JUDGMENT

TULZAPURKAR, J.:— These three appeals relating to assessment years 1966-67, 1968-69 and 1969-70 respectively (the accounting periods in respect whereof ended on 30-9-1965, 30-9-1967 and 30-9-1968 respectively) raise a common question of law for our determination, namely :

Whether on the facts and in the circumstances of the case and on a true interpretation of the collaboration agreements between the assessee and M/s. Metrimpex Hungarian Trading Company, Budapest, the payment of Rs. 1,60,000/- by the assessee to the foreign collaborator was attributable partly or wholly towards the acquisition of a depreciable asset?

2. Briefly stated the facts giving rise to the question are these. M/s. Scientific Engineering House (P) Ltd. (hereinafter called the assessee) manufactures scientific instruments, and apparatus like Dumpy levellers, levelling staves, prismatic compass, etc. It entered into two separate collaboration agreements, one dated 15th March 1961 and the other dated 31st March, 1961 with M/s. Metrimpex Hungarian Trading Company, Budapest for undertaking the manufacture of microscopes and theodolites, under which the said foreign collaborator, in consideration of payment of Rs. 80,000/- each (Rs. 1,60,000/- under both the agreements together), agreed to supply to the assessee all the technical know-how required for the manufacture of these instruments. The object of both the agreements was to enable the assessee to manufacture the said instruments of certain specifications and the. assessee thereunder acquired the right to manufacture in India under its own trade mark and name but under the licence - MOM Hungary - of the foreign supplier the said instruments and the right to sell the same in India. To enable the assessee to manufacture these instruments in India in the manner just indicated the foreign collaborator, inter alia, agreed to render documentation service by supplying to the assessee an up-to-date and correct complete set each of the five types of documents (such as manufacturing drawings, processing documents, designs, charts, plans and other literature more specifically detailed in Clause 3 of the agreements). There was also a provision enjoining the foreign collaborator to render training and imparting of knowledge of the know-how technique of manufacturing these instruments. Pursuant to the agreements the assessee made full payment of Rs. 1,60,000/- (Rs. 80,000/- under each of the agreements) to the foreign collaborator and the latter rendered documentation service by supplying complete sets of all the documents including designs, drawings, charts, plans and other literature as per Clause 3. The sum of Rs. 1,60.000/- was debited by the assessee under the head Library.

3. For the assessment year 1966-67 for which relevant accounting year ended on 30th September, 1965 the assessee claimed a sum of Rs. 12,000/- by way of depreciation on Library. Such depreciation was claimed on the ground that the payment of Rs. 1,60,000/- had been made really for the outright purchase of designs, drawings, charts and other literature which were voluminous, occupying almirahfull of storage space and these collectively constituted the pages of a book and the assessee had claimed depreciation at the appropriate rate. The Income-tax Officer held that the sum of Rs. 1,60,000/- did not represent the value of books purchased by the assessee but represented the price paid for acquiring the technical know-how which amounted to capital expenditure but since no tangible or depreciable asset was brought into existence no depreciation allowance could be claimed. On appeal preferred by the asessee, however, the Appellate Assistant Commissioner held that what the assessee had done was to make an outright purchase of certain specimen drawings charts, plans, etc. on special papers, that these documents when collected together constituted a book on which depreciation, as in the case of plant and machinery would, at the appropriate rate be