Associated Stone Industries Kota Ltd. vs Commissioner of Income Tax

The Income Tax Appellate Tribunal has referred the following questions of law arising out of its order dated November 28, 1984, u/s 256(1) of the Income Tax Act, 1961, in respect of the assessment years 1980-81 and 1981-82 :

R. A. No. 13 :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the surtax payable by the assessee-company was not allowable as deduction in computing the total income under the Income Tax Act, 1961 ?

Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the sum of Rs. 2,08,003 being the conditional subsidy received from the Rajasthan Government under the subsidised housing scheme for industrial workers did not form part of the ''actual cost'' of the labour colony u/s 43(1) and, consequently, the assessee-company was not entitled to get deduction for depreciation of Rs. 4,342 on the said amount u/s 32 of the Income Tax Act ?"

R. A. No. 14 :

"1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the surtax payable by the assessee-company was not allowable as deduction in computing the total income under the Income Tax Act, 1961 ?

Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the sum of Rs. 2,08,003 being the conditional subsidy received from the Rajasthan Government under the subsidised housing scheme for industrial workers did not form part of the ''actual cost'' of the labour colony u/s 43(1) and, consequently, the assessee-company was not entitled to get deduction for depreciation of Rs. 4,23,233 on the said amount u/s 32 of the Income Tax Act ?"

The controversy raised in the above case is concluded by the decision of this court. The first question has been decided in the case of Associated Stone Industries (Kota) Ltd. Vs. Commissioner of Income Tax, and, on the basis of the decision given by this court, we are of the view that the Tribunal was justified in holding that the surtax paid by the assessee-company was not allowable as deduction in computing the total income under the Income Tax Act, 1961.

The second question has also been decided in favour of the Revenue and against the assessee in the case of the assessee, and on the basis of the said decision, we are of the view that the Income Tax Appellate Tribunal was justified in holding with the sum of Rs. 2,08,003 being conditional subsidy received from the Rajasthan Government under the subsidised housing scheme for industrial workers did not form part of the "actual cost" of the labour colony u/s 43(1) and. consequently, the assessee-company was not entitled to get deduction for depreciation of Rs. 4,233 on the said amount u/s 32 of the Income Tax Act.

Learned counsel for the assessee has placed reliance on the decision given by the apex court in Commissioner of Income Tax, Hyderabad Vs. M/s. P.J. Chemicals Ltd., and the decision given by this court in the case of Commissioner of Income Tax Vs. Ambica Electrolytic Capacitors Pvt. Ltd. and Others,

We have gone through those judgments as well. The word "actual cost" which was interpreted by this court as well as the apex court was considered not to include the subsidy which is introduced as an incentive. The subsidy so given was found not to be a payment directly or indirectly to meet any portion of the actual cost. In the case of the assessee, the amount was received under the subsidised housing scheme and is directly related to the housing scheme and it was on that basis that in the case of the assessee, it was held by this court that the assessee was not entitled to get depreciation from the actual cost and the amount which has been received by the assessee from the State Government has to be reduced for calculating the depreciation. In these circumstances, the assessee is not entitled to the benefit of depreciation of the entire value of the cost and the amount received by way of subsidy has to be reduced in accordance with the provisions of Section 43(1) of the Act. The decision given by this court in the case of Associated Stone Industries (Kota) Ltd. Vs. Commissioner of Income Tax, in respect of the assessment years 1974-75 and 1975-76 have considered this point and followed the decision given in D. B. Income Tax Reference No. 99 of 1979 for the assessment year 1973-74. The matter in respect of the assessment years 1976-77, 1977-78 and 1978-79 were considered by this court in the case of Associated Stone Industries Ltd. Vs. Commissioner of Income Tax, and it was held that the amount of subsidy received has to be deducted for determining the actual cost u/s 43(1) of the Act. Section 43(1) has defined "actual cost" as the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. The State Government which has given the subsidy has met the cost directly of the asset and, therefore, in view of the definition of "actual cost" and the decisions given by this court in the case of the assessee, we are of the opinion that the Income Tax Appellate Tribunal was justified in holding that the sum of Rs. 2,08,003 being conditional subsidy received from the Rajasthan Government under the subsidised housing scheme for industrial workers did not form part of the "actual cost" of the labour colony u/s 43(1) and, consequently, the assessee-company was not entitled to get deduction for depreciation on the said amount u/s 32 of the Act.

The reference is accordingly answered in favour of the Revenue and against the assessee on both the questions referred to above. No order as to costs.