High Court Of Rajasthan
CIT vs. Surendra Textiles
Sections 43(1), 80HH
Asst. Year 1984-85, 1985-86
N.N. Mathur & O.P. Bishnoi, JJ.
IT Ref. No. 3 of 1992
30th October, 2001
Sandeep Bhandawat, for the Petitioner : None, for the Respondents
BY THE COURT :
The Appellate Tribunal, Jaipur Bench, has referred the following questions of law for the opinion of this Court :
RA Nos. 19 & 20/Jp/1989
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount of Central Government subsidy is not deductible from the money cost to the assessee of its plant, machinery and building while computing the original cost thereof under s. 43 (1) of IT Act, 1961, for the purpose of allowing depreciation or investment allowance, etc.”
R.A. Nos. 21 & 22/Jp/1989
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that deduction under s. 80HH of the IT Act, 1961, should be allowed on the gross income before deducting depreciation and investmentallowance.”
The relevant facts are that the assessee is in receipt of Central/State Government subsidy during the previous year relevant to the asst. yrs. 1984-85 and 1985-86. The assessing authority deducted the amount of subsidy soreceived by the assessee from the money cost of plant, machinery, building, etc. for the purpose of s. 32 while granting the depreciation or investment allowance. The appellate authority namely, the CIT(A) reversed the finding and held that amount of subsidy granted to the assessee is not deductible from the money cost for the purposes of allowing depreciation, investment allowance, etc. The order of the CIT(A) was confirmed in second appeal by the Tribunal. The relevant facts in respect to the second question are that while computing the taxable income of the assesseefirm, the assessing authority allowed deduction under s. 80HH @ 20 per cent of the income arrived at after allowing the depreciation and investment allowance. On appeal, the CIT(A) after considering the relevant provisions of ss. 80A and 80B held that assessing authority rightly calculated deduction under s. 80HH on the net income as per the provisions of the Act. In second appeal the Tribunal allowed the appeal, following its earlier decision in Digchem Industries vs. ITO (1987) 27 TTJ (Jp) 593.
We have heard Mr. Sandeep Bhandawat, learned counsel for the Revenue. In spite of notice none has appeared for the respondent-assessee. As regard the first question that is with regard of subsidy has been decided against the Revenue and in favour of the assessee by a Division Bench of this Court in CIT vs. Ambica ElectrolyticCapacitors (P) Ltd. & Ors. (1991) 94 CTR (Raj) 49 : (1991) 191 ITR 494 (Raj) : TC 29R.386. The Court held that the subsidy or investment subsidy given by the Government for the development of the industries in backward areas cannot be deducted from the actual cost for the purposes of depreciation or investment allowance. The Court held that it is an ex gratia allowance to industries in selected backward areas or districts. The dictionary meaning of the term “subsidy” is “financial aid given by Government towards expenses of an undertaking or institution held to be of public utility, or to producers of commodities, etc., to enable goods or services to be provided at lower cost to the consumer.” From the definition of subsidy, it appears that it is in the nature of pecuniary assistance from the Government to the entrepreneurs so as to encourage the establishment of industries in all backward areas. Therefore, such subsidy/investment subsidy cannot be excluded from the actual cost for giving the benefit of depreciation. This assistance will certainly form part of the total assets of the assessee. The apex Court in CIT vs. P.J. Chemicals Ltd. (1994) 121 CTR (SC) 201 : (1994) 210 ITR 830 (SC) : TC 29R.367, after considering the views of the various High Courts held that a Government subsidy is not given as an incentive for the specific purpose of meeting the portion of the cost of the assets. It does not partake of the character of a payment either directly or indirectly to meet the actual cost. The Court further held that the amount of subsidy is not to be deducted from the actual cost under s. 43(1) of the IT Act for the purpose of calculation of depreciation, etc. Thus, the first question has been answered by the apex Court in favour of the Department (sic) and against the assessee. As regard the second question a Division Bench of this Court in CIT vs. Sun Stone Engineering Ltd. (1996) 132
CTR (Raj) 203 : (1996) 220 ITR 182 (Raj) : TC S25.2556, has held that the gross total income of the assessee has to be worked out after deducting unabsorbed loss and unabsorbed depreciation and the income eligible for deduction under s. 80HH will be the net income as computed in accordance with the provisions of the Act and not the gross income. Thus the second question is decided and answered in favour of the Department and against the assessee. Thus, the question No. 1 is decided in favour of the assessee and against the Department. The second question is answered in favour of the Department and against the assessee.
[Citation : 258 ITR 387]