JUDGMENT
A. Pasayat, J.
1. At the instance of the Revenue, the Income-tax Appellate Tribunal, Cuttack Bench, Cuttack (in short, “the Tribunal”) has referred the following question to us for adjudication under Section 256(1) of the Income-tax Act, 1961 (in short, “the Act”) :
” Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the subsidy received under the Scheme for Central outright grant should not be deducted from the value of the plant and machinery to determine the actual cost for the purpose of granting depreciation ?”
2. The factual antecedents are as follows : M/s. Kalinga Jute Products (P) Ltd (hereinafter referred to as “the assessee”) received a sum of Rs. 2,88,634 as a subsidy from the Government of Orissa under the Central Outright Grant of Subsidy Scheme, 1971. The Assessing Officer held that this amount was deductible from the cost of the plant and machinery for the purpose of calculation of depreciation. Reference was made to Section 43, Clause (1), of the Act for finding out the meaning of the expression “actual cost”. He observed that a part of the cost of the assets was met directly by the Government in question, and, therefore, for calculating written down value and quantifying the amount of depreciation, the amount of subsidy received has to be deducted from the cost of the assets. The matter was carried in appeal before the Commissioner of Income-tax (Appeals), Orissa. The said authority referred to the scheme and held that though the quantum of the subsidy has reference to the fixed capital of the industry, there were other obligatory conditions which had to be satisfied before the subsidy could be granted. One of the primary conditions was that the undertaking must remain in production at least for a period of five years after it commenced production and if the unit went out of production within five years after commencement, the Government had the right to recover the amount granted as subsidy from the owner of the unit. Another primary condition related to establishment of the unit in a backward area as defined in the scheme itself. The Commissioner of Income-tax (Appeals) was of the view that in the absence of a specific stipulation in the scheme that the same was given as
reimbursement of the cost of any specified fixed asset initially acquired by the owner of the unit, the question of the same being treated as partial reimbursement of the cost of the fixed assets so as to be deducted from the cost of the assets for the purpose of calculation of depreciation did not arise. He, therefore, held that depreciation was to be calculated on the cost of the assets without making any deduction for the subsidy received. The Revenue challenged his conclusion before the Tribunal and the appeal was numbered as ITA No. 184 (CTK) of 1984. The Tribunal, after referring to a Special Bench judgment of the Tribunal in Pioneer Match Works v. ITO [1983] 3 ITD 714, concurred with the conclusion of the Commissioner of Income-tax (Appeals). It held that the principles have been rightly applied and, therefore, there was no scope for any interference with the appeal filed by the Revenue.
3. Mr. A. K. Ray, learned standing counsel, emphasises the language of Clause (1) of Section 43 which reads as follows :
“In Sections 28 to 41 and in this section, unless the context otherwise requires-
(1) ‘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 :”
4. According to him, the subsidy received was in the nature of reimbursement and it can be construed that the cost of the assets was partially met by the receipt of subsidy by the assessee. Mr. Agarwalla for the assessee, however, submits that the salient features of the case have been highlighted by the Commissioner of Income-tax (Appeals) and the conclusion arrived at by the Commissioner of Income-tax (Appeals) and confirmed by the Tribunal suffers from no infirmity so as to warrant a different view.
5. In our considered opinion, it is the nature of the grant of subsidy which is determinative of the question whether it has to be deducted from the cost of fixed assets. The intention of the grantor while granting the subsidy has to be considered. Even if the subsidy has the cost of the fixed assets as its base, for calculation of depreciation, that would not be sufficient. If there is no material to show that the same was intended to be reimbursement of a part or the whole cost of the assets, obviously that cannot be considered to have met directly or indirectly a portion of the cost. If, on the other hand, materials exist to show that the grant was intended to be reimbursement of the cost of acquisition of the fixed assets, then it has to be obviously taken into consideration. Where the object of granting subsidy is to serve the purpose of bringing about rapid industrial growth in the State, and the subsidy is granted as an incentive, it cannot be inferred, unless materials indicate to the contrary, that the subsidy is granted to the entrepreneurs to meet part of the actual cost. The mere fact that a certain percentage of the fixed capital cost is adopted as a measure for quantification of the subsidy is of no consequence. The object of the grantor has to be gathered. On facts, the Commissioner of Income-tax (Appeals) and the Tribunal have come to hold that the subsidy was not intended to be a reimbursement but, on the contrary, its grant was circumscribed by certain other conditions relating to the grantee’s entitlement. It is not shown to us that the conclusion of the Tribunal is factually untenable or against the weight of evidence on record. That being the position, our answer to the question referred is in the affirmative, in favour of the assessee and against the Revenue. No costs.
S.K. Mohanty, J.
6. I agree.