Commissioner of Income Tax vs Dewas Chemical and Fertilizers Mfg. Co.

G.G. Sohani, Actg. C.J.

By this reference u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") the Income Tax Appellate Tribunal, Indore Bench, Indore, has referred the following question of law to this court for its opinion :

"Whether, on the facts and in the circumstances of the case and in view of Section 43(1) of the Income Tax Act, the Tribunal is justified in holding that the amount of capital subsidy received by the assessee from the Government would not go to reduce the cost of assets for the purpose of allowing depreciation ?"

The material facts giving rise to this reference, briefly, are as follows :

The assessee is a public limited company registered under the Companies Act, 1956, and carries on the business of manufacture and sale of chemicals and fertilisers. During the assessment year 1977-78, the assessee received a capital subsidy of Rs. 4,30,000 from the Madhya Pradesh Financial Corporation under a scheme framed by the Government with a view to provide incentives to start industrial units in specified backward areas. While framing the assessment, the Inspecting Assistant Commissioner (Assessment) reduced the cost of the plant and machinery of the company by the amount of capital subsidy for the purpose of allowing depreciation in accordance with the provisions of Section 43(1) of the Act. The appeal preferred by the assessee in that behalf before the Commissioner of Income Tax (Appeals) was allowed and the assessing authority was directed to allow depreciation on the plant and machinery without deducting the capital subsidy from the cost of the plant. Aggrieved by the order passed by the Commissioner of Income Tax (Appeals), the Revenue preferred an appeal before the Tribunal. The Tribunal upheld the order passed by the Commissioner of Income Tax (Appeals). The Revenue, therefore, sought reference and it is at the instance of the Revenue that the Tribunal has referred the aforesaid question of law to this court for its opinion.

At the time of hearing, learned counsel for the parties conceded that the matter arising in this reference was covered by the decision of this court in COMMISSIONER OF Income Tax Vs. BHANDARI CAPACITORS PRIVATE LTD., . We see no reason to take a view different from that taken in COMMISSIONER OF Income Tax Vs. BHANDARI CAPACITORS PRIVATE LTD., . Following that decision, it must, therefore, be held that, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of capital subsidy received by the assessee would not go to reduce the cost of assets for the purpose of allowing depreciation.

Our answer to the question referred to this court is, therefore, in the affirmative, in favour of the assessee and against the Revenue. In the circumstances of the case, parties shall bear their own costs of this reference.