Industrial subsidy and actual cost: subsidy received after asset purchase was not deducted for depreciation under tax law.

Industrial promotion subsidy received after acquisition of assets was not required to be reduced from the actual cost or written down value of building, plant and machinery for depreciation purposes. Interpreting "actual cost" under section 43(1) of the Income-tax Act, 1961, the Court held that such subsidy did not bear the character that justifies deduction from actual cost, and the expression was to be construed liberally in the taxing context. The earlier contrary view was treated as having been overruled by the Supreme Court, and depreciation was therefore allowable without reducing the subsidy from the asset base.

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Issues: Whether the Central subsidy received by the assessee was liable to be deducted from the actual cost or written down value of the assets for the purpose of depreciation under the Income-tax Act, 1961.

Analysis: The controversy turned on the meaning of "actual cost" under section 43(1) of the Income-tax Act, 1961. It was held that a subsidy of the kind received for industrial promotion, granted after purchase of the assets, does not have the character that requires it to be deducted from the actual cost of the assets for depreciation purposes. The earlier contrary view was treated as having been overruled by the Supreme Court, and the expression "actual cost" was to be construed liberally in the taxing context.

Conclusion: The subsidy was not deductible from the actual cost or written down value of the building, plant and machinery for depreciation. The question was answered in the affirmative and in favour of the assessee.

Ratio Decidendi: A subsidy of the nature received for industrial promotion, where it does not bear the incidents that justify reduction from actual cost, is not to be deducted from the actual cost under section 43(1) of the Income-tax Act, 1961 for computing depreciation.

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