Composite collaboration payment not treated as plant, while manufacturing activity qualified the company for concessional tax treatment.

A composite collaboration payment for technical advice, training, ancillary services and personnel support was not treated as consideration for acquiring a "plant" asset, because the know-how documents alone did not constitute complete, practical know-how; depreciation was therefore denied. The assessee's business, however, involved successive manufacturing and processing stages using skilled labour and specialised equipment to produce an end-product distinct from the raw material, and this supported classification as an industrial company engaged in manufacture or processing of goods; the concessional tax rate was allowed.

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Issues: (i) whether the amount paid under the collaboration agreement was admissible as depreciation on the footing that the know-how acquired constituted "plant"; (ii) whether the assessee was an industrial company entitled to the lower rate of tax.

Issue (i): whether the amount paid under the collaboration agreement was admissible as depreciation on the footing that the know-how acquired constituted "plant"

Analysis: The payment under the collaboration agreement was held to be a composite payment for a bundle of services, advice, information, training, technical assistance and personnel support, and not merely for the documents or materials described in the agreement. The documents by themselves were not treated as the complete know-how, since the arrangement depended on further guidance and assistance before it could be put to practical use. On that basis, the payment could not be characterised as consideration for acquiring a plant asset.

Conclusion: The claim for depreciation was rejected and the issue was decided against the assessee.

Issue (ii): whether the assessee was an industrial company entitled to the lower rate of tax

Analysis: The nature of the assessee's activities showed a manufacturing and processing operation involving successive stages, skilled labour and specialised equipment, resulting in an end-product different from the raw material. The principal income was derived from the activity of preparing plans and designs, and the industrial character of the business was accepted on the footing that the company was engaged in the manufacture or processing of goods within the relevant definition.

Conclusion: The assessee was held to be an industrial company and entitled to the lower rate of tax.

Final Conclusion: The appeals succeeded only to the extent of the assessee's eligibility for the concessional tax rate, while the depreciation claim on the collaboration payment failed.

Ratio Decidendi: A composite collaboration payment for technical advice, training and ancillary services does not amount to acquisition of "plant" merely because know-how documents are supplied, but a business involving multi-stage production with specialised equipment and skilled labour may qualify as manufacture or processing of goods for industrial-company status.

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