Law: Income Tax Act, 1961

Section: 32,43

Income-tax-----Subsidy---Actual cost---Depreciation---Central subsidy received by assessee---Is not a payment directly or indirectly to meet any portion of "actual cost" but intended as an incentive to entrepreneurs---Not to be deducted from "actual cost" for calculating depreciation---Indian Income Tax Act, 1961, Ss.32 & 43(1). The Central subsidy received by the assessee is not a payment, directly or indirectly, to meet any portion of the "actual cost" but intended as an incentive to the entrepreneurs. The fact that its quantification is determined as a percentage of the fixed capital cost does not change the nature and character of the subsidy. The amount of Central subsidy, therefore, cannot be deducted from the actual cost for calculating depreciation. CIT v. P. J. Chemicals Ltd. (1994) 210 ITR 830 (SC) fol. CIT v. Bhandari Capacitors (Pvt.) Ltd. (1987) 168 ITR 647 (MP); CIT v. Diamond Dies Mfg. Corporation Ltd. (1988) 172 ITR 655 (Kar.); CIT v. Elys Plastics (Pvt.) Ltd. (1991) 188 ITR 11 (Bom.); CIT v. Godavari Plywoods Limited (1987) 168 ITR 632 (AP); CIT v. Jindal Bros. Rice Mills (1989) 179 ITR 470 (P&H); CIT v. Premier Extraction (P.) Ltd. (1989) 175 ITR 22 (MP); CIT v. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297 (SC); Sahney Steel and Press Works Ltd. v. CIT (1997) 228 ITR 253 (SC) and Seaham Harbour Dock Co. v. Crook (1931) 16 TC 333 (HL) ref. JUDGMENT DR. B. P. SARAF, J.---By this reference under section 256(1) of the Income Tax Act, 1961, the Income-tax Appellate Tribunal has referred the following question of law to this Court for opinion at the instance of the Revenue: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal is right in .law in upholding the decision of the Commissioner of Income-tax (Appeals) that the amount of Central subsidy received by the assessee should not be reduced from the cost of the assets for the purpose of allowing depreciation? The material facts of the case-are as under: The assessee is a registered firm. During the previous years relevant to the assessment years 1985-86 and 1986-87, the assessee received Central subsidy. The Assessing Officer reduced the cost of the…

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