COMMISSIONER OF Income Tax vs VENEERS AND LAMINATION (INDIA) LTD.

K. S. PARIPOORNAN J., - At the instance of the Revenue, the Income Tax Appellate Tribunal has referred the following question the law for the decision of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the subsidy received from the Central Government is not to be deducted from the cost of the assets to arrive at the actual cost to the assessee of the assets ?"

The respondent is a public limited company. It is an assessee to Income Tax. We are concerned with the assessment years 1978-79 and 1980-81. During the relevant accounting periods, the assessee-company received amounts by way of subsidy from the Central Government under a subsidy scheme for commencing industry in a backward area. The amount so received by the assessee was deducted from the value of the fixed assets of the company for the purpose of determining depreciation and investment allowance and other deduction under various heads by the Income Tax Officer. In appeals filed by the assessee, the Commissioner of Income Tax (Appeals) directed the Income Tax Officer to allow the relief to the assets. In other words, the Commissioner of Income Tax (Appeals) directed the Income Tax Officer to allow the depreciation and investment allowance without reckoning the subsidy amount from the value of the assets. This decision was affirmed by the Income Tax Appellate Tribunal. The Appellate Tribunal also found that the decision is in conformity with the decision of the Special Bench of the Tribunal in the case of Pioneer Match Works v. ITO. It is thereafter at the instance of the Revenue that the question of law formulated hereinabove has been referred for the decision of this court.

We heard counsel. A Bench of this court in Commissioner of Income Tax Vs. Relish Foods, , held that the subsidy received by a person, in the position of the respondent/assessee, from the Government for setting up an industry in a backward area is really an incentive and it has nothing to do with the cost of a particular asset. In this perspective, this court held that the subsidy amount so received by an assessee cannot be deducted from the cost of assets for the purpose of allowing depreciation, development rebate, etc.

In the light of the Bench decision aforesaid The Commissioner of Income Tax, Delhi Vs. Nar Hari Dalmia, New Delhi, , the Appellate Tribunal was justified in confirming the order passed by the Commissioner of Income Tax (Appeals) for both the years holding that the assessee is entitled to the relief of depreciation, investment allowance and other deductions without deducting the subsidy amount from the cost of the assets.

We answer the question referred to this court in the affirmative, against Revenue and in favour of the assessee.