1988 (6) TMI 46

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....t the subsidy of Rs. 3,30,600 received from the Central Government for setting up industries in backward areas cannot be allocated towards any particular asset or assets and the assessee is entitled to depreciation on the cost of assets as claimed by it?" The brief facts of the case are as follows: During the previous year relevant to the assessment year 1977-78, the assessee received a subsidy of Rs. 3,30,600 from the Central Government for setting up an industrial unit in a backward area. The Incometax Officer allocated the subsidy between land, building, electrical installations and plant and machinery holding that since it went to reduce the cost of the assets in terms of section 43(1) of the Act, he reduced the written down value....

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....n eligible industrial unit is 15% of the fixed capital investment made on or after March 1, 1973, or Rs. 15,00,000, whichever is less. The main contention of Sri K. Srinivasan, learned counsel for the Revenue, is based on the interpretation of the expression " actual cost " occurring in section 43(1) of the Act, which means " the actual cost of the assets to the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority." (Emphasis added). It is urged that the central subsidy for acquisition of the capital assets goes to reduce the actual cost thereof. On the contrary, it is urged by Sri Sarangan, learned counsel for the assessee, that the actual cost of the asset....

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.... or for erection of buildings or for working capital or for repaying the loans already borrowed. Hence, unless the subsidy received has a nexus, direct or indirect, with meeting a portion of the actual cost of any specific capital asset, it cannot be brought within the purview of section 43(1) of the Act. In CIT v. Godavari Plywoods Ltd. [1987] 168 ITR 632, the Andhra Pradesh High Court has held that there is no provision in the central subsidy scheme to show that entrepreneurs are granted subsidy for the specific purpose of meeting a portion of the cost of the unit. Under the scheme, the cash subsidy is quantified by determining the same at specified percentage of the fixed capital cost. The specified percentage of the fixed capital cos....