JUDGMENT
K.S. Paripoornan, J.
1. At the instance of the Revenue, the Income-tax Appellate Tribunal (in short “the Tribunal”) has referred the following two questions of law for the decision of this court:
“1. Whether, on the facts and in the circumstances of the case and on an interpretation of Section 43(1) of the Income-tax Act, the subsidy received should be deducted from the cost of assets for purposes of allowing development rebate and depreciation on such assets and computation of relief under Section 80J ?
2. Whether, on the facts and in the circumstances of the case, (i) the assessee’s business involves ‘production’ ?
(ii) the assessee is entitled to exemption under Section 80HH of the Income-tax Act, 1961 ?”
2. The respondent is a firm. It is an assessee to income-tax. We are concerned with the assessment year 1977-78. The assessee claimed deduction under Section 80^H on the ground that the business of purchasing shrimps, peeling and freezing and exporting them, involved manufacture or production. The plea was negatived by the Income-tax Officer. For the years 1974-75, 1975-76 and 1977-78, the assessee claimed depreciation and relief under Section 80J of the Income-tax Act. The assessee was getting subsidy from the Government. The plea of the assessee was that depreciation and relief under Section 80J of the Act should be afforded ignoring the subsidy received from the Government. The Income-tax Officer took the view that the subsidy received from the Government
should be reduced from the value of the assets for computation of depreciation and relief under Section 80J of the Act. The Income-tax Officer rejected the claim. In appeal, the Commissioner of Income-tax (Appeals) accepted the plea of the assessee and allowed relief. He held that the subsidy could not be reduced from the cost of assets for the computation of depreciation and for relief under Section 80J of the Act. He further held that the asses-see was involved in production of,goods and so he is entitled to relief under Section 80HH of the Act. The matter was taken in appeal by the Revenue before the Tribunal. The Tribunal upheld the decision of the Commissioner of Income-tax (Appeals). The order of the Tribunal is dated November 26, 1981. Thereafter, at the instance of the Revenue, the above two questions were referred for the decision of this court.
3. We heard counsel for the Revenue as also counsel for the respondent-assessee, Mr. Abdul Hassan. The Tribunal has referred to the nature of subsidy received by the assessee in paragraph 7 of the appellate order. It is stated that the subsidy was given in this case for industries situated in backward areas. The said subsidy is similar to the subsidy granted by the State Industries Promotion Corporation, which was construed by the Special Bench of the Income-tax Appellate Tribunal, Madras, as having nothing to do with meeting the cost pf any particular asset On this basis, it held that the subsidy amount received by the assessee could not go to reduce the cost of the asset for the purpose of allowing depreciation, development rebate and deduction under Section 80J of the Act. Our attention was invited to the following decisions which have explained the nature and scope of the subsidy received from the Government for backward areas. It is really an incentive. It has nothing to do with the cost of a particular asset. It may have its impact in the cost of any particular asset in the ultimate analysis, but it has nothing to do with the initial acquisition or cost of any particular asset. This position has been explained in the following decisions : Lucknow Producers’ Co-operative Milk Union Ltd. v. CIT [1983] 143 ITR 60 (All), CIT v. Godavari Plywoods Ltd. [1987] 168 ITR 632 (AP), CIT v. Bhandari Capacitors Private Ltd. [1987] 168 ITR 647, (MP), CIT v. Diamond Dies Manufacturing Corporation P. Ltd. [1988] 172 ITR 655 (Kar), CIT v. Premier Extraction (P.) Ltd. [1989] 175 ITR 22 1(MP) and CIT v. Dewas Chemical and Fertilizers Mfg. Co. [ 1989] 176 ITR 71 (MP).
4. In the light of these decisions, it is idle to contend that the subsidy received by the respondent-assessee should be deducted from the cost of the assets for the purpose of allowing development rebate and depreciation on such assets and computation of relief under Section 80J of the Act. In this view of the matter, our answer to question No. 1 referred to us is in the negative, against the Revenue and in favour of the assessee.
5.
The only further question is whether the assessee’s business involves production. On similar facts, a Bench of this court in CIT v. Marwell Sea Foods [1087] 166 ITR 624 had held that the assessee who buys prawns, processes the same and exports the goods is engaged in production and so, the assessee is entitled to the benefit of Section 80HH of the Act.
6. In the light of the Bench decision of this court in Marwell Sea Foods’ case [1987] 166 ITR 624, we hold that the assessee’s business involves production and that the assessee is entitled to exemption under section 80HH of the Income tux Act. Our answer to question No. 2 referred to us
is in the affirmative, in favour of the assessee and against the Revenue,
7. A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.