Industrial subsidy not deductible from actual cost; debatable tax issue bars rectification under section 154

A subsidy granted to induce industrial development in a backward area was treated as an incentive and not as a payment meeting part of the actual cost of fixed assets. On that basis, it was not required to be deducted while computing actual cost under section 43(1) of the Income-tax Act for depreciation and development rebate purposes. The issue was also regarded as debatable in light of settled judicial position, so it did not amount to an error apparent on the record. Rectification under section 154 on this point was therefore not sustainable, and the position was favourable to the assessee.

---

---

Issues: Whether subsidy granted to induce establishment of industry in a backward area was required to be deducted from the actual cost of fixed assets under section 43(1) of the Income-tax Act, 1961, and whether the point was so debatable that rectification under section 154 could not be invoked.

Analysis: The subsidy was intended as an incentive for setting up industry in a backward area and was not a payment to meet part of the actual cost of the fixed assets. In view of the settled judicial position, the question whether such subsidy should be deducted while computing actual cost was a debatable one and did not amount to an error apparent on the record. The amount of subsidy, therefore, could not be excluded from the actual cost for depreciation and development rebate purposes.

Conclusion: The subsidy was not liable to be deducted from the actual cost under section 43(1), and action under section 154 to rectify the computation could not be sustained. The answer was against the Revenue and in favour of the assessee.

---