Madras High Court
Commissioner Of Income-Tax vs Standard Polygraph Machines Pvt. Ltd. on 18 November, 1998
Equivalent citations: [2000]243ITR788(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT R. Jayasimha Babu, J.
1. The question referred to us at the instance of the Revenue is :
"Whether, the sum of Rs. 80,000 out of Rs. 5,05,682 being the income-tax payable by the non-resident is entitled to be treated as cost of the plant and machinery, thus becoming eligible for depreciation and investment allowance ?"
2. The assessment year is 1981-82. The assessee claimed that the amount of income-tax paid by the assessee in respect of the consideration paid by the assessee to the foreign collaborator should also form part of the actual cost of the plant and machinery on which depreciation and investment allowance should be allowed. That claim was accepted by the Income-tax Officer, but negatived by the Commissioner in suo motu revision under Section 265 of the Income-tax Act, 1961. The Tribunal has held that the amount of tax paid by the assessee should be regarded as liability of the foreign collaborator which the assessee had undertaken to pay as per the agreement entered into with the collaborator. The Tribunal therefore held that it should be treated as part of the value of plant and machinery of the assessee.
3. This court in the case of CIT v. Festo Elgi Pvt. Ltd. [1981] 129 ITR 499, has held that the technical know-how supplied to the assessee constitutes tools for carrying on the business of the assessee and forms part of the capital assets and therefore depreciation and development rebate was allowable on the amount paid to the foreign collaborator. The Revenue has not produced before us the terms of the agreement entered into between the collaborator and the assessee and we must therefore accept what has been stated by the Tribunal. The Tribunal has held that the amount paid by the assessee as income-tax on the amount paid to the foreign collaborator was only the discharge of the liability of the collaborator which liability the assessee had undertaken to pay as part of the agreement entered into with the foreign collaborator for receiving the technical know-how under the agreement. The amount so paid as tax has been held to be an amount payable by virtue of the terms of the agreement between the collaborator and the assessee. Had the collaborator not been assured of the assessee undertaking the liability, the collaborator would have charged higher fee to cover the liability for taxes. It is only on the assurance of the assessee that the liability will be met by the assessee, the collaborator had agreed to receive the sum specified in the agreement. The Tribunal was right in its view that the amount so paid by the assessee was only in discharge of a liability which it had undertaken in terms of the agreement entered into between the assessee and the collaborator and it, therefore, forms part of the consideration for the agreement relating to know-how.
4. We, therefore, answer the question in favour of the assessee and against the Revenue.