1995 (5) TMI 23

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....on. We may refer to only one question in Income-tax Reference No. 1 of 1991. The said question is : " Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that cash subsidies received by the assessee are not to be deducted from the cost of machinery and plant and building under section 43(1) of the Income tax Act, 1961, for determining their actual cost for the purposes of depreciation under section 32 of the Act ? " We may also refer to the facts of the case in the above reference (1 of 1991). The Assessing Officer in this case found that subsidy was received for the value of the capital assets, and the assessee did not reduce the said subsidy to work out depreciati....

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....) of the Act for the purposes of calculating the depreciation and investment allowance admissible to the assessee and relying upon the decision of the Andhra Pradesh High Court in CIT v. Godavari Plywoods Ltd. [1987] 168 ITR 632 held that as the cash subsidy was not granted for the specific purpose of meeting any portion of the fixed capital cost, machinery, etc., the amount of such subsidy was not deductible in computing the actual cost of the asset as defined in section 43(1) of the Act. In Godavari Plywoods' case [1987] 168 ITR 632 (AP), the High Court, while considering the Central Subsidy Scheme as well as the State Incentive Schemes for such subsidies, took a similar view. The same point was also considered by the Karnataka High Co....

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....IT v. Ruchira Papers Ltd. [1994] 208 ITR 601. It may be stated that only the Punjab and Haryana High Court has taken a contrary view in Ludhiana Central Co-operative Consumers' Stores Ltd.v.CIT [1980] 122 ITR9 42.We are unable to accept the view expressed by the Punjab and Haryana High Court and instead accept the view expressed by other High Courts for the reasons stated below. From the facts of the cases, we find that subsidy was granted to promote industries in backward areas by affording incentive to entrepre neurs to start industries in such areas. This subsidy is, however, refundable if the industry is not operated for five years. It appears from the record that this amount of subsidy can be used for any purpose connected with t....