Foreign collaboration payment disallowed as deduction, but know-how cost qualified for depreciation as part of plant.

Foreign collaboration payments were held not to be deductible as revenue expenditure, as the deductibility question was answered against the assessee on settled principles applied for consistency. However, the amount paid for know-how was allowed as depreciation by treating it as part of the cost of plant under sections 43(3) and 32 of the Income-tax Act, 1961. The result was a mixed outcome: the deduction claim failed, but depreciation relief on the know-how payment was accepted in favour of the assessee.

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Issues: (i) Whether the sum paid under the foreign collaboration agreement was a permissible deduction. (ii) Whether the amount paid for know-how was allowable as depreciation by treating it as part of the cost of plant.

Issue (i): Whether the sum paid under the foreign collaboration agreement was a permissible deduction.

Analysis: The payment was examined in the light of the settled principles governing deductibility of such collaboration payments. The reasoning proceeded on the basis that, notwithstanding earlier authorities favouring the assessee in similar matters, uniform treatment was required for consistency in connected references.

Conclusion: The question was answered in the negative, against the assessee and in favour of the Revenue.

Issue (ii): Whether the amount paid for know-how was allowable as depreciation by treating it as part of the cost of plant.

Analysis: The amount paid for know-how was considered in the context of sections 43(3) and 32 of the Income-tax Act, 1961. Following the settled view that know-how could constitute part of plant for depreciation purposes, the relief was directed to be given while giving effect to the judgment.

Conclusion: The claim for depreciation was accepted and answered in the affirmative, in favour of the assessee.

Final Conclusion: The deduction claim failed, but depreciation on the know-how payment was directed to be allowed as part of the cost of plant, resulting in a mixed outcome overall.

Ratio Decidendi: A payment for know-how may be treated as part of the cost of plant for depreciation purposes under the Income-tax Act, 1961, even where its deduction as revenue expenditure is disallowed.

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