Commissioner of Income Tax vs Shankar Novelties Glass Industries

Prakash Krishna, J.

This is a reference u/s 256(2) of the Income Tax Act. The following question has been referred to this court for its opinion :

"Whether the Tribunal was correct in law in ignoring definition of Actual cost as given in section 43(1) of the Income Tax Act, 1961 and in holding that the subsidy of Rs. 41,277 was not to be deducted from the value of the Generator in the matter of grant of depreciation u/s 32 of the Income Tax Act, 1961?"

During the course of the assessment proceedings the assessee claimed full depreciation on generator. The cost of the generator was Rs. 2,13,277. However, the assessment order was reopened as the assessee had received Rs. 41,277 as subsidy on generator from U.P. Financial Corporation, Kanpur. In the re-assessment proceedings the Income Tax Officer relied on the definition of Actual Cost'' as mentioned in section 43 of the Act and reduced the cost of generator by the cost of subsidy received by the assessee on generator. Consequently, the amount of depreciation was also reduced. The matter travelled to Tribunal and the Tribunal held that the assessee was entitled for the depreciation on Rs. 2,13,277. At the instance of the revenue the aforesaid question was referred to this court for our opinion.

The controversy has been set at rest by the Honble Supreme Court in the case of Commissioner of Income Tax, Hyderabad Vs. M/s. P.J. Chemicals Ltd., . It has been held that the subsidy does not partake of the incidence which attract the conditions for their deductibility from "Actual Cost".

Following the aforesaid judgment of the Supreme Court, we hold that the subsidy of Rs. 41,277 was not to be deducted from the value of the generator in the matter of grant of depreciation u/s 32 of the Act. We, therefore, answer the question in the affirmative, that is in favour of the assessee and against the department.