Commissioner of Income Tax vs Raval Papers Ltd.

Ajit K. Sengupta, J.—In this reference u/s 256(2) of the income tax Act, 1961 for the assessment year 1984-85 the following question has been referred to this Court:

Whether, on the facts and in the circumstances of the case, and also on a proper interpretation of the provision of section 43(1) of the income tax Act, 1961, the Tribunal was correct in law in holding that Central subsidy received by the assessee would not be deductible to arrive at the actual cost of the depreciable assets?

Shortly stated, the facts relating to this reference are that the assessee in the above period received capital subsidy under the Central Investment Subsidy Scheme, 1971 for setting up an industrial unit at Rai Bareli, a backward area in U.P. The Assessing Officer, while working out the permissible depreciation, deducted the amount of subsidy received from the cost of assets u/s 43(1) of the said Act and allowed depreciation on the reduced amount.

On appeal, the Commissioner (Appeals), following the decision of Andhra Pradesh High Court in the case of Commissioner of Income Tax Vs. Godavari Plywoods Ltd., and that of the Madhya Pradesh High Court in the case of COMMISSIONER OF Income Tax Vs. BHANDARI CAPACITORS PRIVATE LTD., directed the Assessing Officer not to take into account the capital subsidy received by the assessee while working out ''Actual cost of assets'' u/s 43(1) of the Act. The revenue being aggrieved brought the issue in appeal before the Appellate Tribunal.

Before the Tribunal, the learned departmental representative submitted that subsidy granted by the Central Government was to reduce the cost of capital depreciable assets and, therefore, was to be taken into account. Reliance was placed on the decision of the Punjab and Haryana High Court in the case of Commissioner of Income Tax Vs. Jindal Brothers Rice Mills, He relied upon the decision of the Tribunal, Calcutta Bench C [IT Appeal No. 956 (Cal.) of 1988, dated 3-11-1989] in the case of Makkar Bari Tea Co. The learned counsel for the assessee supported the order of the Commissioner (Appeals).

The Tribunal after considering the rival submissions of the parties, upheld the order of the Commissioner (Appeals) with the following observations:

We have carefully considered the rival submissions, facts and circumstances of the case and material on record. We have also seen the Central Scheme under which the subsidy was granted to the business for setting up industry in backward area. As is evident from scheme subsidy was not granted on any specific asset but was allowed on costs of land, building, machinery, plant, etc. The matter in view of decisions of Andhra Pradesh and Madhya Pradesh High Courts is fully covered in favour of the assessee. The decision in the case of Makkar Bari Tea Co. related to State Transport subsidy. In that case, subsidy was held to be a revenue receipt. Likewise, the case of Jindal Brothers Rice Mills (supra) relates to subsidy granted by the State Government. The subsidy schemes of State Governments are quite different from Central Subsidy Scheme with which we are concerned. The decisions cited on behalf of the revenue, therefore, are not applicable to the facts of the present case. These are distinguishable at any rate, even if two views of the matter are possible, we are inclined to take one in favour of the assessee. In other cases relating - to Central Subsidy Scheme, ITAT Benches at Calcutta have been consistently holding that the subsidy is not to be deducted while working out actual cost of depreciable assets. In line with the above view, we uphold the order of the Commissioner of income tax Appeals.

It is not in dispute that this question is now concluded by a decision of this Court in the case of Commissioner of Income Tax Vs. Dewas Synthetics (P.) Ltd., Following the said decision, we answer the question in the affirmative and in favour of the assessee.

Mr. Mitra appearing for the revenue has prayed for oral leave u/s 261 of the Act. He submits that this matter is pending before the Supreme Court as the Supreme Court granted special leave to the department in many of the cases. Our attention has been drawn to 197 ITR which contains the following information:

Government subsidy received: Effect on actual cost or cost of investments:

20-7-1992: Their Lordships M.N. Venkatachaliah and Dr. A.S. Anand, JJ. granted special leave to the Department to appeal against the judgment dated 2-12-1991 of the Orissa High Court in S.C. No. 171 of 1990, whereby the High Court answered in favour of the assessee the question whether Government subsidy received by the assessee would go to reduce the actual cost of its plant and machinery for the purpose of depreciation and extra shift allowance and the value of its capital investment for the purpose of investment allowance- CIT v. Orissa Industries Ltd. [SLP (Civil) No. 7372 of 1992].

On the same point special leave was granted in the following matters also on the dates and by Hon''ble Judges mentioned against each item:

27-7-1992: CIT v. Ankleshwar Inorganic Pigments & Chemicals Ltd. against order dated 9-1-1992 of the Gujarat High Court in IT Appeal No. 175 of 1991, rejecting a reference application, SLP (Civil) No. 7840 of 1992: by their Lordships S. Ranganathan, V. Ramaswami and R.M. Sahai, JJ.

28-7-1992: CIT v. Annapurna Roller Flour Mills against Judgment dated 31 -1-1992 of the Karnataka High Court in ITRC No. 33 of 1991, answering question referred against the department [SLP (Civil) No. 8064 of 1992]: by their Lordships S. Ranganathan, V. Ramaswami and B.P. Jeevan Reddy, JJ.

30-7-1992: CIT v. Progressive Engg. against judgment dated 5-3-1992 of the Karnataka High Court in ITRC No. 17 of 1992, answering question referred against the Department [SLP (Civil) No. 8216 of 1992]: by their Lordships S. Ranganathan, V. Ramaswami and B.P. Jeevan Reddy, JJ.

Having regard to the fact that this question is now before the Supreme Court, we certify that this is a fit case for appeal to the Supreme Court u/s 261 of the Act. There will be no order as to costs.

Chowdhury, J.

I agree.