1994 (7) TMI 51

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....re common in both the years : " 1. Whether the Tribunal was right in holding that till the period of five years from the date of grant of the subsidy is not completed its nature is that of a loan from the Government ? 2. Whether the Tribunal was right in coming to the conclusion that deduction under section 80J on the subsidy amount would not be available as the said amount was not the assessee's own capital contribution ? " The brief facts of the case are that the Income-tax Officer deducted the amount of subsidy for the purpose of granting various deductions on account of depreciation, investment allowance and deduction under section 80J. According to the Income-tax Appellate Tribunal, the grant of subsidy to an undertaking was s....

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....Union of India [1985] 152 ITR 308 that borrowed money and debts due cannot be included in the capital employed. Rule 19A has contemplated exclusion of borrowed monies and debts due. This court in CIT v. Ambica Electrolytic Capacitors Pvt. Ltd. [1991] 191 ITR 494 has held that the subsidy or investment subsidy given by the Government which is for development of industries in selected backward districts/areas cannot be deducted from the actual cost for giving the benefit of depreciation or investment allowance. It was further observed that, as a matter of fact, the subsidy is a grant for encouraging entrepreneurs to come forward and develop the backward areas. As such, it cannot be deducted from the cost of the assets to the assessee for deny....

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....d under sections 28 to 43A. Explanation 3.--In this clause and in clause (V), 'written down value' has the same meaning as in clause (6) of section 43." The Explanation to clause (11) makes it clear that actual cost has the same meaning as has been given in clause (1) of section 43. From the judgment given above by this court, it is clear that the subsidy granted is an incentive for setting up of industries in backward areas and, it was with a view to attract entrepreneurs to set up industries in backward areas, so that those areas may be developed. The basis for grant of subsidy was the cost of the fixed assets of the new unit and it was to encourage the entrepreneurs. The subsidy was not with reference to a particular asset and beyo....