Cash grants and actual cost under income tax law: Government funding reduces depreciation base where it meets asset acquisition cost.

A cash grant received from the Government and used to acquire capital assets was not a "gift" of an asset within Explanation 2 to Section 43(1) of the Income-tax Act, because money has no written down value in that statutory sense. The court also held that the expression "any other person or authority" in Section 43(1) is wide enough to include Government, so amounts met directly or indirectly by the grantor must be deducted in computing actual cost. The grant therefore reduced the actual cost of the assets for depreciation purposes.

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Issues: (i) Whether a grant of money received from the Government, and used to acquire capital assets, could be treated as a gift within Explanation 2 to Section 43(1) of the Income-tax Act, 1961 so as to leave the actual cost of the assets unreduced for depreciation purposes; (ii) Whether the Government of Uttar Pradesh fell within the expression "any other person or authority" in Section 43(1) of the Income-tax Act, 1961.

Issue (i): Whether a grant of money received from the Government, and used to acquire capital assets, could be treated as a gift within Explanation 2 to Section 43(1) of the Income-tax Act, 1961 so as to leave the actual cost of the assets unreduced for depreciation purposes.

Analysis: Explanation 2 applies to an asset acquired by way of gift or inheritance, where the actual cost is linked to the written down value or market value of the asset in the hands of the previous owner. That language contemplates a gifted asset capable of having a written down value under the Act. Money, being cash, does not have a written down value in the statutory sense and cannot be treated as an asset covered by that Explanation merely because it was given to finance acquisition of capital assets.

Conclusion: The grant of money was not covered by Explanation 2 to Section 43(1), and the assessee was not entitled to depreciation on the full cost on that basis.

Issue (ii): Whether the Government of Uttar Pradesh fell within the expression "any other person or authority" in Section 43(1) of the Income-tax Act, 1961.

Analysis: The expression "authority" is of wide amplitude and, in its ordinary legal sense, includes a body exercising power or command. Section 43(1) uses the wider expression "any other person or authority" without the restrictive language found in the old provision under the Indian Income-tax Act, 1922. On that construction, governmental bodies are not excluded from the scope of the term "authority" for purposes of reducing actual cost by amounts met directly or indirectly by such authority.

Conclusion: The Government of Uttar Pradesh was an "authority" within Section 43(1), and the grant had to be deducted in computing actual cost.

Final Conclusion: The reference was answered against the assessee on both questions, and the grant amount reduced the actual cost of the assets for depreciation purposes.

Ratio Decidendi: For Section 43(1) of the Income-tax Act, 1961, a cash grant used to acquire assets is not a gift of an asset under Explanation 2, and the word "authority" includes Government when computing actual cost.

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