Law: Income Tax Act, 1961

Section: 36(1)(vii),260A,43(3),35,10(2)(xi)

Section 43(3), read with section 35AB, of the Income-tax Act, 1961 - Plant - Assessment year 1988-89 - Assessee-firm claimed depreciation and investment allowance for expenditure incurred on account of technical know-how fees for setting up a plant - Assessing Officer rejected assessee's claim and applied provisions of section 35AB granting deduction of one-sixth of technical know-how fees - Tribunal held that expenditure incurred being capitalised and it being incurred before commencement of manufacture of a new range of product, section 43(3) would apply - Whether in view of Supreme Court's decision in Scientific Engg. House (P.) Ltd. v. CIT [1986] 157 ITR 86/[1985] 23 Taxman 66, assessee had been rightly given benefit of depreciation and investment allowance - Held, yes FACTS The assessee-firm had claimed depreciation and investment allowance in respect of expenditure incurred on account of technical know-how fees for setting up a plant. The Assessing Officer rejected that claim holding that payment of know-how fees was not for setting up a plant. The Assessing Officer, however, applied provisions of section 35AB and granted deduction of one-sixth of the technical know-how fees. On appeal, the Commissioner (Appeals) upheld the assessee's claim. The Tribunal recorded findings of fact that the expenditure incurred was capitalised; that it was incurred before commencement of the manufacture; and that section 43(3) would apply. Therefore, the Tribunal allowed the assessee's claim. On appeal under section 260A : HELD In appeal, the department had not challenged the above findings of fact recorded by the first appellate authority and the Tribunal. The two authorities had found on facts that the assessee had incurred the expenditure towards technical know-how fees and that the technical know-how fees were paid for setting up a plant at Bangalore for manufacture of a new range of products. In the circumstances, the of the Supreme Court in the case of Scientific Engg. House (P.) Ltd. v. CIT [1986] 157 ITR 86/[1985] 23 Taxman 66 was squarely applicable to the facts of the instant case. The assessee had been rightly given the benefit of depreciation and investment…

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