Investment subsidy under section 43(1) does not reduce actual cost absent a direct nexus with a specific depreciable asset.

Investment subsidy received from SIPCOT under the Central investment subsidy scheme did not reduce the actual cost of depreciable assets under section 43(1) because the incentive was intended to promote industrialisation, was linked to fixed capital investment as a whole, and was not earmarked for any specific plant or machinery. The statutory requirement that any payment be met directly or indirectly against the cost of the asset demands a real nexus with the particular depreciable asset claimed. A lump sum subsidy granted after the industrial unit was set up and put into production, without proof that it funded an identified asset, cannot be treated as reducing actual cost for depreciation purposes.

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Issues: Whether the investment subsidy received from SIPCOT under the Central investment subsidy scheme reduced the "actual cost" of the depreciable assets within section 43(1) of the Income-tax Act, 1961, so as to curtail depreciation.

Analysis: The subsidy was granted as an incentive to promote industrialisation in backward areas and was measured with reference to fixed capital investment as a whole. The scheme did not earmark the subsidy for any particular depreciable asset, did not require its utilisation towards purchase of plant or machinery, and permitted use for the industrial unit generally. The statutory expression "met directly or indirectly" requires a real nexus between the payment and the cost of the specific asset claimed to be depreciated. A lump sum incentive paid after the unit was set up and put into production, without proof that it satisfied the cost of any identified asset, could not be treated as having reduced that asset's actual cost.

Conclusion: The subsidy did not reduce the actual cost of the assets under section 43(1), and depreciation could not be computed on a reduced cost basis.

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