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Judgment
Ratnam, J.—These tax case references, though relating to different assessees and different assessment years, are dealt with together, as an
important and interesting common question of law arises for decision. However, it will be convenient to refer to the facts and the questions arising
for decision in each of these references. We shall first take up T. C. Nos. 764 to 767 of 1981, where the assessee, Srinivas Industries, is a
registered firm carrying on business in the manufacture and sale of printed stationery, such as cartons, wedding cards, s labels, etc. The assessment
years relevant to these references are 1974-75 to 1977-78. During the accounting year ended March 31, 1974, the assessee purchased two
colour offset printing machines at a cost of Rs. 5,64,059.57 and installed them in March, 1974, and the total outlay including the cost of installation
came to Rs. 5,69,060.32. Under a scheme sponsored by the Government of India styled as 10% (which was later increased to 15% subject to a
maximum of 15 lakhs of rupees) Central Outright Grant or Subsidy Scheme, 1971, for industrial units set up in backward areas with effect from
August 26, 1971, covering the Fourth Five Year Plan period, the assessee obtained Rs. 85,359 by way of subsidy and entered into an agreement
with the State Industries Promotion Corporation of Tamil Nadu Ltd. (SIPCOT, for short) undertaking to utilise the said subsidy for the scheme
and to submit periodical reports of such continued use. For the assessment years 1974-75 and 1975-76, depreciation and development rebate
had been granted to the assessee on the original cost without making any deduction for the subsidy. While dealing with the assessment for the
assessment year 1976-77, the Income Tax Officer became aware of the availing of the subsidy by the assessee and reopened the assessments for
the assessment years 1974-75 and 1975-76 withdrawing the depreciation granted earlier with reference to the original cost without reckoning the
subsidy and passed reassessment orders reducing the development rebate and depreciation granted earlier. For the assessment years 1976-77 and
1977-78 also, depreciation and reliefs u/s 80J of the Income Tax Act, 1961 (hereinafter referred to as ""the Act""), were restricted on the basis that
the subsidy made available to the assessee reduced the cost of the capital assets. On appeal by the able to the assessee reduced the cost of the
capital assets. On appeal by the assessee before the Appellate Assistant Commissioner, the reassessment and assessment orders were affirmed
rejecting the stand of the assessee that the subsidy received could not be reckoned for purposes of granting depreciation and development rebate.
On further appeal by the assessee before the Tribunal, it took the view that, though under the scheme, subsidy was meant as an incentive for the
setting up of industries in backward areas, it was made to cover the cost of the machinery and, therefore, liable to be reduced from the total cost in
order to arrive at the actual cost u/s 43(1) of the Act and the assessee was held entitled to depreciation only on the reduced cost. So holding, the
Tribunal upheld the reassessment as well as assessment orders for the assessment years 1974-75 to 1977-78. u/s 256(2) of the Act, at the
instance of the assessee, the following questions of law have been referred to this court for its opinion :
Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the subsidy received by the assessee under
the scheme is to meet the cost of the machinery and, therefore, will fall u/s 43(1) of the Income Tax Act, 1961 ?
Whether the Tribunal is right in holding that it is an outright grant even though it is subject to certain conditions as per the agreement entered into
with SIPCOT on January 21, 1975?
Whether the Tribunal is correct in holding that the subsidy has to be taken of for the purpose of determining the actual cost u/s 43(1) even
though it is received in a year later than the year in which the machinery was acquired and installed ?
We may now notice the facts in T. C. Nos. 900 and 901 of 1982. The assessee, in these references, is a registered firm and the assessment
years with which we are concerned are 1974-75 and 1975-76. Pursuant to the subsidy scheme referred to earlier, the assessee received a sum of
Rs. 32,537 through SIPCOT by way of subsidy and, in the course of the assessment for the assessment year 1974-75, the assessee claimed
depreciation on the value of the plant and machinery without deducting the subsidy received by it. In computing the allowable depreciation, the
Income Tax Officer took the view that the subsidy received by the assessee resulted in the reduction of the cost of the plant and machinery and, by
applying section 43(1) of the Act, depreciation and development rebate were allowed on the amount of cost as reduced by the amount of subsidy
received. In other words, depreciation and development rebate were allowed on the reduced cost. On appeal, the Appellate Assistant
Commissioner viewed the subsidy scheme as one intended to help the entrepreneurs in the installation of machinery, the result of which was to
reduce the actual cost of plant and machinery and held that, as a consequence, the grant of subsidy resulted in the reduction of the cost of capital
assets, attracting section 43(1) of the Act. On further appeals by the assessee before the Tribunal, a Special bench of the Tribunal dealt with those
appeals, as there was a difference of opinion between two Benches on the issues that arose in the appeals. The Special bench of the Tribunal
considered the scope of the scheme as well as the provisions therein elaborately and ultimately concluded that the subsidy should not be deducted
from the actual cost in terms of section 43(1) of the Act in allowing depreciation and development rebate. u/s 256(1) of the Act, at the instance of
the Revenue, the following common question of law has been referred to this court for its opinion : ""Whether, on the facts and in the circumstances
of the case and having regard to the provisions of section 43(1) of the Income Tax Act, 1961, the view expressed by the Tribunal that the subsidy
received from SIPCOT did not go to reduced the actual cost of the plant and machinery for allowing depreciation and development rebate, is right
in law ?
In Tax Cases Nos. 122 and 1136 of 1984, the assessee is a firm carrying on business in tanning and export of skins and hides and the relevant
assessment years are 1975-76 and 1976-77. In respect of the assessment year 1975-76, the assessment was originally completed by allowing
depreciation on assets at a fair value, without deduction of the subsidy received by the assessee under the scheme referred to earlier from the cost
of machinery which was later considered to be a mistake and the assessment was reopened and the excess depreciation allowed earlier was
withdrawn. On appeal by the assessee against the order of reassessment on the question of jurisdiction and also on merits, the Appellate Assistant
Commissioner followed the decision of the Special bench of the Tribunal which forms the subject-matter of references in T. C. Nos. 900 and 901
of 1982 and cancelled the reassessment without going into the question of jurisdiction. On further appeal by the Revenue before the Tribunal, the
Tribunal upheld the order of the Appellate Assistant Commissioner and dismissed the appeal. u/s 256(1) of the Act, at the instance of the Revenue,
the following question of law has been referred to this court for its opinion :
Whether, on the facts and in the circumstances of the case, and having regard to the provisions of section 43(1) of the Income Tax Act, the
Appellate Tribunal was justified in holding that the subsidy received under the Central Outright Grant or Subsidy Scheme, 1971, should not be
deducted from the actual cost of the assets for allowing depreciation in the assessee''s case ?
For the assessment year 1976-77, the assessment already made did not take into account the subsidy received by the assessee under the scheme
referred to earlier and that led to the reopening of the assessment u/s 147(a) of the Act and the depreciation was recomputed by reducing the cost
of the plant and machinery to the extent of subsidy received from SIPCOT in terms of section 43(1) of the Act. On appeal by the assessee, the
Appellate Assistant Commissioner followed the decision of the Tribunal in respect of the same assessee for the assessment year 1975-76 and held
that the subsidy received by the assessee cannot be treated as a portion of the cost of the plant and machinery, either directly or indirectly, and,
consequently, should not be deducted from the cost of the assets for computing the actual cost for allowing depreciation. On further appeal by the
Revenue to the Tribunal forming the subject-matter of references in Tax Cases Nos. 900 and 901 of 1982 and the assessee''s own case in respect
of the assessment year 1975-76 and dismissed the departmental appeal. u/s 256(1) of the Act, at the instance of the Revenue, the following
question of law, for the assessment year 1976-77, has been referred to this Court for its opinion :
Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the subsidy received from SIPCOT
should not be taken into account while determining the cost of the assets u/s 43(1) of the Income Tax Act, 1961, for the purpose of allowance of
depreciation ?
Referring to the provisions in the subsidy scheme, learned counsel for the assessees contended that the avowed object of the scheme is to
encourage the setting up of industries in the industrially backward areas of the State and for that purpose subsidy is granted not in an outright
manner, but subsequent to the setting up of the industry and upon certain conditions and that only after the fulfillment of those conditions, the
subsidy becomes a receipt on which the chronology of dates, as per the scheme, has a material bearing, touching upon the question of meeting the
cost of the plant and machinery. Drawing attention to section 43(1) of the Act, learned counsel submitted that the provision should be strictly
construed and a subsidy of the nature provided under the scheme cannot be construed to be one to meet the cost of the plant and machinery and
would, therefore, go towards the reduction of the amount of actual cost. It was also the further submission of learned counsel that though the
quantum of subsidy to be made available is determined as a percentage of the fixed capital assets inclusive of the plant and machinery, that would
only be for purposes of quantification and not for defraying part of the cost of the plant and machinery and the subsidy amount made available is
not the cost of the machinery met at the cost of the subsidy, as the amount could be spent for other purposes connected with the industry. Our
attention was also drawn to several decisions in support of these submissions which we shall notice later in the course of this judgment. On the
other hand, learned counsel for the Revenue submitted that the real object and purpose of granting subsidy under the scheme was that if industries
were set up in industrially backward areas, the Government would meet a portion of the cost of the fixed capital assets, and, therefore, the subsidy
amount should be reduced from the cost of the plant and machinery while allowing depreciation. Learned counsel for the Revenue also attempted
to justify the deduction of the subsidy amount for purposes of allowing depreciation by invoking the theory of reimbursement of the entrepreneur by
the Government in respect of the amounts spent by him in the acquisition of the plant and machinery for setting up the industry. Reference in this
connection was also made to Departmental Circular No. 190, date March 1, 1976, and some decisions which we shall notice later.
In order to consider the rival submissions made as aforesaid, it would be first necessary to ascertain what exactly is meant by the word ""subsidy
in the context of the provisions of the scheme. The word ""subsidy"" cannot said, particular financial, given by the Government to entrepreneurs, s
industries, etc., or to keep down the price of a commodity, by making available to the consumer, goods at a lower cost. Bearing this in mind, we
may now scrutinise the provisions of the subsidy scheme which forms annexure ""D"" to the stated case in Tax Cases Nos. 764 to 767 of 1981. The
scheme is styled as a subsidy scheme for industrial units to be set up in certain selected backward districts/areas with a view to promote the growth
of industries there. We find, therefore, that the primary object of the launching of the scheme is to promote the growth and development of
industries in certain industrially undeveloped and backward areas. Clause 3 fixes the sanction of 15% subsidy up to 15 lakhs of rupees. Under
clause 4(f) of the scheme, fixed capital investment means investment in land, building and plant and machinery. The further provision for assessment
of total fixed capital investment shows that land, building and the plant and machinery will be taken into account. With reference to land, the actual
price paid for the land to the extent needed for the purpose of the plant will be taken into account. Regarding building, the price paid for the
building would be considered, but not the rent of a hired building. In respect of plant and machinery, the value of the plant and machinery as
erected at site will be taken into account, inclusive of the cost of productive equipment, such as tools, jigs, dies and moulds, transport charges,
demurrage, insurance premium, etc., and the amount invested on goods carriers to the extent of utilisation for transport of raw materials and
marketing of the finished products. Clause 4(h) states that 10% Central Outright Grant or Subsidy means one-tenth of the total fixed capital
investment or additional total fixed capital investment, as the case may be, subject to a maximum of fifteen lakhs of rupees. Clause 5 and 6 of the
scheme outlined the procedure for claiming the subsidy and the disbursement thereof., Clause 7 is significant in that it provides for the disbursement
of the subsidy to the unit at the time the unit goes into production in respect of new industrial units. In respect of the existing industrial units, the
subsidy will be disbursed at the time substantial expansion has been effected and the unit had gone into production. The scheme contains certain
other provisions which will not be really necessary for purposes of these references. Annexure ""F"" to the stated case in Tax Cases Nos. 764 to
767 of 1981 is the agreement entered into between the assessee-firm and the SIPCOT and one of the clauses therein states that the subsidy
sanctioned is to be disbursed after the unit goes into production and it is also against reiterated in another clause that the disbursement shall be
made after the unit goes into production and proof of the same is produced to SIPCOT. Provision is also made for periodical inspection for a
period of five years from the date on which the unit goes into production. Thus, from the provisions of the scheme as well as the agreement
referred to above, it is seen that the predominant object is generally to encourage the setting up of new industries and the expansion of existing
industries in certain backward and specified areas. The scheme for subsidy may provide assistance to entrepreneurs for the purpose of industrial
development and expansion in a variety of ways. For instance, the Government may supply free power, give a holiday from taxes, provide land
free or at cheap rates or at cost or other infrastructual facilities at subsidies rates. Such subsidy may also take the form of financial aid as under this
scheme. In order to determine the quantum of subsidy to be made available to a person eligible for such subsidy under the provisions of the
scheme, some method was has necessarily to be adopted and, under the scheme in question, the method adopted to quantify the subsidy is 10%
or 15% on the fixed capital investment which includes the actual price paid for the land, building, value of machinery erected at site, etc., as stated
in clause 4(f) of the scheme. The quantification of the subsidy in the manner provided under the scheme, though at a percentage of the value of the
fixed capital investment as provided under clause 4(f) of the scheme, is only in the nature of a formula, as it were, and not relatable to working out
of the subsidy in relation to each one of the assets like land, building, machinery, etc., forming the component parts of the fixed capital investment
under clause 4(f) of the scheme. We may, in this connection, make a reference to Senairam Doongarmall Vs. Commissioner of Income Tax,
Assam, , where the question arose regarding the character of the payments made to the assessee in respect of factory and other buildings
belonging to the assessee situate in an estate and requisitioned for defence purposes by military authorities. Under the Defence of India Rules, the
assessee was paid compensation calculated on the basis of the out-turn of tea that would have been manufacted by the assessed as income of the
assessee. One of the arguments raised was that the compensation was paid as the equivalent of the likely profits and in repelling that, the Supreme
Court, after referring to the observations of Lord Buckmaster in Glenboig Union Fireclay Co. Ltd. v. CIR [1922] 12 TC 427) and affirmed by
Lord MacMillan in Van den Berghs ltd. v. Clark [1935] 3 ITR 17, that there is no relation between the measure that is used for the purpose of
calculating a particular result and the quality of the figure that is arrived at by means of the application of that test, stated that that proposition is as
sound as it is well-expressed and that it is the quality of the payment that is decisive of the character of the payment and not the method of the
payment or its measure. There observations would be apposite in these cases also, for, it is the real quality of the payments by way of subsidy that
matters and not the method evolved to quantify or measure such subsidy. We may observe that the omission of a clause in the scheme regarding
the purposes for which the subsidy amount made available could be expended is not without significance. Under the scheme, or even under the
terms of the agreement, there is nothing which compels or obliges a person receiving subsidy to spend it in the acquisition of machinery, land or
building. This also reinforces the view that the subsidy, though worked out at a percentage of the value of the fixed capital investment as defined in
clause 4(f) of the scheme, is really a method of quantifying the subsidy and does not in any manner impress the subsidy with the character of aid
given for any definite or particular purpose and to be applied for that purpose only. The subsidy scheme, in our view, attempts to bring about the
expansion and rapid industrial growth in certain areas and also a balanced regional industrial development and the subsidy given appears to us, on
the terms of the scheme, to be in the nature and undeveloped backward areas and remote, distant and inaccessible areas with uneconomical
infrastructure as well. We are also of the view that the subsidy really partakes the character of a cash grant expendable for any purpose and not
necessarily to be utilised only for the purchase of a particular capital asset.
Having noticed the predominant purpose of the scheme and also the methodology adopted for working out or quantifying the subsidy in any
given case, it is not necessary to refer to section 43(1) of the Act, which defines ""actual cost"" for purposes of sections 28 to 41 of the Act. Section
43(1) of the Act states that ''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. Sections 32, 32A and 33 of the Act deal with depreciation, investment
allowance and development rebate and all these sections constitute a group of sections, i.e., sections 28 to 41 mentioned in section 43 of the Act.
For the purpose of working out depreciation, the definition of ""actual cost"" given in section 43(1) of the Act will apply. Though the expression
actual cost"" had been interpreted by Lord Atkin in Corporation of Birmingham v. Barnes [1935] 3 ITR 26; [1935] AC 292, as the cost, the
whole cost and nothing but the cost and that it did not have any relation whatever to the source from which that person had received the money,
which he had expended on the plant, to nullify the applicability of a similar interpretation, an Explanation was added with effect from April 1, 1952
to section 10(5) of the Indian Income Tax Act, 1922, that the expression ""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 the Government or by any public or local authority, etc. u/s
43(1) of the Act, ""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. The subsidy made available under the scheme, as noticed earlier, cannot be regarded to
be a portion of the cost of the capital assets met directly or indirectly by the Government. We may also in this connection point out to the
importance of the point of time at which the subsidy was made available, viz., after the units go into production and it is obvious that the availability
of the subsidy has no connection whatever with the acquisition of the machinery in respect of that industrial undertaking.
We have carefully considered the provisions of the scheme and we are unable to find anything therein to indicate that the subsidy was intended
to enable an entrepreneur to meet a portion of the cost of the machinery acquired for the purpose of setting up an industrial undertaking, as
contended by learned counsel for the Revenue. We have earlier pointed out that the subsidy made available is generally in the nature of an
incentive, not intended or meant to be utilised by the recipient for the purpose of acquiring a fixed capital asset, like land, building, machinery, etc.
We had also referred to the subsidy being made available after the unit goes into production and this would not fit in with the concept of the
subsidy being given for the purpose of acquisition of the machinery in respect of the industrial undertaking. The argument of reimbursement
attempted to be put forward by counsel for the Revenue also does not deserve serious consideration or acceptance, for, the nature of the subsidy
is determined essentially by the terms of the scheme and, on the provisions found in the scheme, it is difficult to consider the subsidy scheme as one
of reimbursement. We had earlier pointed out that the scheme itself is only an incentive scheme with a view to encourage industrialists to venture
into industrially undeveloped and ill developed areas. Regarding Circular No. 190, dated March 1, 1976, we may point out that it proceeds on the
footing that the subsidy is related to various capital assets, thus attracting section 43(1) of the Act and the amount of subsidy, accordingly, will have
to be deducted from the cost of the asset for purposes of allowing development rebate and depreciation on such asset. We have already referred
to the provisions in the subsidy scheme and we have pointed out that the quantum of subsidy is worked out with reference to a certain percentage
on the value of the fixed capital investment as detailed in clause 4(f) of the scheme and that this is only a method and is not in any manner related to
the component parts constituting fixed capital investment for purposes of clause 4(f) of the scheme. We are, therefore, of the view that the circular
relied on by learned counsel for the Revenue is of no assistance.
We may make a brief reference to some of the decisions to which our attention was drawn by counsel on both sides in support of their
respective contentions. Commissioner of Income Tax Vs. Godavari Plywoods Ltd., , considered the scope of the Central Subsidy Scheme, 1971,
as well as the Andhra Pradesh State Incentive Scheme, 1976, and it was held by the Andhra Pradesh High Court that the subsidy scheme was in
the nature of a financial incentive directed to encourage and induce entrepreneurs to move to backward areas and establish industries there, so that
the region may develop and the grant of subsidy is not for the specific purpose of meeting a portion of the cost of the assets and the percentage of
the fixed capital cost adopted as the basis for determining the subsidy is only a measure to quantify the subsidy. It was also pointed out that the
subsidy cannot be deducted from the actual cost of the assets to the assessee and depreciation should be allowed on the actual cost of the assets
without reducing the same by the amount of subsidy granted. In COMMISSIONER OF Income Tax Vs. BHANDARI CAPACITORS
PRIVATE LTD., , considering the scope of the Central Subsidy Scheme, 1971, the Madhya Pradesh High Court has laid down that the amount of
capital subsidy is not deductible in computing the actual cost of the asset, as defined by section 43(1) of the Act, for the purpose of calculating the
depreciation and investment allowance admissible to the assessee. In Commissioner of Income Tax Vs. Premier Extraction (P.) Ltd., , the same
view had been reiterated. In Commissioner of Income Tax Vs. Diamond Dies Manufacturing Corporation Ltd., , the Karnataka High Court held
that, under the subsidy scheme, the amount made available did not have a nexus, direct or indirect, to meet a portion of the actual cost of any
specific capital asset and it could not, therefore, be brought within the purview of section 43(1) of the Act and the deduction of the subsidy, from
the actual cost of the asset, could not be done for purposes of allowing depreciation. In Commissioner of Income Tax Vs. Relish Foods, , the
Kerala High Court considered the scope of the subsidy scheme for setting up an industry in a backward area and laid down that it is really in the
nature of an incentive with nothing whatever to do with the cost of a particular asset and such deductible from the cost of the asset for the purpose
of allowing depreciation and development rebate or even for computation of relief u/s 80J of the Act. In Commissioner of Income Tax Vs. Elys
Plastics Pvt. Ltd., , the Bombay High Court held that u/s 43(1) of the Act, ""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 person or authority and the subsidy under the Central
Government Subsidy Scheme worked by the State of Gujarat was given as incentive and though the quantum of subsidy is calculated on the basis
of fixed capital investment of the company in land, building, plant and machinery, etc., that does not lead to the conclusion that the subsidy is to
meet the cost of land, building, plant or machinery and there is nothing in the scheme requiring its utilisation towards meeting the cost of land,
building, plant or machinery and that section 43(1) of the Act does not stand attracted to such a subsidy. In Commissioner of Income Tax Vs.
Dewas Synthetics (P.) Ltd., , the Calcutta High Court, considering the Subsidy Scheme of 1971, held that the subsidy was given after the units
started operation and it cannot be said that the subsidy must be reduced from the capital asset for the purpose of granting depreciation,
development rebate and investment allowance and relief u/s 80J of the Act and held that, under the subsidy scheme of the Central Government
implemented by the State Government, the subsidy did not form part of the actual cost of plant and machinery and cannot be deducted from the
cost of assets in computing depreciation, development rebate and investment allowance. We thus find that the majority of the High Courts have
taken the view that the subsidy made available under the scheme cannot be deducted in arriving at the cost of the capital asset for purposes of
working out depreciation. However, in Commissioner of Income Tax Vs. Jindal Brothers Rice Mills, relied on by learned counsel for the Revenue,
the Punjab and Haryana High Court has taken a contrary view with reference to the scope of the Central Government Subsidy Scheme
implemented by the State of Punjab and the grant of subsidy thereunder. After referring to the provisions of the subsidy scheme and section 43(1)
of the Act and also the decisions referred to earlier taking a contrary view, it had been stated that, on a deeper consideration, the learned judges
were unable to subscribe to the view taken in those decisions. The only basis we are able to find for the view so expressed is the fixation of the
subsidy at 15% of the cost of plant, machinery and building and that would indicate, according to the learned judges, that the object was to reduce
the cost of plant, machinery and building by 15% of the actual cost. We are, with respect, unable to agree with this line of reasoning. The learned
judges accepted that, in order to evolve a uniform method avoiding discrimination, the subsidy provided was arrived at at a percentage of the value
of the plant, machinery and building. When the method of arriving at the quantum of subsidy is accepted as a fixed percentage of the totality of the
cost of the plant, machinery and building, we find it difficult to accept that the underlying object of the scheme was to reduce the value of each one
of the component items, for the purpose of quantifying the subsidy by 15% of the actual cost. The circumstance that there is no indication in the
scheme that the subsidy is granted for a particular purpose, thus enabling the recipient to expend the subsidy received on anything, had been
brushed aside by merely stating that they were not in agreement. Further, it is seen that it had been erroneously assumed that the subsidy is given
for each item separately and, therefore, it would not be open to the assessee to appropriate the subsidy for a purpose other than that for which it
was given to him. From the provisions of the subsidy scheme as found in the reports, we are unable to find anything in support of the view taken
that the subsidy had been given for each item separately and it was not open to the assessee to appropriate the subsidy for a purpose other than
that for which it was given. It had also been stated that there is a nexus between the cost of each item and the subsidy under each head. We are
unable to discern any nexus between the cost of each item and the subsidy under each head from the provisions of the scheme, especially when the
subsidy fixation is on the basis of a percentage on the totality of the value of the fixed capital investment. We are unable, therefore, with respect, to
subscribe to the view taken in Commissioner of Income Tax Vs. Jindal Brothers Rice Mills,
That leaves for consideration the decision in Cyril Lord Carpets Ltd. v. Schofield [1966] 42 TC 637, relied on by learned counsel for the
Revenue. The assessee-company therein received grants from the Government of Northern Ireland under the Capital Grants to Industry Acts
(Northern Ireland) in respect of the capital expenditure on plant or machinery which had already been incurred and paid by the company. The
assessee, in the course of the assessment proceedings, s took up the stand that reimbursement by a discretionary grant would not amount to
meeting the expenditure of the assessee directly or indirectly and the Crown countered it by contending that the expression ""met directly or
indirectly"" includes reimbursement. The Court of Appeal upheld the stand of the Crown holding that to reimburse was to meet the expenditure
indirectly and that though the expression ""directly or indirectly"" was intended to have an enlarging effect, the case did not require such enlargement,
as the expenditure incurred was paid off or met by the grants, either directly or indirectly. We are of the view that on the provisions in the subsidy
scheme, it is difficult to import the idea of reimbursement to justify the reduction of the amount of subsidy received by assessees from the cost of
the capital assets for the purpose of working out depreciation. Thus, on a careful consideration of the provisions of the subsidy scheme, its purpose
and object and the character of the subsidy, we hold that the amount of subsidy made available cannot be deducted from the cost of the capital
asset for purposes of working out depreciation u/s 43(1) of the Act.
We may now proceed to consider the second and the third questions referred in T. C. Nos. 764 to 767 of 1981. We find from the order of the
Tribunal that the assessee had taken up the stand that the subsidy was not in the nature of an outright grant and that it should be taken into account
only for the assessment year 1977-78 and not the earlier years with a view to establish that the subsidy will not fall u/s 43(1) of the Act. We have
earlier held, on a consideration of the provisions in the subsidy scheme, the relevant provisions of the Act and the decisions rendered, that the cost
of the capital assets cannot be reduced by the amount of subsidy received and section 43(1) of the Act would be inapplicable. In view of that, it is
unnecessary, in our view, to consider the second and the third questions in T. C. Nos. 764 to 767 of 1981.
We, therefore, answer the questions referred to us as under : In T. C. Nos. 764 to 767 of 1981, the first question is answered in the negative
and against the Revenue and the reference in so far as questions Nos. 2 and 3 are concerned, is returned unanswered. The only question referred
in T. C. Nos. 900 and 901 of 1982 is answered in the affirmative and against the Revenue. The questions referred in T. C. Nos. 122 and 1136 of
1984 are answered in the affirmative and against the Revenue. There will be, however, no order as to costs in all these tax cases.