Commissioner of Income Tax vs Amol Dicalite Ltd.

J.M. Panchal, J.—The Income Tax Appellate Tribunal has referred to this court the following two questions for opinion in terms of Section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as the "Act"). Those two questions are as under:

(i) Whether, the Appellate Tribunal is right in law and on facts in directing the Assessing Officer not to deduct the amount of subsidy from the cost of assets for the purpose of calculation of depreciation ?

(ii) Whether, the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to treat the ore shed as plant and allow depreciation and extra shift allowance ?

Before this court addresses itself to the legal position on the subject, a few facts may first be noticed.

The assessee was manufacturing filter aids. In the course of assessment proceedings for the assessment year 1985-86 the assessee claimed depreciation of ore shed and road to factory at 10% on the ground that they were plant. The Assessing Officer rejected this claim of the assessee as they were not treated as plant for the assessment year 1983-84. Further the Assessing Officer while computing the income deducted the amount of subsidy from the cost of the assets.

Feeling aggrieved the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) who directed the Assessing Officer not to deduct the amount of subsidy from the cost of the assets for the purpose of calculation of depreciation and also directed the Assessing Officer to treat the ore shed as plant and allow appropriate depreciation and extra shift allowance.

The Tribunal has confirmed the view taken by the Commissioner (Appeals) that the amount of subsidy should not be deducted while computing the cost of the assets. Such a view was taken on the basis of the judgment of the Gujarat High Court in the case of Commissioner of Income Tax Vs. Grace Paper Industries Pvt. Ltd., Whitco Ltd., Amit Stampings and Narendra M. Lakhadia, Since the Supreme Court had granted SLP in similar matters, question No. 1 has been referred to this court at the instance of the Revenue.

As far as the second question is concerned, it has been observed by the Tribunal that the ore shed is a very special type of structure wherein the machinery are built-in and such facilities have been created which enable the smooth feeding of the loose raw material to the plant for further process and such structure is an integral part of the entire plant.

Though the assessee is duly served it has neither appeared through its authorised officer or a lawyer.

This court has heard Mr. Tanvish U. Bhatt, learned Counsel for the Revenue at length and in great detail.

The direction given by the Tribunal to the Assessing Officer not to deduct the amount of subsidy from the cost of assets for the purpose of calculation of depreciation cannot be regarded as erroneous in view of the decision of the Supreme Court rendered in the case of Commissioner of Income Tax, Hyderabad Vs. M/s. P.J. Chemicals Ltd., . In the said decision, after a review of the law on the point, the Supreme Court has held as under (headnote):

Where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the ''actual cost''. The expression ''actual cost'' in Section 43(1) of the Income Tax Act, 1961 needs to be interpreted liberally. Such a subsidy does not partake of the incidents which attract the conditions for its deductibility from ''actual cost''. The amount of subsidy is not to be deducted from the ''actual cost'' u/s 43(1) for the purpose of calculation of depreciation, etc.

In view of the abovereferred principle stated by the Supreme Court, the first question referred to this court for opinion, will have to be answered in the affirmative and it is answered accordingly.

As far as the second question is concerned, this court finds from the facts adduced by the assessee, held that the ore shed performs functions of the "plant" and is an integral part of it. On appreciation of evidence adduced, the Commissioner of Income Tax (Appeals) has held that without this ore shed including ore hopper with foundation and feed steel type tank, it will not be possible to feed the material in the plant for further process. The finding recorded by the Commissioner of Income Tax (Appeals) is that the trucks carrying raw material are emptied on a special platform in the ore shed which is equipped with built-in machinery to transfer this material to the plant for further process and therefore, the ore shed should be treated as part of the plant. These findings have been upheld by the Appellate Tribunal which is quite evident from the findings recorded in paras. 3.1(b) and 3.1(c) of the order of the Tribunal.

The finding that the ore shed performs the function of the plant and is an integral part of it, is based on appreciation of the evidence adduced by the assessee and this finding is not demonstrated to be erroneous. On a careful scrutiny of the evidence it is clear that the ore shed is situated within the factory premises and this is a special type of structure wherein the machinery are built-in and the facilities are created so that the loose raw material is smoothly fed to treat the ore shed as plant. The evidence shows that the ore shed performs the functions of the plant and is an integral part of the plant and machinery. The finding that the ore shed is plant is recorded on the basis of evidence adduced and is a question of fact. Under these circumstances, the directions given by the Tribunal to treat the ore shed as plant and allow depreciation and extra shift allowance, cannot be regarded as erroneous. Therefore, the second question referred to this court for its opinion will have also to be answered in the affirmative and it is accordingly answered.

The reference accordingly stands disposed of. There shall be no order as to costs.