1999 (12) TMI 869

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....he amount of Central and State subsidy received by the assessee should not be reduced from the cost of the assets for the purpose of allowing depreciation ? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in upholding the decision of the Commissioner of Income-tax (Appeals) deleting the commission and brokerage paid by the assessee to the indentors from the purview of disallowance envisaged under section 37(3A) of the Income-tax Act ?" The facts of the case are that the assessee is a limited company and was in receipt of Rs. 1,75,900 being Central and State subsidies. While framing the assessment order, the Assessing Officer considered a sum of Rs. 38,619 as the assessee's income u....

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....s Ltd. [1994] 210 ITR 830 (SC), wherein the apex court has held as follows (headnote) : "Where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the 'actual cost'. The expression 'actual cost' in section 43(1) of the Income-tax Act, 1961, needs to be interpreted liberally. Such a subsidy does not partake of the incidents which attract the conditions for its deductibility from 'actual cost'. The amount of subsidy is not to b....

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.... sales was not for sales promotion activities and the reference was not even called for. The Madhya Pradesh High Court in CIT v. Mohd. Ishaque Gulam [1998] 232 ITR 869, considered that the brokerage and commission paid for selling goods would not come within the mischief of the phrase "advertisement, publicity and sales promotion" as employed in section 37(3A). The expenditure contemplated under section 37(3B) which is to be disallowed under section 37(3A) for advertisement, publicity and sales promotion normally refers to expenditure which is incurred before the sale, so that sales may be increased. If the expenditure is incurred at the time of effecting sales or in connection therewith, then it is purely a selling expenditure. The commiss....