Actual cost for depreciation includes pre-use borrowing interest, but collaboration payments and travel need direct acquisition nexus.
For depreciation and development rebate, the expression "actual cost to the assessee" was treated as the real cost of acquiring the capital asset. Interest on borrowings used specifically to purchase machinery, incurred before the machinery became fit for use, could be capitalised and formed part of actual cost. Foreign travel expenditure connected with acquiring machinery was not automatically capital in nature and required item-wise scrutiny to identify any direct nexus with acquisition. Payments to foreign collaborators for technical know-how, scheme preparation, and consulting services were held to be collaboration and not machinery acquisition cost, so no depreciation or development rebate was allowable on that amount.
Issues: (i) whether interest paid on borrowed funds used for purchase of machinery formed part of the actual cost of the machinery for depreciation and development rebate; (ii) whether expenditure on foreign trips undertaken in connection with acquisition of machinery formed part of the actual cost of the machinery; and (iii) whether payment made to foreign collaborators for technical know-how and preparation of the scheme for the factory formed part of the actual cost of the machinery.
Issue (i): whether interest paid on borrowed funds used for purchase of machinery formed part of the actual cost of the machinery for depreciation and development rebate.
Analysis: The statutory expression "actual cost to the assessee" in the depreciation and development rebate provisions was construed to mean the real cost incurred by the assessee in acquiring the capital asset. Interest paid on borrowings taken specifically for acquiring machinery was treated as expenditure incurred in the process of acquisition and not as a separate unrelated liability. The Court preferred the view that the assessee's borrowing position is relevant to the computation of actual cost, and accepted that such interest, when incurred before the machinery became fit for use, may be capitalised.
Conclusion: The interest of Rs. 33,000 formed part of the actual cost of the machinery and the claim for depreciation and development rebate was allowable. This issue was answered in favour of the assessee and against the Revenue.
Issue (ii): whether expenditure on foreign trips undertaken in connection with acquisition of machinery formed part of the actual cost of the machinery.
Analysis: Only expenditure directly relatable to selection, inspection, and supervision of the machinery could properly be included in actual cost. Travel undertaken merely for collaboration arrangements or for acquiring experience in erection technique did not enhance the value of the machinery and could not automatically be capitalised. The Tribunal had not examined each item separately to determine which part, if any, had a direct connection with acquisition of the machinery.
Conclusion: The entire foreign travel expenditure could not be treated as part of the actual cost, and the matter required fresh consideration item-wise. This issue was answered technically in favour of the Revenue.
Issue (iii): whether payment made to foreign collaborators for technical know-how and preparation of the scheme for the factory formed part of the actual cost of the machinery.
Analysis: The payment was made for elaboration of the scheme, transmission of experience, and assistance during the consulting period, which were components of technical collaboration rather than consideration for acquiring machinery. It was not a commission or brokerage for purchase of machinery from the supplier, and therefore lacked the direct character of acquisition cost.
Conclusion: The sum of Rs. 17,143 did not form part of the actual cost of the machinery and no depreciation or development rebate was allowable on it. This issue was answered against the assessee.
Final Conclusion: Interest incurred on borrowings used for acquiring machinery could be capitalised as part of actual cost, but the foreign travel claim required item-wise scrutiny and the payment for technical collaboration was excluded from machinery cost.
Ratio Decidendi: For depreciation and development rebate, "actual cost to the assessee" includes expenditure directly and necessarily incurred in acquiring the capital asset, including pre-use interest on borrowings where such borrowing is integral to acquisition, but it does not extend to payments lacking a direct nexus with purchase of the machinery.