Madhya Pradesh H.C : Whether, on the facts and in the circumstances of the case and in view of s. 43(1) of the IT Act, the Tribunal is justified in holding that the amount of capital subsidy received by the assessee from the Government would not go to reduce the cost of assets for the purpose of allowing depreciation ?

High Court Of Madhya Pradesh

CIT vs. Dewas Chemicals & Fertilisers Manufacturing Co.

Sections 32, 43(1)

Asst. Year 1977-78

G.G. Sohani, Actg. C.J. & R.K. Verma, J.

MCC No. 40 of 1986

11th August, 1988

Counsel Appeared

Mukati, for the Revenue : A.K. Chitale & Dangaonkar, for the Assessee

G. SOHANI, ACTG. C. J. :

By this reference under s. 256(1) of the IT Act, 1961 (hereinafter referred to as “the Act”) the Tribunal, Indore Bench, Indore, has referred the following question of law to this Court for its opinion : ” Whether, on the facts and in the circumstances of the case and in view of s. 43(1) of the IT Act, the Tribunal is justified in holding that the amount of capital subsidy received by the assessee from the Government would not go to reduce the cost of assets for the purpose of allowing depreciation ?”

2. The material facts giving rise to this reference, briefly, are as follows : The assessee is a public limited company registered under the Companies Act, 1956, and carries on the business of manufacture and sale of chemicals and fertilisers. During the asst. yr. 1977-78, the assessee received a capital subsidy of Rs. 4,30,000 from the Madhya Pradesh Financial Corporation under a scheme framed by the Government with a view to provide incentives to start industrial units in specified backward areas. While framing the assessment, the IAC (Assessment) reduced the cost of the plant and machinery of the company by the amount of capital subsidy for the purpose of allowing depreciation in accordance with the provisions of s. 43(1) of the Act. The appeal preferred by the assessee in that behalf before the CIT (A) was allowed and the assessing authority was directed to allow depreciation on the plant and machinery without deducting the capital subsidy from the cost of the plant. Aggrieved by the order passed by the CIT (A), the Revenue preferred an appeal before the Tribunal. The Tribunal upheld the order passed by the CIT (A). The Revenue, therefore, sought reference and it is at the instance of the Revenue that the Tribunal has referred the aforesaid question of law to this Court for its opinion.

3. At the time of hearing, learned counsel for the parties conceded that the matter arising in this reference was covered by the decision of this Court in CIT vs. Bhandari Capacitors Private Ltd. (1987) 65 CTR (MP) 114 : (1987) 168 ITR 647. We see no reason to take a view different from that taken in (1987) 168 ITR 647. Following that decision, it must, therefore, be held that, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of capital subsidy received by the assessee would not go to reduce the cost of assets for the purpose of allowing depreciation.

4. Our answer to the question referred to this Court is, therefore, in the affirmative, in favour of the assessee and against the Revenue. In the circumstances of the case, parties shall bear their own costs of this reference.

[Citation : 176 ITR 71]

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