2007 (5) TMI 236

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...., 1961 ("the Act"), we are concerned only with the assessment year 1994-95. 3. The question that has arisen for our consideration is whether the assessee is entitled to depreciation on account of capitalization of engineering service fees paid to a foreign company or whether the assessee is entitled to a deduction under Section 35AB of the Act. According to the Tribunal, the assessee is entitled to depreciation on account of capitalization of engineering service fees and it is this conclusion that has been disputed by the Revenue. 4. The broad facts of the case are that the assessee set up a float glass plant in Gujarat on the basis of technical know-how obtained from Guardian Industries Corporation, USA. The foreign company also depu....

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....rials and components suppliers. In so far as the float plant services agreement is concerned, that was intended to provide to the assessee engineering services needed to construct a float glass plant and services needed to provide for future process improvements in the operation of the float glass plant after it begins production on a commercial basis; to provide assistance in the day to day manufacturing operations of the float glass plant to ensure its efficient operation; and to grant to the assessee a sub-licence to practice certain inventions for the manufacture of flat glass by the float process in India and for the sale of such glass anywhere in the world. 6. The Assessing Officer disallowed the depreciation claimed by the assesse....

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....facts of the case, that the payment made by the assessee to the foreign company was only for the purposes of setting up the float glass plant. It appears that bills that were produced by the assessee also indicated that payments were made for services of foreign technicians engaged for the purpose of setting up the float glass plant. All in all, therefore, the assessee was able to show that the engineering service fees paid to the foreign company were towards setting up of the plant and not for the manufacture and production of float glass. 10. With regard to the question whether the assessee is entitled to claim depreciation under Section 32 of the Act or deduction under Section 35AB of the Act, the Tribunal looked at the meaning of "kn....