SCIENTIFIC ENGLNEERING HOUSE (P) LTD. versus COMISSIONER OF INCOME TAX, ANDHRA PRADESH

Citation: [1985] SUPP. 3 S.C.R. 701 · Decided: 01-11-1985 · Supreme Court of India · Bench: V.D. TULZAPURKAR · Disposal: Appeal(s) allowed

Judgment (excerpt)

I 
701 
SCIENTIFIC ENGlNEElUNG l!OUSE (P) LTD. 
v. 
COltilSSIONER OF INCOME TAX, ANDllRA PRADESH 
NOVEMBER 1, 1985 
[V,D, TULZAPURKAR AND SABYASACHI MUKHARJI, JJ.] 
Income Tax Act, 1961 sectiona 32, 34 and 43 (3) - llefini-
tiona of ''Book", "Plant" - Whether the technical know-how in the 
shape of drawings and designs, charts, plants, processing litera-
ture etc. comprised in "documentation service" falls within the 
definition of "Book", "Plant" - Whether the said "documentation 
service" not only "a capital asset" but also "a depreciable 
asset 11 • 
l'he appellant-asaessee manufactures scientific instruments 
and apparatus like Dumpy levellers, levelling staves priamatic 
compass, etc. It entered into two separate collaboration agree-
ments, one dated 15th March, 1961 and the other dated 31st March 
1961 with M/s. Metrimpex Hungarian Trading Company, Budapest for 
undertaking the manufacture of microscopes and theodolites, under 
which the said 
collaborator, in consideration of payment of 
Rs.80,000 each (Rs. 1,60,000 under both the agreements together), 
agreed to supply to the asse8see all the technical know-how 
required for the manufacture of tliese instruments. To ensble the 
assessee to manufacture these inatruments in India, the foreign 
collaborator inter alia agreed to render "documentation service" 
by supplying totiie"""'iiSseasee en up-to-date and correct complete 
set each of the five types of documents (such as manufacturing 
drawings, processing documents, designs, charts, plans and other 
literature more specifically detailed in clauae 3 of the 
agreements) and to render training and imparting of knowledge of 
the know-how 
technique of manufacturing these 
. inatruants. 
Pursuant to the agreements the appellant-assesaee lllBde full pay-
ment of Rs. 1,60,000 to the foreign collaborator and the latter 
rendered "documentation service" by supplying complete sets of 
all the documents including designs, drawings charts, plallll and 
other literature as per clause 3, The sum of Rs. 1,60,000 waa 
debited by the asseasee under the head "Library". 
For the assessment year 1966-67 for which relevant account-
ing year ended on 30th September, 1965 the aasessee claimed a aum 
of Rs. 12,000 by way of depreciation on "Library". The Income Tax 
A 
B 
c 
D 
E 
F 
G 
H 
A 
B 
c 
D 
E 
F 
G 
H 
702 
SUPREME COURT REPORTS 
[1985] SUPP. 3 s.c.R. 
Officer held that the sum of Rs. 1,60,000 did not represent the 
value of books purchased by the assessee represented the price 
paid for acquiring the technical know-how 
which amounted to 
capital expenditure but since no tangible or depreciable asset 
was brought into existence no depreciation allowance could be 
claimed. 
On appeal preferred by the assessee, however, the 
Appellate Assistant.Commissioner held that what the assesse had 
done was to make an 
outright 
purchase 
of 
certain specimen 
drawings, charts, plans, etc. on special papers, that these docu-
ments when collected together constituted a book on which depre-
ciation as in the case of plant and machinery, would, be at the 
appropriate rate be allowable and he directed the Income Tax 
Officer to allow the depreciation claimed. In the further appeal 
preferred by the Department the Tribunal took the view that 
clauses 2,3,4,S and 10 of the agreements did not lend support to 
the stand taken by the assessee that payments (Rs, 80,000 each) 
had been made mainly for the supply of designs, drawings, charts, 
etc., that the services to be rendered by the foreign collabora-
tor covered a wide field and that the supply of designs, draw-
ings, charts, etc. was incidental and only in furtherance of 
other services which the foreign collaborator was expected to 
render. And that since the supply of designs, drawings, charts, 
etc. was only incidental and the payment of Rs, 1,60,000 could 
not entirely be held to represent the purchase price of those 
documents it was unnecessary for them to go into the question 
whether the said documents fell within the meaning of the expres-
sion 'books' and whether depreciation was, therefore, admissible 
thereon. The Tribunal however, held that the agreements 
showed 
that some of the services which the foreign collaborator was 
required to render to the assessee were on revenue account (as 
for example, the provision which required the foreign collabora-
tor 
to 
depute 
their 
experts 
to 
correct 
any 
flaws 
or 
irregularities that might be encountered in the course of th

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