Punjab & Haryana H.C : The capital subsidy received by the assessee should not be deducted from the value of the assets while working out the costs for allowing depreciation

Counsel Appeared

S.S. Mahajan, for the Petitioner : None, for the Respondent

G.S. SINGHVI, J. :

In all these petitions filed under s. 256(2) of the IT Act, 1961 by the Revenue, prayer has been made for directing the Tribunal to refer the question of law as to whether the Tribunal has been right in law in holding that the capital subsidy received by the assessee should not be deducted from the value of the assets while working out the costs for allowing depreciation.

2. For the purpose of this order, it will be sufficient to give a brief factual background of ITC No. 37 of 1989.

The respondent-assessee is a private limited company incorporated on 4th Jan., 1974. It is engaged in the business of milling wheat, suji, atta etc. and selling them in the market. During the asst. yr. 1978-79, the assessee has claimed that the amount of subsidy received under the central investment subsidy scheme be deducted from the total assets for the purpose of allowing depreciation under the Act. This contention did not find favour with the assessing authority which held that the amount of subsidy should be deducted from the value of assets while calculating the depreciation. The appeal filed by the assessee was accepted by the CIT(A), Chandigarh, who directed the IAC (Asst.) to allow depreciation of machinery and plant without reducing the cost of subsidy from the actual cost of plant and machinery. Feeling dissatisfied with the order of the CIT(A), the Revenue fileappeal before the Tribunal. That appeal was dismissed by the Tribunal. Reference application filed by the Department under s. 256(1) was also declined by the Tribunal. This is now the Department has filed this petition under s. 256(2) of the Act and has sought reference of the question of law framed by it.

In other petitions, the facts are more or less identical and the question sought to be referred is also identical. Learned counsel for the Department relied on a decision of this Court in CIT vs. Janak Steel Tubes (P) Ltd. (1989) 179 ITR 536 (P&H) : TC 29R.389 and another decision in CIT vs. Jindal Bros. Rice Mills (1979) 79 CTR (P&H) 235 : (1989) 179 ITR 470 (P&H) : TC 29R.388 and argued that an important question of law arises for determination by this Court and the Tribunal should be directed to refer that question.

In our opinion, the submission of the learned counsel cannot be accepted because the two decisions on which reliance has been placed by Shri Mahajan stand reversed/overruled by the Supreme Court in CIT vs. P.J. Chemicals Ltd. (1994) 121 CTR (SC) 201 : (1994) 210 ITR 830 (SC) : TC 29R.367. Their Lordships of the Supreme Court were considering the appeals filed by the Department, against the judgments of Andhra Pradesh High Court and some other Courts including this Court on the issue of deduction of subsidy from the total assets for the purpose of computing the actual costs of assets. Their Lordships approved the ratio of the decisions of Allahabad, Bombay, Calcutta, Gauhati, Gujrat, Karnataka, Kerala, Madras, Orissa and Rajasthan High Courts and disapproved the view taken by this Court in two decisions relied upon by Shri Mahajan and held: “Where Government subsidy is 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, is not a payment, directly orindirectly, to meet any portion of the “actual cost”. The expression “actual cost” in s. 43(1) of the IT Act, 1961, needs to be interpreted liberally. Such a subsidy does not partake of the incidents which attract the conditions for its deductibility from “actual cost”. The amount for subsidy is not to be deducted from the “actual cost” under s. 43(1) for the purpose of calculation of depreciation, etc.”.

In view of the authoritative pronouncement of the Supreme Court and the fact that the two decisions rendered by this Court have been reversed/overruled by the Supreme Court, we hold that no question of law arises for determination by this Court. Hence these petitions are dismissed.

[Citation : 224 ITR 242]