Commissioner of Income Tax vs Paliwal Glass Works

The following two questions of law have been referred by the Income Tax Appellate Tribunal, Delhi Bench "E", New Delhi, for the opinion of this Court relevant to the assessment year 1985-86:

Whether on the facts and in the circumstances of the case, the Tribunal was right in law in allowing relief in respect of sales tax payable which amount was paid subsequent to the close of the accounting year and not beford the close of the accounting year.

Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the subsidy received for generator set is not contribution made by the Government towards the cost of the generator and further whether the Tribunal was right in law in allowing depreciation on generator set at 20 per cent.

With regard to question No. 1 the facts in brief are as follows:

The claim of the Assessee of sales tax was disallowed u/s 43B for the assessment year 1985-86. The Assessee claimed deduction of Rs. 1,74,400 on account of sales tax payable which was due for payment and was paid within the due date which due date fell subsequent to the close of the accounting period. The assessing officer disallowed the deduction in view of Section 43B of the Income Tax Act. It is not in dispute that the Assessee paid the sales tax dues within the due date under the Sales Tax Act.

The contention of the Assessee, which has also been accepted by the Tribunal, is that the payment of sales tax dues within the due date, though after the close of the accounting year is deductible in the relevant assessment year.

The controversy in this regard has been set at rest by the Apex Court in the case of Allied Motors (P.) Ltd. Vs. Commissioner of Income Tax, Delhi, It has been held by the apex court that the proviso added by the Finance Act of 1987 makes it clear that the section will not apply in relation to any sum which is actually paid by the Assessee within the statutory time allowed under the first proviso to Section 43B of the Income Tax Act.

In view of the above decision of the apex court, the said question is answered in the affirmative, i.e., in favour of the Assessee and against the department.

So far as question No. 2 is concerned, the said question is in two parts. The first part relates to the subsidy received for the generator set and the other part relates to the allowance of depreciation on the generator at 20 per cent.

Section 43(1) of the Income Tax Act defines "actual cost" means 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 for the purposes of calculation of depreciation. In the case on hand, the subsidy was specific subsidy and was given by the Government to purchase the generator. Therefore, the amount of Subsidy is liable to be deducted to find out the actual cost of the asset. This view finds support from the judgment of the Apex Court, Commissioner of Income Tax, Hyderabad Vs. M/s. P.J. Chemicals Ltd.,

In this view of the matter, it is held that the amount of subsidy was liable to be excluded for the purposes of calculation of depreciation to work out the actual cost of the generator. The Tribunal committed an error of law in holding otherwise. The subsidy given for the generator was not a general subsidy.

So far as the question of allowance of depreciation on the generator is concerned, the learned standing counsel has placed reliance upon a judgment of this Court faunpur Dugdh Utpadak Sahkari Sangh Ltd. v. Commissioner of Trade Tax (2005) UPTC 679. It has been held that generator is not specifically specified in Appendix I relating to table of rates on which the depreciation is admissible and, therefore, the general rate of 10 per cent, in that base was found to be admissible. It has been pointed out by the counsel for the Petitioner that the general rate of 10 per cent, has been increased to 15 per cent, in the relevant assessment year. Therefore, the Assessee will be entitled to get depreciation on the generator at 15 per cent, instead of 20 per cent, as applicable to the relevant assessment year.

In view of the above discussion, we answer question No. 1 in the affirmative, i.e., in favour of the Assessee and against the department.

So far as question No. 2 is concerned, we are of the view that the Tribunal was not right in holding that the subsidy received for generator is not deductible from the actual cost of the generator to work out the depreciation. The Assessee is entitled to depreciation at 15 per cent, in place of 20 per cent, on the generator. We answer the second question in the negative, as discussed above in favour of the revenue and against the Assessee.