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(ii) whether,on the facts and in the circumstances of the case, the terminal was correct in holding that expenditure of a capital nature was admissible as deduction when the expenditure was not incurred for existing business?"

The Hon'ble High Court held that the activity of the assessee amounted to scientific research, and, therefore,the assessee was an titled to claim deduction u/s.s 35(1)(i)(iv).

ix).Gannon Norton Metal Diamond Die Ltd.(163ITR606) is about capital/revenue expenditure as well as about depreciation and development rebate. In this case appellant company entered into an agreement with a British company. The technical collaborator agreement provided for payment of Pound7,500 payable by 3 instalments for the know-how to be supplied by the die company and for the covenant contained in clause 5 of the agreement. The tribunal found that for the obligation to give technical assistance and collaboration for putting up the factory, no payment was envisaged under the agreement.The said findings of tribunal were not challenged before the court. The Hon'ble High Court observed-".....as far as the allowance of depreciation and development rebate is concerned, and with which aspect we are concerned in question number two our attention has been drawn to a few decisions in which, according to learned counsel for the assessee, it had been held that both depreciation and development rebate would be allowable to the assessee in the event of the payments being held to be a capital nature.A brief reference may be made to these decisions since in our view, no such claim is tenable under the facts of this particular case in question number two would be required to be answered against the assessee in the event of it being held that the answer to question number one required to be given would be one in favour of the revenue. In our opinion, it is not the settled legal position, and it cannot be that depreciation allowance or development rebate must be admissible on all items of capital expenditure..... In principle, it would seem to make no difference between a case where an existing company undertakes a totally new line of activity for which it has, to establish a new factory, and a case where for manufacturing a new product, a new company is constituted or formed. What we have to consider is whether the payment has been made for acquiring an asset of an enduring nature. If know-how has been acquired unrelated to see create or patented processes or the right to use the trade name or trademark than the acquirer of know- how sense that phrase was repeatedly used or emphasised would seem to acquire more asset of enduring nature is the know-how acquired relates to the setting up of the plant or machinery, then perhaps it may help to be held to be capital in nature, although we are not called upon to decide that question in present reference is the know-how acquired relates to process of manufacturing than the payment made for the same would have to be considered as an expenditure, since the acquirer does not obtain by the expenditure. Any asset of an enduring nature.... We are of the opinion that the payments made by the assessee in the instant case were fully allowable is revenue expenditure."