Commissioner of Income Tax vs Rajapalayam Mills Ltd.

N. V. Balasubramanian, J.—Two questions of law arising out of the assessment of the assessee-respondent for the assessment years 1978-

79 and 1979-80 have been referred to us at the instance of the Revenue. The questions of law read as under :

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessment order for the

assessment year 1978-79 allowing depreciation on assets without reducing the SIPCOT subsidy from the cost of the assets are not prejudicial to

the interests of the Revenue ?

Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the assessment order for the

assessment year 1979-80 allowing depreciation on assets without reducing the SIPCOT subsidy from the cost of the assets are not prejudicial to

the interests of Revenue ?

Though there are two questions, the issues raised in both the questions are common. The Income Tax Officer originally allowed the depreciation

on assets without reducing the amount of subsidy from the SIPCOT from the cost of the assets and completed the assessment for both the

assessment years. The Commissioner of Income Tax in exercise of the powers of revision held that the amount of subsidy received by the assesses

should be reduced from the actual cost of the machine for determining the depreciation. The Appellate Tribunal held that the Commissioner was

not right in his view that the subsidy amount should be reduced from the actual cost of machinery and he has not exercised his powers of revision

properly and the order of the Income Tax Officer was not in any way erroneous. The order of the Tribunal is the subject-matter of the tax case

reference. After the Tribunal has passed the order, the Supreme Court in the case of Commissioner of Income Tax, Hyderabad Vs. M/s. P.J.

Chemicals Ltd., , held that the amount of subsidy received is not liable to be reduced from the actual cost of assets for the purpose of determining

the depreciation allowable to the assessee. On the basis of the decision of the Supreme Court, we hold that there is no error in the orders of the

Income Tax Officer granting deduction of the SIPCOT subsidy amount from the cost of the assets for the purpose of determining depreciation and

hence the Commissioner could not have exercised his powers of revision u/s 263 of the Act to cancel the orders of the assessment, as there is no

error in the assessment order. The Tribunal has correctly come to the conclusion that the Commissioner of Income Tax, on the facts of the case,

had not assumed the jurisdiction properly. Accord- ingly, both the questions referred to us are required to be and they are answered in the

affirmative against the Revenue and in favour of the assessee. The assessee will be entitled to costs in the reference of a sum of Rs. 750 (rupees

seven hundred and fifty only) in one set.