Actual cost of machinery includes expenditure directly linked to acquisition and installation, excluding unrelated office costs.

Expenditure directly and intimately connected with acquiring and installing plant and machinery formed part of the actual cost for depreciation and development rebate. Travelling by technical personnel for inspection and ordering, postage and telegrams to the foreign supplier, insurance linked to tools, plant, machinery and erection, technical training, preliminary engineering costs, motor car expenses used for erection work, and erection-period expenses were included. Printing and stationery had no real nexus with acquisition or installation and was excluded. In the insurance item, amounts unrelated to plant and machinery were also excluded.

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Issues: Whether the disputed expenditure on travelling, postage and telegrams, insurance, printing and stationery, technical training, motor car expenses, and expenses incurred during the erection period formed part of the actual cost of the plant and machinery for the purpose of depreciation and development rebate.

Analysis: The governing test was whether the expenditure was laid out for acquiring and installing the depreciable asset and was directly or intimately connected with the machinery. On that basis, travelling expenses of technical personnel for inspection and placing orders, postage and telegrams sent to the foreign supplier, insurance premia relatable to tools, plant, machinery and erection insurance, technical training and preliminary engineering expenses, motor car expenses used for erection work, and the erection-period expenses were treated as part of the actual cost. Printing and stationery expenses were found to have no real connection with acquisition or installation and were disallowed. In the insurance item, only the amounts unrelated to plant and machinery were to be excluded.

Conclusion: The assessee was entitled to include the allowable expenditure in the actual cost of the machinery, but the claim stood reduced from Rs. 84,181 to Rs. 81,922.73.

Ratio Decidendi: Expenditure directly and intimately connected with acquiring and installing machinery forms part of its actual cost for depreciation and development rebate, while items having no such connection do not.

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