1988 (7) TMI 113 - AT - Income Tax

Tribunal: Grant not taxable, subsidy doesn't reduce asset cost, car expenses disallowed in part

INCOME TAX OFFICER. Versus SYNTHETIC STONES.

INCOME TAX OFFICER. Versus SYNTHETIC STONES. - TTJ 032, 014, Issues:1. Taxability of cash assistance received as grant of export promotion.2. Treatment of subsidy amount while computing depreciation and deduction under s. 80J.3. Allowance of deduction under s. 80J without reducing the cost of assets by the subsidy amount.4. Order of deduction under s. 80HH before s. 35B and s. 80J.5. Disallowance on car expenses and depreciation on car.Detailed Analysis:1. The first issue pertains to the taxability of cash assistance received as a grant of export promotion. The Tribunal considered the nature of the cash compensatory support and held that it was not a revenue receipt taxable under s. 28(iv) but a capital receipt aimed at improving the capital base and export infrastructure of the assessee. Referring to past cases, the Tribunal concluded that such subsidies are of capital nature and not for compensating specific losses or expenditures. The Tribunal confirmed the CIT(A)'s decision based on the Jaipur Bench and a Special Bench ruling, thus holding that the cash assistance was not liable to tax.2. The next issue involves the treatment of subsidy amount while computing depreciation and deduction under s. 80J. The Tribunal cited a previous case and held that the subsidy should not be reduced from the cost of assets when calculating depreciation. The Tribunal confirmed the CIT(A)'s direction on this matter.3. Regarding the allowance of deduction under s. 80J without reducing the cost of assets by the subsidy amount, the Tribunal upheld the CIT(A)'s decision, noting that no distinguishing facts were presented to challenge the ruling. The Tribunal confirmed the CIT(A)'s stance based on consistency with a previous case.4. The Tribunal considered the order of deduction under s. 80HH before s. 35B and s. 80J. It clarified that specific deductions allowed under the Act should not be deducted from the gross income while allowing deduction under s. 80HH. The Tribunal upheld the CIT(A)'s decision on this issue as well.5. The final issue involved the restriction of disallowance on car expenses to 1/7th instead of 1/5th and allowing full depreciation on the car. The CIT(A) followed a Tribunal order in a similar case and the Tribunal found no fault in this decision. Therefore, the Tribunal confirmed the CIT(A)'s ruling on this issue. Ultimately, the appeal of the Revenue was dismissed based on the Tribunal's analysis and confirmation of the CIT(A)'s decisions on all the issues raised.