know-how?”
6. It is not necessary to refer in detail to the several authorities where the word “plant” used in s. 43(3) of the I.T Act, 1961, has been given a meaning of the widest amplitude. The meaning of the word fell for consideration before several courts. We may refer to the latest decision of this court in Income-tax Reference No. 115 of 1969 decided on 27th July, 1978 (CIT v. Bank of India Ltd. since reported in [1979] 118 ITR 809 (Bom)). In that decision the Division Bench has approved the view which is taken by the Gujarat High Court in CIT v. Elecon Engineering Co. Ltd., [1974] 96 ITR 672. The observations which have been approved in the Bank of India Ltd.'s case read as follows (at page 698 of 96 ITR 672, and at page 815 of 118 ITR 809);
“On reviewing these authorities, a broad consensus emerges from which the essential characteristics of plant can be clearly gleaned. The word ‘plant’, in its ordinary meaning is a word of wide import and in the context of section 32 it must be broadly construed. It includes any article or object, fixed or movable, live or dead used by a businessman for carrying on his business. It is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business. It would not, however, cover the stock-in-trade, that is, goods bought or made for sale by a businessman. It would also not include an article which is merely a part of the premises in which the business is carried on as distinguished from a part of the plant with which the business is carried on. An article to qualify as plant must further more have some degree of durability and that which is quickly consumed or worn out in the course of a few operations or within a short time cannot properly be called ‘plant’. But an article would not be any the less plant because it is small in size or cheap in value or a large quantity thereof is consumed while being employed in carrying on business. In the ultimate analysis the inquiry which must be made is as to what operation the apparatus performs in the assessee's business. The relevant test to be applied is: Does it fulfil the function of plant in the assessee's trading activity? Is it the tool of the taxpayer's trade? If it is, then it is plant no matter that it is not very long-lasting or does not contain working parts such as a machine does and plays a merely passive role in the accomplishment of the trading purpose.”
7. The Division Bench has also quoted with approval the definition of “plant” given by Lindley L.J in Yarmouth v. France, [1887] 19 QBD 647 at page 658, which was as follows:
“In its ordinary sense, it includes whatever apparatus is used by a businessman for carrying on his business,—not his stock-in-trade which he buys or makes for sale; but all goods and chattels, fixed or movable, live or dead, which he keeps for permanent employment in his business.”
8. One has, therefore, to apply these tests and if these tests are applied, it is obvious that so far as use of the machinery for the production of the articles manufactured by the assesses is concerned, it would be impossible for the assessee to use that machinery unless he has the technical know-how. It is this technical know-how which has been supplied by the Tuscan Co. Again, as observed by the Gujarat High Court in Elecon Engineering Co, Ltd, [1974] 96 ITR 672, there is no reason to exclude from the wide meaning of the term “plant” objects such as drawings, patterns, designs, etc., which, like things, are embodiments of know-how and serve the purpose of teaching at long range. The Gujarat High Court has thus taken the view that having regard to the legislative intent to give a wide meaning to the word” plant”, the material record of know-how was clearly included within the meaning of the word “plant” in s. 32. In our view, this correctly lays down the law so far as technical know-how necessary for the purposes of the business of the assessee is concerned. We are, therefore, of the view that the Tribunal was right in law when it held that the sum of Rs. 19,423, which was paid for acquisition of the technical know-how, had to be taken into account for the purposes of allowance of development rebate and depreciation as claimed by the assessee. We, therefore, answer the question in the affirmative and in favour of the assessee. The assessee to get costs of this reference.
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