COMMISSIONER OF INCOME TAX v. BHANDARI CAPACITORS PVT. LTD
[Citation -1987-LL-0714-6]

Citation 1987-LL-0714-6
Appellant Name COMMISSIONER OF INCOME TAX
Respondent Name BHANDARI CAPACITORS PVT. LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 14/07/1987
Assessment Year 1977-78
Judgment View Judgment
Keyword Tags investment allowance • plant and machinery • fresh assessment • incentive scheme • subsidy scheme • special bench • capital cost • actual cost
Bot Summary: The Tribunal examined the scheme for grant of subsidy for individual units set up in backward areas and held that the subsidy was not granted to meet the cost of any item of plant or machinery. The Tribunal held that the amount of capital subsidy was not deductible in computing actual cost of the asset as defined in section 43(1) of the Act for the purpose of calculating the depreciation and investment allowance admissible to the assessee. We do not find any provision either in the Central Subsidy Scheme, 1971, or in the State Incentive Scheme that the entrepreneurs are granted the subsidy for the specific purpose of meeting a portion of the cost of the assets. The basis adopted for determining cash subsidy with reference to the fixed capital cost is only a measure adopted and cannot, in our opinion, be considered to be for the specified purpose of meeting any portion of the fixed capital cost. We have no hesitation in coming to the conclusion, on a careful examination of the scheme under consideration, that the subsidy granted to the assessee cannot be related to meeting a portion of the cost of the assets so that, for purposes of section 43(1)of the Act, such subsidy can be reduced from the amount of actual cost of the assets to the assessee. Learned counsel for the Revenue referred to the finding of the Commissioner that the subsidy was towards the cost of the plant and machinery granted by the State Government. The Tribunal found that the subsidy was not granted for the specific purpose of meeting a portion of the cost of the plant and machinery.


JUDGMENT JUDGMENT judgment of court was delivered by G. G. SOHANI J.-By this reference under section 256(1) of Income-tax Act, 1961 (hereinafter referred to as " Act"), Incometax Appellate Tribunal, Indore Bench, has referred following question of law to this court for itsopinion: " Whether, on facts and in circumstances of case, Tribunal was right in holding that amount of capital subsidy of Rs. 1,28,616 was not deductible in computing actual cost of asset as defined in section 43(1) of Income-tax Act for purposes of calculating depreciation and investment allowance admissible to assessee? " material facts giving rise to this reference, briefly, are as follows: order of assessment passed by Income-tax Officer for assessment year 1977-78 was set aside by Commissioner of Income-tax as he was of opinion that order of assessment was erroneous in so far as it was prejudicial to interests of Revenue. Commissioner was of view that in working out cost of plant and machinery for purpose of allowing investment allowance and depreciation, Income-tax Officer had computed actual cost incurred by assessee even though assessee bad received subsidy of Rs. 1,28,616. Commissioner was of view that Income-tax Officer should have reduced cost of plant and machinery by capital subsidy of Rs. 1,28,616, for purpose of computing depreciation and investment allowance. Commissioner, therefore, set aside order passed by Income-tax Officer and directed Income-tax Officer to make fresh assessment according to law.. Aggrieved by that order, assessee preferred appeal before Tribunal. Tribunal examined scheme for grant of subsidy for individual units set up in backward areas and held that subsidy was not granted to meet cost of any item of plant or machinery. Tribunal, therefore, held that amount of capital subsidy was not deductible in computing actual cost of asset as defined in section 43(1) of Act for purpose of calculating depreciation and investment allowance admissible to assessee. In this view of matter, Tribunal set aside order passed by Commissioner. Aggrieved by order passed by Tribunal, Revenue sought reference and it is at instance of Revenue that aforesaid question of law has been referred to this court for its opinion. similar question came up for consideration before Andhra Pradesh High Court in CIT v. Godavari Plywoods Ltd. [1987] 168 ITR 632. We may usefully refer to following observations of Y. V. Anjaneyulu J. (page 640): " We have examined subsidy schemes under consideration bearing above principles in mind. We do not find any provision either in Central Subsidy Scheme, 1971, or in State Incentive Scheme that entrepreneurs are granted subsidy for specific purpose of meeting portion of cost of assets. Under both schemes, cash subsidy is quantified by determining same at specified percentage of fixed capital cost. basis adopted for determining cash subsidy with reference to fixed capital cost is only measure (of quantification) adopted and cannot, in our opinion, be considered to be for specified purpose of meeting any portion of fixed capital cost. We have, therefore, no hesitation in coming to conclusion, on careful examination of scheme under consideration, that subsidy granted to assessee cannot be related to meeting portion of cost of assets so that, for purposes of section 43(1)of Act, such subsidy can be reduced from amount of actual cost of assets to assessee. It seems to us that specified percentage of fixed capital cost taken as basis for determining subsidy under scheme is only measure (of quantification). subsidy is granted more as recompense for hardships and inconveniences which entrepreneur may encounter while setting up industries in backward areas. In that view of matter, we uphold decision of Special Bench of Tribunal that subsidy granted to entrepreneurs cannot be reduced from actual cost of assets to assessee. " We respectfully agree with aforesaid observations. Learned counsel for Revenue referred to finding of Commissioner that subsidy was towards cost of plant and machinery granted by State Government. But this finding has not been upheld by Tribunal. Tribunal found that subsidy was not granted for specific purpose of meeting portion of cost of plant and machinery. In view of this finding, Tribunal, in our opinion, was right in holding that amount of capital subsidy was not deductible in computing actual cost of asset, as defined by section 43(1) of Act, for purpose of calculating depreciation and investment allowance admissible to assessee. For all these reasons, our answer to question referred to this court is in affirmative and against Revenue. In circumstances of case, parties shall bear their own costs of this reference. *** COMMISSIONER OF INCOME TAX v. BHANDARI CAPACITORS PVT. LTD.
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