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2008] 306 ITR 320 [2007] 163 TAXMAN 394 (DELHI) HIGH COURT OF DELHI Commissioner of Income-tax, Delhi-IV v. Gujarat Guardian Ltd.* MADAN B. LOKUR AND V.B. GUPTA, JJ. IT APPEAL NO. 76 OF 2006 MAY 24, 2007 Section 32, read with section 35AB, of the Income-tax Act, 1961 - Depreciation - Allowance/rate of - Assessment years 1994-95 and 1995-96 - Assessee-company entered into a collaboration agreement with a foreign company, whereunder latter agreed to provide complete basic design, engineering services, training and assistance to assessee for setting up a float glass plant for certain consideration - Assessee, accordingly, set up a float glass plant on basis of technical know-how obtained from said foreign company - Assessee claimed depreciation on account of capitalisation of engineering service fees paid towards know-how to foreign company - Assessing Officer disallowed depreciation claimed by assessee on ground that it was entitled to a deduction under section 35AB - Whether since as per agreement in question engineering service fees paid to foreign company was towards setting up of plant and not for manufacture and production of float glass, assessee was entitled to depreciation under section 32 and not deduction under section 35AB - Held, yes FACTS The assessee-company entered into a collaboration agreement with a foreign company. Under that agreement, foreign company agreed to provide complete basic design, engineering services, training and assistance to the assessee for setting up a float glass plant in consideration of a lump sum payment. The assessee-company, accordingly, set up a float glass plant on the basis of technical know-how obtained from the foreign company, under the collaboration agreement, for which the assessee paid engineering service fees towards know-how to the said foreign company. For the assessment year 1994-95, the assessee filed return claiming depreciation on account of capitalisation of the engineering service fees. The Assessing Officer disallowed the claim of the assessee on the ground that it was entitled to a deduction under section 35AB. The Commissioner (Appeals) holding that the expenditure incurred by the assessee related to…

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