Law: Income Tax Act, 1961

Section: 256(2)

Income-tax-----Reference---Depreciation---Investment allowance---Actual cost---Gas cylinder---Plant and machinery---Capital subsidy and pre-production expenses cannot be excluded from actual cost---No question of law arises--¬Indian Income Tax Act, 1961, S. 256(2). Held, dismissing the application, (i) that the Tribunal was right in holding that, the capital subsidy received by the assessee cannot be deducted from the cost of assets for the purpose of calculating depreciation and investment allowance. (ii) That the gas cylinders were part of the plant and machinery for commencement of production of gas for marketing. Therefore, pre ¬production expenses were to be included in the actual cost while calculating depreciation. No question of law arose for reference. Challapalli Sugars Ltd. v. CIT (1975) 98 ITR 167 (SC) and CIT v. Bhandari Capacitors (Pvt.) Ltd. (1987) 168 ITR 647 (MP) ref. JUDGMENT A. R. TIWARI, J.---The applicant (Commissioner of Income-tax, Bhopal) has filed this application under section 256(2) of the Income-tax Act, 1961 (for short, "the Act"), seeking direction to the Tribunal to state the case and refer the proposed questions of law, as extracted below, arising out of the order, dated June 28, 1991, passed by it in Income-tax Appeals, No.337/(Ind) of 1989 after rejection of its application under section 256(1) of the Act registered as Revision Application No.306/(Ind) of 1991 on December 12, 1991, for the assessment year 1985-86, for our opinion: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the capital subsidy received by the assessee is not deductible from the cost of assets for the purpose of depreciation and investment allowance when there is a nexus between the cost of the assets and the subsidy ? (2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified on holding that 100 per cent. depreciation on pre-production expenditure on gas cylinders adopted on pro rata basis is in order? (3) Whether the Income-tax Appellate Tribunal was, justified in canceling the order of the Commissioner of Income-tax when the assessment made by the…

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