Sales tax subsidy, section 10B allocation, computer depreciation, and loan processing charges were all treated in favour of the assessee.

Sales tax subsidy granted to promote industrial development in backward areas was treated as capital in nature but not as payment towards asset cost, so it did not reduce the actual cost or written down value for depreciation purposes. Deduction under section 10B was not cut down on the Assessing Officer's expense allocation because the assessee maintained separate books, audited accounts, distinct assets, and unit-wise allocation that was found more appropriate. Computer accessories and peripherals were held eligible for 60% depreciation as part of the computer system. Loan processing charges were held to be revenue expenditure because they were incurred to obtain business finance and did not create an enduring asset or advantage.

---

---

Issues: (i) Whether sales tax subsidy was capital in nature and could be reduced from the written down value of assets for depreciation purposes; (ii) whether the deduction under section 10B could be reduced on the basis of the Assessing Officer's allocation of expenses between EOU and non-EOU units; (iii) whether depreciation at 60% was allowable on computer accessories and peripherals; and (iv) whether loan processing charges were capital expenditure.

Issue (i): Whether sales tax subsidy was capital in nature and could be reduced from the written down value of assets for depreciation purposes.

Analysis: The subsidy was held to be an incentive for setting up industries in backward areas and not a payment made to meet the cost of any asset. The basis of quantification by reference to fixed capital investment did not change its character. The principle that such subsidy does not form part of the actual cost for section 43(1) purposes was applied.

Conclusion: The subsidy remained capital in nature and was not liable to be reduced from the written down value of assets. The issue was decided against the Revenue and in favour of the assessee.

Issue (ii): Whether the deduction under section 10B could be reduced on the basis of the Assessing Officer's allocation of expenses between EOU and non-EOU units.

Analysis: Separate books, separate audited accounts, distinct assets, differing manufacturing processes, and unit-wise expense allocation supported the assessee's computation. The profit level of the EOU unit was not found materially inconsistent with the earlier year, and the allocation of senior management salary adopted by the assessee was accepted as more appropriate than turnover-based apportionment.

Conclusion: The reduction of deduction under section 10B was not justified. The issue was decided in favour of the assessee.

Issue (iii): Whether depreciation at 60% was allowable on computer accessories and peripherals.

Analysis: Computer accessories and peripherals were treated as forming an integral part of the computer system and therefore eligible for the same higher rate of depreciation as computers.

Conclusion: Depreciation at 60% was allowable. The issue was decided in favour of the assessee.

Issue (iv): Whether loan processing charges were capital expenditure.

Analysis: The expenditure was incurred for obtaining a business loan and did not create an asset or an enduring advantage. The nature of the loan and its business use did not alter the character of the processing charges as revenue expenditure.

Conclusion: Loan processing charges were revenue in nature and not capital expenditure. The issue was decided in favour of the assessee.

Final Conclusion: All revenue appeals were rejected, and the relief granted to the assessee by the first appellate authority was sustained on all substantive issues.

Ratio Decidendi: A subsidy intended to promote industrial development in backward areas does not reduce the actual cost of assets for depreciation purposes, and expenditure incurred for obtaining a business loan is revenue expenditure where it does not bring into existence an enduring asset or advantage.

---