Actual cost includes installation and financing expenses directly tied to setting up plant for depreciation and rebate purposes.

The expression "actual cost" was construed in its commercial and accountancy sense because the Act did not define it. Expenditure directly incurred to bring the rayon factory and machinery into existence and into working condition, including installation expenses, survey and mortgage-related charges, construction wages and salaries, expediting rewards, and interest on deferred payment or borrowed capital used for setting up the plant, was treated as part of capital cost. The source of funds was held immaterial for depreciation purposes. On that basis, the disputed amount formed part of the actual cost of the assets, and depreciation and development rebate were available on it.

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Issues: Whether the sums of Rs. 24,25,000 incurred in connection with setting up the rayon factory formed part of the assessee's "actual cost" for purposes of depreciation and development rebate, and whether the assessee was therefore entitled to the claimed allowances on that amount.

Analysis: The expression "actual cost" was held to bear its commercial and accountancy meaning, since the Act did not define it. On that approach, expenditure directly connected with bringing the factory and machinery into existence and into working condition, including installation expenses, survey and mortgage-related charges, wages and salaries during construction, reward for expeditious installation, interest on deferred payment for machinery, and interest on borrowed capital used for setting up the plant, was treated as part of the capital cost. The fact that part of the funds came by way of loan did not reduce the actual cost, because source of funds was held immaterial for depreciation purposes. The contrary view excluding such items was rejected.

Conclusion: The entire disputed sum of Rs. 24,25,000 was part of the actual cost of the assets, and the assessee was entitled to depreciation and development rebate thereon.

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