1991 (12) TMI 30 - HC - Income Tax

Court rules subsidy not deductible for asset value; subsidy is industrial incentive, not asset cost contribution.

The court ruled in favor of the assessee, holding that the subsidy received should not be deducted from the asset value for depreciation and investment ... Depreciation, Investment Allowance Issues:Interpretation of whether subsidy received by assessee should be deducted from asset value for depreciation and investment allowance calculation.Analysis:The case involved a dispute regarding the treatment of subsidy received by an assessee company in relation to the calculation of depreciation and investment allowance. The Assessing Officer had reduced the subsidy amount from the cost of fixed assets for depreciation calculation. However, the Commissioner of Income-tax (Appeals) accepted the assessee's contention that the subsidy should not be deducted while computing the actual cost of plant and machinery. The Revenue appealed this decision, arguing that the subsidy should be considered as a contribution towards the actual cost of assets. The Tribunal upheld the decision of the Commissioner of Income-tax (Appeals) based on the nature of the subsidy and its purpose.The key argument put forth by the Revenue was based on the interpretation of section 43 of the Income-tax Act, which defines 'actual cost' as the cost of assets reduced by any portion met by another person or authority. The Revenue contended that since the subsidy was quantified at ten per cent of fixed assets, it should be considered as a contribution towards the cost. On the other hand, the assessee's counsel argued that the subsidy was not specifically granted to meet a portion of the asset cost but was an incentive for setting up industrial units in backward areas.The court examined the State Investment Subsidy Scheme under which the subsidy was granted. The scheme aimed to provide capital investment subsidy to increase the equity base of projects and make entrepreneurs viable to implement projects in a shorter period. It was observed that the subsidy was not intended to meet a part of the asset cost but to augment the capital resources of the industry. The court emphasized that unless the subsidy is granted for a specific purpose of meeting a part of the asset cost, it should not be deducted from the actual cost for depreciation calculation.The court further analyzed the nature of the subsidy and its utilization, concluding that the subsidy was not paid to meet the cost of any asset but as an incentive for industrial development. It was noted that the subsidy was a measure to determine the amount granted and was not restricted in its utilization. Therefore, the court held that the subsidy should not be deducted from the asset value for depreciation and investment allowance calculation. The judgment favored the assessee, ruling against the Revenue's appeal.