Capital subsidy and depreciation: subsidy need not reduce actual cost of fixed assets unless the statute specifically requires it.

Capital subsidy received for acquiring fixed assets was held not to be deductible from the actual cost of those assets for depreciation under the Income-tax Act, 1961, unless the governing statutory scheme specifically requires such reduction. Applying binding precedent, the court affirmed that the subsidy did not reduce the asset base for computing admissible depreciation. The referred question was answered in the negative and against the Revenue, and the Tribunal was held correct in excluding no part of the subsidy from the actual cost of the fixed assets.

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Issues: Whether capital subsidy received by the assessee was required to be deducted from the actual cost of the fixed assets while computing depreciation under the Income-tax Act, 1961.

Analysis: The question was covered by binding precedent holding that capital subsidy did not form a deductible reduction from the actual cost of assets for depreciation purposes. Applying that principle, the subsidy could not be excluded from the asset cost for computing admissible depreciation.

Conclusion: The answer to the referred question was in the negative and against the Revenue. The Tribunal was in holding that the capital subsidy was not deductible in computing the actual cost of the assets for depreciation.

Ratio Decidendi: Capital subsidy received for acquiring fixed assets is not deductible from the actual cost of those assets for the purpose of computing depreciation unless the governing statutory scheme specifically requires such deduction.

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