Depreciation on technical know-how fees allowed where contingent reversion clause did not defeat practical ownership

Technical know-how acquired under a collaboration agreement was held eligible for depreciation where the assessee had obtained and used the drawings and designs as the effective owner for practical purposes. A reversion clause requiring return of the materials only upon cancellation for breach was construed as contingent and did not negate ownership or use in the normal course. On that basis, depreciation on the technical know-how fees was allowable and the Revenue's objection failed.

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Issues: Whether depreciation was allowable on technical know-how fees paid by the assessee, and whether a reversion clause in the collaboration agreement denied the assessee ownership of the know-how for depreciation purposes.

Analysis: The assessee acquired drawings and designs under a collaboration agreement and claimed depreciation on the technical know-how. The Revenue relied on a clause providing for return of drawings upon effective cancellation of the agreement due to violation by the licensee. The clause was construed as operating only on cancellation for breach, and not as negating the assessee's ownership and use of the know-how in the ordinary course. The view taken was supported by the existing High Court decisions relied upon by the first appellate authority.

Conclusion: Depreciation on the technical know-how fees was allowable to the assessee, and the Revenue's objection failed.

Ratio Decidendi: Technical know-how acquired and used by the assessee is eligible for depreciation where the assessee is the effective owner for all practical purposes, and a contingent reversion clause on breach does not, by itself, defeat that entitlement.

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