TaxTMI 
TaxTMI 
2022 (4) TMI 809
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....tc. are stated as follows: Sl.No. Assessment Year and Date of Assessment order Order of Commissioner of Income Tax (Appeals) Order of Income Tax Appellate Tribunal ITA No. 1 2008-2009; dtd 15.12.2010 Appeal No. ITA 97/R-1/E/CIT(A)II/2010-11; dtd 30.03.2014 I.TA. No. 354/Coch/2014; dtd 19.04.2018 I.T.A No.62/2018 2 2009-2010; dtd 17.11.2011 Appeal No. ITA 82/R-1/E/CIT(A)II/2011-12; dtd 30.03.2014 ITA No. 338/Coch/2014; dtd 19.04.2018 I.T.A No.65/2018 4. The common circumstances in both the appeals are stated thus: The assessee, a wholly-owned subsidiary company of Kinfra (a statutory body constituted by the Government of Kerala) has established and operated an industrial park at Kakkanad, Kochi. The Government of India for the augmentation of infrastructure/facilities in Export Promotion Industrial Parks provided assistance to states under a scheme known as 'Assistance to States for Developing Export Infrastructure and other Allied Activities' (for short, 'ASIDE'). The Government of India under ASIDE, sanctioned and transferred financial assistance through the State Government to the assessee for developing infrastructure at Industr....
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.... Sl.No. Assessment year Depreciation Disallowance of 1 2008-2009 Rs. 48,04,760/- 2 2009-2010 Rs. 12,65,118/- 4.2 The Assessing Officer, for the assessment year 2009-10 reduced the subsidy amounting to Rs. 13,75,00,885/- received between 1996 and 2000 from the gross value of capital assets of the assessee amounting to Rs. 15,44,93,432/-. Thus the Gross Value after reducing subsidy contribution has been arrived at Rs. 1,69,92,547/- and depreciation of Rs. 12,65,118 has been allowed and the depreciation claimed by the assessee was rejected. Substantially, the dispute between the assessee and the Revenue centres around Section 43(1) r/w Explanation and proviso of the Act. Appeals filed by the assessee for the above assessment years before the Commissioner of Income Tax (for short, 'the CIT(A)') and the Income Tax Appellate Tribunal (for short, 'the Tribunal') were dismissed. Hence the appeals. 5. A common substantial question is raised in both the appeals as follows: "Whether by virtue of Explanation-10 and/or proviso to Explanation 10 to Section 43(1) introduced with effect from 1.4.1999, a subsidy or grant received before the reference to spec....
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....ucture and other allied activities (ASIDE) during the Financial Year 2006-07 is to be reduced from the value of cost of assets in Assessment Year 2009-10? 5) Whether on the facts and in the circumstances of the case, Appellate Tribunal was right in confirming that the grant of Rs. 10,00,00,000/ received by the Appellant from the Government of India under the Scheme "Centrally Sponsored Schemes for Export Promotion Industrial Park (EMP) during the Financial Years 1996 to 2000 is to be reduced from the value of cost of assets in Assessment Year 2009-10?" 6. Senior Adv. Joseph Markose lays emphasis on the circumstances surrounding the assistance under ASIDE Scheme to bring home the nature of grant as general, received by the Assessee from State and Central Governments. One of the objectives of the financial assistance under ASIDE is to establish infrastructure/facilities in industrial estates exclusively meant for catering to the needs of export-oriented industries. One of the ways to boost foreign trade was to put in place developed infrastructure so that individual units are established and operated. Therefore, under this scheme, the discretion is given to the operator o....
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....ining the reasons for insertion of explanation 10 in Finance (No.2) Bill, 1998 does not state that the instant amendment made is to overcome the effect of the ratio laid down or interpretation adopted by the Supreme Court in P J Chemicals case. The memorandum in Finance (No.2) Bill, 1998 concerning Explanation 10 reads thus: "The proposed Explanation 10 provides that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or State Government or any Authority established under any Law or by any other person, in the form of subsidy or grant or reimbursement, then in a case where the subsidy is directly relatable to the asset, such subsidy shall not be included in the actual cost of the asset. In a case where such subsidy or grant or reimbursement is of such a nature that it cannot be directly relatable to any particular asset, the amount so received shall be apportioned in a manner that such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement is so received and such subsidy shall not be included in the actual cost of the asset. These amendm....
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....ent argument is that explanation 10 per se has not altered on the working of the actual cost of an asset. On the other hand, the proviso excludes or restricts the operation of the Section for which the proviso is added. The proviso is not an independent section in the structure of Section 43(1) of the Act and ought not to be relied on for independently for determining the actual cost of asset. 8.4 In Union of India v. VKC Footsteps (India) (P) Ltd (2022) 2 SCC 603, the Supreme Court has explained the different ways, a proviso is applied and laid down that a proviso is construed in relation to the subject matter of the statutory provision to which it is appended. The argument made with considerable force is that in the case on hand, the proviso cannot be considered as an independent provision to the general subsidy given without relation to the acquisition of an asset. According to the Senior Advocate, the proviso to Explanation 10 is attracted in cases where the subsidy is not directly relatable to a particular asset, but the incentive is given for many assets. Post PJ Chemicals case and the amendment to Section 43(1) Explanation 10 and proviso, the Bombay High Court in CIT vs. ....
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....d 15/12/2010 for A.Y 2008-09 Subsidy Gross Value after subsidy 1 Buildings 7083823 5148281 636232 2 Furniture 1220865 1119532 138353 3 Plant & Machinery 83367987 131158137 16208702 4 Computer 84195 74935 9260 Total 91756870 137500885 16992547 9.1. The incentive received prior to 01.04.1999 is adjusted in the financial year 2008-09. The view taken by this Court in CIT vs Sun Fiber Optics (MANU/KE/2157/2011) and Gujarat High Court in Banco Products vs DCIT (2015) 379 ITR 1) laid down that Explanation 10 introduced with effect from 01.04.1999 applies prospectively. Therefore, any assistance received as subsidy/grant prior to 01.04.1999 cannot be adjusted in the assessment year 2009-10 for arriving at the actual cost of the asset and the depreciation is calculated on such reduced written down value or the asset. At any rate, the subsidy of Rs. 8,49,00,000/- received before 01.04.1999 cannot be adjusted in the assessment year 2009-10. He argues that, reliance on Saharanpur Electric Supply vs CIT (1992 194 ITR 296) to contend that the Assessing Officer has jurisdiction to redetermine the actual ....
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....of an ambiguity in the expression of the amendment, SOR is taken as aid or assistance for understanding the purpose and explicit words used by the legislature. The cases where the language is clear and is not ambiguous, the fact that the Supreme Court's decision is not referred to in the memorandum is not changing the interpretative value or meaning of Explanation 10 r/w proviso to Section 43(1) of the Act. Finance (No.2) Bill, 1998 sets out the reasons warranting incorporation of an Explanation to Section 43(1) and by way of a proviso, a different and distinct situation is taken care of. The assessment years covered in these two appeals are post amendment to inserting Explanation 10 and proviso to Section 43(1). The expression as its stands for the applicable assessment years must be given effect to by the authorities as well as the court. It is not a requirement in law that amendment shall state that Section 43(1), is amended to erase the effect of the ratio laid down by the Supreme Court in P.J Chemicals case. The parliament, in its wisdom, sets out the factors excluded in the computation of the actual cost of an asset in the hands of the assessee. The argument of the assessee t....
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....ectly by any other person or authority: *** **** *** Explanation 10.-Where a portion of 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 or 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: Provided 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 or in reimbursement is so received, shall not be included in the actual cost of the asset to the assessee." 13. The controversy between the Revenue and the assessee is that for the purpose of determining the actual cost of assets on which depreciation has to be allowed under Section 32 of the Act, the amount of s....
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....r was intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy being only a measure adopted under the scheme to quantify the financial aid. The expression 'actual cost' needs to be interpreted liberally. The subsidy of the nature the court examining does not partake the incidence, which attracts the conditions for the deductibility from the actual cost. The Government subsidy is not unreasonable to say it is an incentive not for the specific purpose of meeting a portion of the cost of the assets though quantified as or get to a percentage of that cost. If that be so, it does not partake of the character of the payment intended either directly or indirectly to meet the actual cost. 14. The Parliament by the Finance (No.2) Act, 1998 introduced Explanation 10 r/w proviso to Section 43 of the Act. 14.1 The Revenue argues that a line has to be drawn for the application of the dictum in P J Chemicals between pre and post 1.4.1999. In cases where the subsidy is received, Explanation 10 deals with a portion of the cost of an asset acquired ....
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....r the purpose of restricting and controlling the plain meaning of the language employed by the Legislature in drafting statute and excluding from its operation such transactions which it plainly covers". The above view is an answer to the first argument of the assessee that the Bill and the Memorandum are silent on PJ Chemicals case. The Memorandum is an introductory note and serves the purpose of SOR for the proposed amendment. The reason that PJ Chemicals is not referred to in the Memorandum, in our considered view is not making a material difference to Explanation 10 and the proviso of Section 43(1) unless this Court notices ambiguity in the text of Explanation 10 r/w proviso. This Court is under obligation to appreciate the Explanation and the proviso and would decide its meaning and scope. 15.3 An explanation at times is appended to a section to explain the meaning of words, contained in the section. It becomes a part and parcel of the enactment. The meaning to be given to an explanation must depend upon its terms, and no theory of its purpose can be entertained unless it is to be inferred from the language used. (Krishna Ayyanakr v. Nattaperumal Pillai (ILR 43 madras 55....
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.... normal function of a proviso is to except something out of the enactment or to qualify something enacted therein which but for the proviso would be within the purview of the enactment. As stated by Lush, J.; (QBD p. 173). '.... When one finds a proviso to the section, the natural presumption is that but for the proviso the enacting part of the section would have included the subject-matter of the proviso. In the words of Lord Macmillan (SCC Online PC) '... The proper function of a proviso is to except and to deal with a case which would otherwise fall within the general language of the main enactment, and its effect is confined to that case. The proviso may, as Lord Macnaghten laid down, be a qualification of the preceding enactment which is expressed in terms too general to be quite accurate (AC p. 62). The general rule has been stated by Hidayatullah, 1.2, in the following words: (AIR p. 1600, para 9) 9. As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment, and ordinarily, a proviso is not interpreted as stating a general rule. And in the words of Kapur. J.2 (AIR p. 717, para 9) *9. ...The proper function of a provis....
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....nstrue them together without making either of them redundant or otiose. Even if the enacting part is clear effort is to be made to give some meaning to the proviso and to justify its necessity. But a clause or a section worded as a proviso, may not be a true proviso and may have been placed by way of abundant caution." 92.5. While ordinarily, it would be unusual to interpret the proviso as an independent enacting clause, as distinct from its main enactment, this is true only of a real proviso and the draftsperson of the statute may have intended for the proviso to be, in substance, a fresh enactment: "... To read a proviso as providing something by way of an addendum or as dealing with a subject not covered by the main enactment or as stating a general rule as distinguished from an exception or qualification is ordinarily foreign to the proper function of a proviso. However, this is only true of a real proviso. The insertion of a proviso by the draftsman has not always strictly adhered to its legitimate use and at times a section worded as a proviso may wholly or partly be in substance a fresh enactment adding to and not merely excepting something out of or qualif....
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....s in State of Rajasthan v. Leela Jain and Bihta Coop. Development Cane Mktg. Union Ltd. v. Bank of Bihar." 16. The first and foremost guiding canon is the rule of literal construction. The arguments on both sides apply the rule of literal construction to the explanation and to the proviso as the case may be. But different destinations are reached suiting respective stands. As a Court, we would prefer literal construction walk the path of language in understanding what Explanation 10 means and proviso. Interpreted so, we are of the view that Explanation 10 takes care of a situation where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central/State Government Authority or any other person and such receipt is in the form of a subsidy or grant or reimbursement (by whatever name called) in such situation, 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. Applying the above construction to circumstances in the case on hand, without much deliberation, this Court concludes that the financial assistance received by the Assessee from th....
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.... and proviso would be contrary to the explicit words used by the parliament for achieving a particular object of granting depreciation on the actual cost incurred by the assessee. The Explanation and the proviso, in our understanding, are clear and do not suffer from ambiguity. This relates other substantial questions of law and would be considered independently. 17. Hence, we hold that financial assistance received without reference to specific purpose, still by application of proviso to Explanation 10 of section 43(1) of the Act the actual cost is apportioned and reduced from the cost of the assets of the assessee for the purpose of computing the depreciation. For the above reasons, the common question in both the appeals is answered in favour of Revenue and against the assessee. The substantial question No.2 in ITA No. 62/2018 18. Assessee contends that the apportionment of the subsidy to building, furniture, plant & machinery, computer software etc. is illegal and contrary to the definition of the actual cost under Section 43(1) of the act r/w Explanation 10 r/w proviso. The assessee has discretion under ASIDE to utilise the grant on need-based development. So as evide....
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....et is denied. 20. Therefore, the order of assessment is set aside to the extent that the subsidy is apportioned against all the assets viz. building, furniture and plant & machinery, computer software. The matter is remitted to the Assessing Officer for determination afresh. The assessee, since can place the actual cost after deducting the amount spent in the capacity building of the water and power distribution and files revised statements taking into consideration such revised statements, the assessment is completed. The question under consideration is answered in favour of the assessee and against the Revenue, as indicated above. Question Nos. 4 and 5 in ITA No.65 of 2018. 21. The substantial question deals with two entries; one for the financial year 2006-07 amounting to Rs. 3,75,00,885/- and Rs. 10,00,00,000/- received by the assessee during the financial years 1996-2000 can be reduced from the value of the cost of assets in the assessment year 2009-10. The financial assistance received during the financial years 1996-2000, is stated thus: Date Amount (Rs.) 01.03.1996 3,00,00,000 29.03.1996 2,89,00,000 24.04.1998 2,00,00,000 31.03.1999 60....
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....arlier to 1-4-1999. Therefore, the ratio of Saharanpur case is distinguishable and does not apply to the facts and circumstances of the case. Hence the objection raised is rejected. 24. We keep in perspective the nature of financial assistance received by the assessee between 1996 to 2000. It is not the case of Revenue that the financial assistance/subsidy during 1996 to 2000 is for acquiring a specific asset. The purpose, as mooted in the preceding paragraph under the ASIDE scheme, was to provide stimulus to exports and enhance foreign trade. The Central Government is left to the discretion of the State Government and/or the authorities where export-oriented industries are set up to replenish the infrastructure from the financial assistance given to the assessee. This being the undisputed fact, treating the entire financial assistance received in the slab years as falling under the proviso introduced with effect from 01.04.1999 is illegal and unsustainable. It is not the case of Revenue before us that the amendment is retrospective. The justification offered for reworking the actual cost of assets is on the ratio decided in Saharanpur Electric Supply case. We have already held ....