Law:

Section:

Section 43(1) read with section 32 and 33, of the Income-tax Act, 1961 - Actual cost - Assessment years 1964-65 to 1969-70 - Assessee entered into collaboration agreement with foreign company for purchase of plant and machinery - 80 per cent of purchase price was to be paid on deferred payment basis - Agreement provided for payment of interest on deferred payments - Whether payment of interest being part and parcel of cost of plant and machinery on which depreciation and development rebate should be admissible - Held, yes FACTS The assessee-company entered into collaboration agreement with Japanese company for purchase of certain plant and machinery. Under the agreement, twenty per cent of the purchase price was to be paid at the time of signing the contract and the balance was to be paid in instalments spread over a period of five years. The agreement also provided for payment of interest on deferred payments. The ITO did not allow the claim of the assessee company for adding the amount of interest to the cost of machinery and plant. The AAC dismissed the assessee's appeal. On second appeal, the Tribunal on facts found that the interest payment was part and parcel of the actual cost of machinery and, therefore, it permitted the assessee-company to capitalise the same so as to claim depreciation and development rebate thereon. On reference : HELD It was as a matter of overall agreement of financial and technical collaboration effected between the assessee-company on the one hand and the foreign suppliers on the other that the assessee-company not only got the benefit of technical know-how for installation and erection of plant and machinery but also received the plant and machinery on deferred payment terms. These agreements for technical and financial collaboration were subject to the approval of the Government of India and were in fact approved by the Government. The assessee-company could not have paid the entire principal amount at a time since it involved the release of foreign exchange by the Government of India. The entire deal, should be viewed as a package deal by which the foreign suppliers agreed to enter into financial and technical collaboration…

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