Madras H.C : Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the order of the CIT under s. 263 was within jurisdiction when the assessment order had merged with the appellate order dt. 24th May, 1984, as well as the second appellate order of the Tribunal dt. 15th May, 1985 ?

High Court Of Madras

Dharmapuri District Co-Operative Sugar Mills Ltd. vs. CIT

Sections 32(1), 43(1), 263(1), Explanation (c)

Asst. Year 1979-80

R. Jayasimha Babu & K.P. Sivasubramaniam, JJ.

Tax Case No. 287 of 1993

12th August, 2002

Counsel Appeared

P.P.S. Janardhanaraja, for the Applicant : T.C.A. Ramanujam, for the Respondent

JUDGMENT

R. JAYASIMHA BABU, J. :

The assessee is a co-operative sugar mill which had received subsidy from the State Government for putting up tenements for it’s workers, during the asst. yr. 1979-80. In computing the income for that year the assessee claimed depreciation in respect of the total cost of the asset. That claim was allowed by the AO. The assessment so made was later revised by the CIT by exercising revisional jurisdiction under s. 263 of the IT Act. The CIT was of the view having regard to the definition of ‘actual cost’ in s. 43(1) of the IT Act, 1961, the depreciation on the cost of the asset to the assessee was required to be refused to the extent of the amount of subsidy as the subsidy was given for meeting the cost of the construction.

The assessee being aggrieved, appealed to the Tribunal unsuccessfully. The Tribunal rejected the assessee’s contention that the assessment order had merged in the order in an appeal therefrom which also has been the subject-matter of further appeal, as this issue was not one of the issues raised in those appeals.

At the instance of the assessee, the following two questions have been referred to us : (i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the order of the CIT under s. 263 was within jurisdiction when the assessment order had merged with the appellate order dt. 24th May, 1984, as well as the second appellate order of the Tribunal dt. 15th May, 1985 ? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the subsidy received by the petitioner from the State Government under the subsidised Industrial Housing Scheme is to be deducted from the cost of machinery and plant and building under s. 43(1) of the IT Act, 1961, for determining the actual cost for the purposes of depreciation allowance under s. 32 of the Act ?”

4. The Supreme Court in the case of CIT vs. Shri Arbuda Mills Ltd. (1998) 147 CTR (SC) 474 : (1998) 231 ITR 50 (SC) : TC S57.4432 dealt with the scope of the powers of the CIT under s. 263 of the IT Act. The Court after considering the Explanation to s. 263(1) of the Act which was substituted by Finance Act, 1988, which was again amended by Finance Act, 1989, with retrospective effect from 1st June, 1988, held that as a consequence of the amendment made with the retrospective effect, the power of the CIT under s. 263 of the Act shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal.

5. In the light of that judgment, the first question referred to us is required to be and is answered in favour of the Revenue and against the assessee.

6. We have already referred to s. 43(1) of the Act. Sub-cl. (1) thereof defines ‘actual cost’ inter alia, thus : “’Actual cost’ 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”

7. In this case, it is an admitted fact that a part of the construction of the tenements was met by the grant from the State by way of subsidy. The amount spent by the assessee on the construction was only total cost minus the subsidy received. The definition of ‘actual cost’ given in s. 43(1) is applicable to ss. 28 to 41 of the Act. This includes s. 32 which deals with depreciation. The assessee’s claim for depreciation for the tenements could, therefore, only be with reference to the ‘actual cost’ as computed in accordance with s. 43(1) of the Act. The CIT was, therefore, right in holding that the amount of the subsidy should be deducted from the total cost of the construction of the tenaments.

8. We, therefore, answer the second question also in favour of the Revenue and against the assessee.

[Citation : 259 ITR 598]

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