Diversion of income at source and machinery subsidy treatment govern tax computation under settled court authority.

Contributions to the Molasses Storage Fund were treated as diversion of income at source, so they were not assessable as the assessee's income. The subsidy issue was also governed by earlier authority: where the subsidy was not intended to reduce the cost of machinery, it was not deducted from actual cost for computing depreciation or investment allowance. The document applies those settled principles to both questions and records that the reference was answered in favour of the assessee.

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Issues: (i) Whether the contributions made to the Molasses Storage Fund were liable to be treated as income of the assessee or constituted diversion of income at source. (ii) Whether the subsidy received by the assessee was required to be deducted from the cost of machinery while computing depreciation and investment allowance.

Issue (i): Whether the contributions made to the Molasses Storage Fund were liable to be treated as income of the assessee or constituted diversion of income at source.

Analysis: The first question was governed by an earlier decision of the Court on identical facts, where such contributions were held to amount to diversion of income at source and therefore not assessable as income of the assessee.

Conclusion: The issue was answered in favour of the assessee.

Issue (ii): Whether the subsidy received by the assessee was required to be deducted from the cost of machinery while computing depreciation and investment allowance.

Analysis: The second question also stood covered by an earlier decision of the Court, which held that the subsidy was not to be deducted from the machinery cost for the purpose of depreciation and investment allowance.

Conclusion: The issue was answered in favour of the assessee.

Final Conclusion: Both referred questions were answered for the assessee, and the reference was disposed of accordingly.

Ratio Decidendi: Amounts diverted at source are not assessable as income of the assessee, and a subsidy not intended to reduce the cost of machinery does not go to reduce the actual cost for depreciation and investment allowance purposes.

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