Per Shri K. T. Thakore, Accountant Member - 1 to 6. [These paras are not reproduced here as they involve minor issues.] 7. The last contention relates to the claim of depreciation and extra shift allowance on technical know-how contained in the book form used for Dextrose plant, at the rate applicable to the plant. So far as the claim for depreciation is concerned the controversy is covered by the decision of the Gujarat High Court in the case of CIT v. Elecon Engg.
Co. Ltd.  96 ITR 672. Therefore respectfully following the said decision we uphold the claim for allowance of depreciation on technical know-how.
8. Now we turn to the other claim relating to Extra Shift Allowance (ESA) on technical know-how. The ITO disallowed the claim of the assessee on the ground that the technical know-how was not exigible to depreciation while in appeal the commissioner (Appeals) accepted the assessees contention that book contained know-how for the operation of the plant and could not be treated as an independent item of plant apart from machinery or plant to which it relates, inasmuch as the know-how was of no use to the assessee by itself apart from the plant.
Since the knowledge contained in the book is being used in all shift, hence, it can be said that the plant represented by the books is used along with the main plant and machinery for the purpose of the assessees business. Thus, according to the rules relating to ESA which is based on the working of a concern, the assessees claim was clearly admissible. He, accordingly, directed the ITO to allow ESA in respect of books of know-how of the Dextrose plant as per the provisions of the Income-tax Act, 1961 (the Act).
9. Being aggrieved, the revenue is in appeal before us. Shri Deodhar submitted that technical know-how in book form is not exigible to ESA.The technical know-how utilised for setting up of the plant, or even for running the plant, cannot be put on par with a plant or machinery which is utilised for extra shift. It is not as if where (sic) the book is kept at all times when the plant or machinery is in operation. He, therefore, submitted that the ESA was not admissible on the technical know-how. Shri Shah, on the other hand, supporting the order of the Commissioner (Appeals), submitted that once it is held that technical know-how in form of a book is a plant and is exigible to depreciation for the first shift, there is no reason why the claim for depreciation for extra shift should be denied. The knowledge contained in the book is availed of at all times when the plant is functioning. Therefore, the claim for ESA has been rightly allowed by the Commissioner (Appeals).
10. We have considered the rival submissions. In accordance with the decision of their Lordships of the Gujarat High court in the case of Elecon Engg. Co. Ltd. (supra), the technical know-how in book form is to be treated as plant and is exigible to depreciation allowance. But so far as the claim for ESA is concerned, we are afraid we cannot accept the claim of the assessee. In this connection we may usefully refer to the observation contained in the case of Elecon Engg. Co. Ltd. (supra) : "Know-how is a peculiar kind of asset. It is the accumulated fund of knowledge acquired by years of observation, research, experimentation and experience. The whole of it is not in an intangible form even while it is in the process of being acquired and very often it takes a physical form as it grows in the shape of formulae, drawings, patterns, blue-prints, specifications and so on. The material form it takes not only facilitates preservation, collation and ready reference but also makes it perceptible and visible and easily capable of being transmitted to others. Books which one consults to inform ones mind and thereby uses them in the course of ones business or profession are expressly included within the meaning of the word plant. Hence, there is no reason to exclude from the wide meaning of the term objects of similar nature such as drawings, patterns, designs, etc., which like books, are the embodiments of know-how and serve the purpose of teaching at long range. Having regard to the legislative intent to give a wide meaning to the word plant, material record of know-how (even assuming that know-how itself is intangible) is clearly included within the meaning of the word plant in section 32.
The depreciation allowance under section 32 is a statutory allowance not confined expressly to diminution in value of the asset by reason of wear and tear. The allowance can be claimed if the asset in question is shown to be capable of diminishing in value on account of any factor known to the prevailing accounting or commercial practice. The principal factors responsible for the retirement of a capital asset and, therefore, responsible for depreciation are : (i) ordinary wear and tear, (ii) unusual damage, (iii) inadequacy and (iv) obsolescence.
the factors listed above include not only those relating to physical deterioration but also those referring to the suitability of the asset as an economically productive unit after a period of time. Apart from accounting practice, section 32(1) (iii) itself speaks of allowance in the case of any plant which is discarded in the previous year and the word discarded has been understood to cover the case of obsolescence.
Know-how in whatever form it may be is capable of diminishing in value over the years by obsolescence. It would, therefore, be included within the meaning of the word plant in section 32.
The assessee acquired drawings and patterns for the manufacture of gear units and convey or idlers from foreign collaborators. The agreement between the assessee and foreign collaborators provided that the assessee would receive all existing and up-to-date patterns drawings and information which the authorised manufacture requires. The Tribunal found as a matter of fact that the drawings and patterns formed the basis of manufacturing the machinery in question : Held, that the drawings and patterns by themselves did not perform any mechanical operations or processes and on the commencement of production of gears and idlers it might not be necessary to consult them and owing to technological advance they might in course of time become obsolete. These factors, however, could not militate against their being plant since they formed the basis of manufacturing the machinery and they were so to say the basic tools of the assessees trade having a fairly enduring quality. The drawing and patterns were plant within the meaning of section 32 and the assessee was entitled to depreciation in respect of those assets on the pro rata cost of their acquisition." (pp. 673-74) It is clear from the above passage extracted from the headnote that the know-how is treated as a plant by including the same within the meaning of the said expression for the purpose of section 32 of the Act. It is also clear that drawings and patterns by themselves did not perform any mechanical operations or processes and it might not be necessary to consult them and owing to technological advance they might get obsolete in course of time. Such drawings and patterns included in the know-how formed the basis of manufacturing the machinery and as such they are the tools of the assessees business and as such they fall within the expression plant. The concept of ESA postulates the working or mechanical operations of the machinery or plant which are subjected to more wear and tear due to continuous use. The same position, however, does not hold good in case of know-how in a form of book which gets obsolete due to technological advance and not due to wear and tear. The concept of obsolescence due to technological advance cannot be placed on same footing as wear and tear by actual user of machinery and plant, though this concept may be useful in determining the question whether know-how is treated as plant. Therefore, even adopting the wider meaning to the expression, plant which takes into its sweep the technical know-how in book form for the purpose of allowance of depreciation, it could not be said that the technical know-how in book form, which is a plant, is used in the same manner as other machinery or plant which is entitled to ESA.11. For the aforesaid reasons, we do not agree with the conclusion reached by the Commissioner (Appeals) that know-how is exigible to ESA.We reverse the decision of the Commissioner (Appeals) on this point and restore the decision of the ITO.