Capital subsidy and depreciation: actual cost of fixed assets was not reduced by the subsidy under binding precedent.

Capital subsidy received by an assessee was held not to be deducted from the actual cost of fixed assets for depreciation purposes. The Madhya Pradesh High Court followed its binding precedent in CIT v. Bhandari Capacitors Private Ltd. and treated the subsidy as outside the cost base used for computing depreciation. The capital subsidy of Rs. 8,23,287 therefore remained excluded from any reduction in actual cost, and the reference was answered against the Revenue.

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Issues: Whether capital subsidy received by the assessee was liable to be deducted from the cost of the fixed assets while computing actual cost for depreciation purposes.

Analysis: The reference was under Section 256(1) of the Income-tax Act, 1961. The question turned on whether the subsidy formed part of the actual cost of the assets for depreciation. The matter was treated as covered by the binding decision of the same Court in CIT v. Bhandari Capacitors Private Ltd., and that precedent was followed.

Conclusion: The capital subsidy of Rs. 8,23,287 was not deductible from the cost of the fixed assets. The question was answered in the affirmative and against the Revenue.

Ratio Decidendi: Capital subsidy received by the assessee is not to be deducted from the actual cost of fixed assets for the purpose of computing depreciation where the governing precedent so holds.

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