TaxTMI 
TaxTMI 
2015 (10) TMI 1282
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....d circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that for the purpose of calculating deduction u/s 80HHC of the Act, gross interest income without reducing therefrom the interest expenditure, is required to be excluded?" 3. The assessment year is 2000-2001 and the relevant accounting period is the previous year 1999-2000. The assessee is a public limited company engaged in the business of manufacturing of radiators, gaskets and compressed fiber jointing sheets (CFJS). The assessee had got a subsidy of Rs. 25,00,000/- (rupees twenty five lakhs) from the Commissioner of Industries, Gandhinagar for the investment made in building, plant and machinery and electrification in its industrial unit at Ankhi, District Baroda for production of compressed fiber jointing sheets. The subsidy was sanctioned on 17.8.1989 for investment in the capital assets but was received only in the year under consideration. The Assessing Officer was of the view that the subsidy having been given against investments in fixed capital assets, in view of the provisions of Explanation 10 to section 43(1) of the Act, the proportionate cost of the assets is required to be r....
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....iance upon the decision of the Kerala High Court in the case of Commissioner of Income Tax, Cochin v. Sun Fibre Optics Pvt, Ltd., (2012) 207 TAXMAN 8 (Kerala), wherein it has been held that Explanation 10 to sub-section (1) of section 43 introduced with effect from 1.4.1999 is prospective in nature and is applicable to depreciable assets after 1.4.1999. In the facts of the said case, since the subsidies had been received prior to 31.3.1998, the court held that Explanation 10 to sub-section (1) of section 43 was not applicable. 4.2 Reliance was also placed upon the decision of the Supreme Court in the case of Commissioner of Income Tax v. Tata Iron and Steel Company Ltd., 1998 (231) ITR 285, wherein it was held that what is the actual cost must depend on the amount paid by the assessee to acquire the asset. The amount may have been borrowed by the assessee. But even if the assessee does not repay the loan it will not alter the cost of the asset. Even if an asset is purchased from non-repayable subsidy received from the Government, the cost of the asset will be the price paid by the assessee for acquiring the asset. The court held that the price cannot change by any event subsequent....
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....the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant of reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. The proviso to Explanation 10 says that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant of reimbursement is so received, shall not be included in the actual cost of the asset to the assessee. 7. Sub-section (6) of section 43 of the Act which defines "written down value", and to the extent the same is relevant for the present purpose, reads thus: "(6) "written-down value" means- (a) in the case of assets acquired in the previous year, the actual cost to the assessee; (b) in the cas....
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....ting depreciation or restricting the claim thereof. The subsidy of Rs. 25,00,000/- in relation to the assets in question came to be released in the year under consideration, by which time Explanation 10 to section 43(1) came to be inserted in the statute book, and accordingly, the Assessing Officer held that the cost of assets is required to be reduced out of the written down value of their respective blocks to the extent of Rs. 25,00,000/-. 9. At this juncture, it may be noted that the expression "actual cost" envisages the actual cost of asset as reduced by any amount received directly or indirectly from any person or authority and Explanation 10 to section 43 (1) of the Act, clearly provides that where a portion of the cost of an asset acquired by the assessee had been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any person, in the form of a subsidy, then, so much of the cost as is relatable to such subsidy, shall not be included in the actual cost of the asset to the assessee. A plain reading of section 43 (1) of the Act, shows that, ordinarily, when any subsidy is received qua an asset, it would no....
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....ck of assets by the amount of subsidy received in relation to some of the assets forming part of the block of assets. Consequently, the costs of assets cannot be reduced out of the written down value of their respective blocks to the extent of Rs. 25,00,000/- as the statute does not envisage any manner of doing so. When the Assessing Officer reduces the cost of assets out of the written down value of the block of assets, he is reducing not only the cost of assets in relation to which the subsidy is granted, but the cost of all assets forming part of the block, irrespective of whether any subsidy was granted in respect of such assets. Under the circumstances, when the statute does not contemplate computation of actual cost of asset after it becomes part of a block of assets, Explanation 10 to subsection (1) of section 43 of the Act cannot be made applicable to assets of which the actual cost has been determined much before the insertion thereof and which also form part of a block of assets. Therefore, when it is not possible to apply Explanation 10 of section 43(1) of the Act, in relation to an asset which has entered into the block much before the insertion thereof, it must be rega....
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....ome Tax Department. The Assessing Officer was of the view that the assessee had surplus funds which it had parked with the bank and had also made excess payment of income tax with the intention of earning interest. Placing reliance on various decisions of the Supreme Court as referred to in the assessment order, the Assessing Officer held that interest income cannot be considered as income from business and that no netting is possible as the interest paid is for the purpose of business whereas the interest earned by the assessee on deposits with banks, excess payment of income tax etc. from income from other sources. He, accordingly, held that 90% of such interest is required to be reduced from the profits of business as per Explanation (baa) to sub-section (4B) of section 80HHC of the Act. 13. In this regard, the learned senior counsel for the appellant has dawn the attention of the court to the decision of the Supreme Court in the case of ACG Associated Capsules Pvt. Ltd. v. Commissioner of Income Tax, 2012 (343) ITR 89 wherein it has been held thus : "9. Explanation (baa) extracted above states that "profits of the business" means the profits of the business as computed under....
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....C. 11. For this interpretation of Explanation (baa) to Section 80HHC of the Act, we rely on the judgment of the Constitution Bench of this Court in Distributors (Baroda) P. Ltd. v. Union of India and Others (supra). Section 80M of the Act provided for deduction in respect of certain intercorporate dividends and it provided in sub-section (1) of Section 80M that "where the gross total income of an assessee being a company includes any income by way of dividends received by it from a domestic company, there shall, in accordance with and subject to the provisions of this Section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends an amount equal to" a certain percentage of the income mentioned in this Section. The Constitution Bench held that the Court must construe Section 80M on its own language and arrive at its true interpretation according to the plain natural meaning of the words used by the legislature and so construed the words "such income by way of dividends" in sub-section (1) of Section 80M must be referable not only to the category of income included in the gross total income but also to the quantum of the income....