JUDGMENT
A.K. Mathur, J.
1. All these reference mentioned in the Schedule appended to this order involve common question of law, therefore, they are disposed of by this common judgment. The argument were heard at the Principal Seat at Jodhpur as well as the Bench at Jaipur.
2. In order to appreciate the controversy involved in all these references, the facts of D.B. Income-tax Reference No. 20/84: Commissioner of Income-tax Jodhpur v. M/s Ambica Electrolytic Capacitors Pvt. Ltd., Jodhpur are taken into consideration for the convenient disposal of the these references:
3. The facts giving rise to this reference are that the assessee received subsidy from the Central Government twice in different amounts. The Income-tax Officer allowed depreciation on building, plant and machinery after excluding these two amounts or subsidy. The contention of the assessee was that the subsidy was not given by the Central Government to meet out the cost of assets directly or indirectly within the meaning of Section 43(1) of the Income- tax Act, 1961 (referred to hereinafter as ‘the Act’) and, therefore, for allowing the depreciation, these two amounts of subsidy should not be deducted from the cost of the assets. It was urged that the subsidy was given by the Government just as an icentive to the assessee with a view to promoting industrial growth in the backward areas. On appeal, the AAC relying on the orders of the Appellate Tribunal, accepted the contention of the assessee and directed the ITO to allow depreciation on building, plant and machinery on the full cost without deducting the amounts of subsidy. On appeal of the revenue, the Tribunal relying on a decision of Jaipur Bench in the case of Laxmi Udyog (1980) 18 CTR (Trib) 27 and a decision of Special Bench of the Tribunal in the case of Pioneer Match Works and Ors. (1983) 15 TTJ 88 (Mad.) in which the former decision was relied on and approved and upheld the order of the AAC, because he also relied on the same decisions. Before the Tribunal, the revenue relied on a decision of the Calcutta High Court in the case of Jeewanlal v. CIT: 142 ITR 448. This was distinguished. On these facts and circumstances of the case, the Tribunal referred the follwing question for opinion to the Court Under Section 256 of the Income-tax Act, 1961:
Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that Central Govt. subsidy in not deductible from the money cost to the assessee of its plant & machinery while computing the actual cost thereof Under Section 43(1) of the IT Act, 1961 for purposes of allowing depreciation?
4. The case of the Revenue is that the subsidy/investment subsidy does not become part of the assessee’s total assets, therefore, it would not come within the definition of the actual cost and this amount can be deducted for the purpose of granting the benefit of depreciation thereby reducing the quantum of deduction of depreciation allowance from the gross profit for the purpose of arriving at the net-taxable income. As against this, the contention of the assessee was that since this grant has been made as an encouragement to the assessee in selected areas, it will form part of the actual cost of the unit and as such it will come within the definition of actual cost so as to entitle the assessee of the benefit of depreciation allowance.
5. We have considered the rival contentions of the learned Counsel for the parties.
6. In order to answer this question, it is necessary to refer first Section 43(1) of the Act as well as the provisions under which the subsidy is granted by the Central Government. Section 43(1) of the Act, which is relevant for our purposes, reads as under:
43 (1)”actual cost” means the actual cost of the assets to the assessee, reduced by that prortion of the cost thereof, if any, as has been meet directly or indirectly by any other person or authority.
7. The subsidy is granted by the Government of India through Ministry of Industrial Development by its notification dated august 26, 1971. The broad feature of the Scheme which is necessary for our purpose is reproduced as under:
The Government of India are pleased to make the following scheme of 10 per cent Central grant or subsidy for industrial units to be set up in certain selected backward district/areas with a view to promoting the growth of industries there.
1. Short Title: This scheme may be called the 10 percent Central Outright Grant of Subsidy Scheme 1971 for industrial units to be set up in selected Backward Districts/Areas.
2. Commencement and Duration: It will come into effect from the 26th August, 1971 and remain in force for the remaining period of Fourth Five Year Plan and for such further period as may be decided by the Govt. of India.
3. Applicability: It is applicable to Industrial Units in selected districts/areas as defined in the scheme, other than those whose total fixed capital investment would exceed Rs. 50 laks. In case of units involving total fixed capital Investment exceeding Rs. 50 lakhs, the scheme might be made applicable on consideration of merits at the discretion of the Government of India or the State/Union Territory.
4. “Definition”: (a) ‘Indistrial Unit’ means any industrial undertaking and suitable servicing unit, other than that run departmentally by Government.
(b) ‘new Industrial unit’ means an industrial unit for the setting up of which effictive steps were not taken prior to 1st October, 1970.
(c) ‘existing industrial unit’ means an industrial unit for setting up of which effective steps were taken prior to 1st October 1970.
(d) ‘substantial expansion’ means increase in the value of fixed capital investment of an industrial unit by not less than 25 per cent for the purpose off expansion of capacity, modernisation etc.
(e) ‘effective steps’ means one or more of the follwing steps:
(i) that 60 percent or more of the capital issued for the industrial unit has been paid.
(ii) that a substantial part of the factory building has been constructed.
(iii) that a firm order has been placed for a substantial part of the plant and machinery required for the industrial unit.
(f) ‘fixed capital investment’ means investment in land, building and plant and machinery.
8. Total fixed capital investment will be assessed as follows:
(1) Land:
The actual price paid for the land to the extent needed for the purposes of the plant. Charges for the leased land will not be taken into account.
(2) Building:
Same as in the case of the land. Rent of a hired building will not be taken into account.
(3) Plant & Machinery:
(i) In calculating the value of plant and machinery the cost of plant and machinery as erected at site will be taken into account, which will include the cost of productive equipment, such as tools, jigs, adics, moudles, transport charges, demurrage, insurance premium etc. will also be taken into account.
(ii) The amount invested on goods carriers to the extent they are actually utilised for transport of raw materials and marketing of the finsihed products will be taken into account.
(iii) Working capital including raw materials and other consumable stores will be excluded for computing the value of plant and machinery.
9. It is further laid down that as to how the total fixed capital investment will be assessed and for which a detailed guidelines have also been provided, as reproduced above. After this, the Government also came forward with another scheme of 15 percent Central Investment Subsidy Scheme, which reads as under:
FOR 10-15% CENTRAL INVESTMENTS SUBSIDY SCHEME
1. INTRODUCTION
1.1. Government of India had announced in 1971 a scheme for Central Outright grant/subsidy for the industrial units to be set up in selected backward districts/areas. A copy of the scheme published vide Notification No. F. 7 (15)/71 IC in Part I Section I of the Gazette of India Extraordinary dated 26-8-1981 as amended vide notification of 30th September, 1972 and 19th June, 1973 is attached at Annexure I. During the course of implementation of the scheme over the past few years, some liberalisation had been introudced in the scheme. Some further changes have also been incorporated herein with a view to ensuring quicker disbursement and reimbursement of Central Investment subsidy to the industrial units. Eligibility and procedures for claiming disbursement and reimbursement etc. of the Central Investment Subsidy are dealt with in the succeeding Sections.
10. Detailed procedure has been given for such Central Investment Subsidy Scheme also. This Central Investment Subsidy Scheme is almost on the same line as was the Central Subsidy Scheme floated by the Government of India for backward areas by the notififation dated August 26, 1971. Therefore, it is not necessary to reproduce the Scheme. The same governing principles have been adopted.
11. Now, a perusal of the scheme shows that this subsidy/investment subsidy was given to the industrial units of certain backward district/areas with a view to promoting the growth of industries in those areas. It is the Government which is to select the backward district/areas where this subsidy is to be given. This subsidy is to be given to those selected backward district/areas where units are to be established and they are not run departmentally by the Government. It is further qualified that new industrial unit means an industrial unit for which effective steps were not taken prior to 1-10-1970. For the existing industrial unit, it is qualified that for setting up of such units the effective steps should have been taken prior to 1-10-1970. It shows that the units must have been established prior to 1-10-1070 or effective steps were taken for setting up the industrial unit prior to 1-10-1970. The first and foremost thing for implementing this scheme was that the Government has to select the units for promoting the growth of industries. Therefore, this was as a matter of fact, an incentive to the entrepreneur so as to promote the growth of industrial units in the backward areas. In this back-ground we will have to see as to whether such investment shall form part of the actual cost within the meaning of Section 43(1) of the Act or not. Section 43(1) defines the expression ‘actual cost’. The actual cost of the assets to the assessee is to be worked out by reducing the cost, if any, as has been met directly or indirectly by any other person or authority. In the present case, the subsidy which has been given to the assessee is in the nature of an encouragement incentive in order to attract the entrepreneurs for developing the indurtrial growth in the backward districts or areas. But it is, as a matter of fact, an encouragement for the upcoming industries in the backward areas. The another significant feature of this scheme is that 10% or 15% central investment subsidy is given to the entrepreneurs provided they fulfil the minimum requirements as mentioned above and this subsidy is not qualified in any manner that they will invest this subsidy on a particular item. It is an exgratia encouragement allowance to the industries in the selected backward areas or districts. A detailed method has been laid down as to how this 10%-15% subsidy will be given. In order to arrive at this amount of subsidy first the amount of fixed capital investment of assessee will be arrived at on the basis of investment on land, machineray etc. Thereafter, subsidy will be given on that amount.
12. The subsidy has been defined in the New Oxford I Illustrated Dictionary as “financial aid given by Government towards expenses of an undertaking or institution held to be of public utility, or to producers or commodity, etc., to enable goads or services to be provided at lower cost to consumers” In Webster’s New Twentieth Century Dictinonary Unabridge, Second edition, one of the meanings of the word “subsidy” is “a grant of money from a Government to a private enterprise considered as beneficial to the public.” In Random House Dictionary of the English Language, Unabridged Edition, one of the meanings of the word “subsidy” is “a direct pecuniary aid furnished by a Government to a private industrial undertaking, charity organisation; or the like.” From the definition of subsidy it appears that it is in the nature of a pecuniary assistance to the entrepreneuers from the Government so as to encourage the establishment on the industries in the backward areas. Therefore, such subsidy/investment subsidy cannot be excluded from the actual costs. This assistance will certainly from part of total assests of the assessee.
13. First we shall take into consideration the cases cited by the learned Counsel in favour of the assessees supporting their contention, which supports the view which we have taken above.
14. In Commissioner of Income-tax v. Godavari Plywoods Ltd. , a similar question came up before the Andhra Pradesh High Court and the Division Bench answered the question in favour of the assesse. It was observed as under:
A persual of the Central Subsidy Scheme, 1971, as well as the Andhra Pradash State Incentive Scheme, 1976, shows that the financial incentive granted by the Central Government as well as the State Government are basically directly to encourage and induce entrepreneurs to move to backward areas and establish industries there so that the region may develop in promoting the welfare of the people living in that region. There is no provision either in the Central Subsidy Scheme or in the State Incentive Scheme to show that the entrepreneurs are granted the subsidy for the specific purpose of meeting a portaion of the cost of subsidy is quantified by determining the same at a specified percentage of the fixed capital cost. The specified percenteage of the fixed capital cost taken as the basis for determining the subsidy is only a measure adopted under the scheme to quantify the subsidy. The subsidy is granted more as recompense for the hardship and inconveniences which the entrepreneur may encounter while setting up industries in backward areas. The subsidy cannot be deducted from the actual cost of the assets to the assessee. Depreciation should be allowed on the actual cost of the assets without reducing the same by the amount of subsidy granted.
15. Similarly, The Commissioner of Income-tax v. Bhandari Capacitors Private Ltd. , the Madhya Pradesh High Court has also taken the same view. A Division Bench of the Madhya Pradesh High Court also answered the question in favour of the assessee. It was observed as under:
There is no provision in the Central Subsidy Scheme, 1971, or in the State Incentive Scheme to indicate that the entrepreneurs setting up industries in backward areas are granted the subsidy for the specific purpose of meeting a portion of the cost of the assets. The cash subsidy is quantified by determining the same at a specified percentage of the fixed capital cost. The basis adopted for determining cash subsidy with reference to the fixed capital cost is only a measure adopted and cannot make the subsidy one for the specific purpose of meeting any portion of the fixed capital cost. Therefore, the amount of capital subsidy is not deductible in computing the actual costs of the asset, as defined by Section 43(1) of the Act, for the purpose of calculating the depreciation and investment allowance admissible to the assessee.
16. The Madhya Pradesh High Court agreed with the reasoning given by the Andhra Pradesh High Court in Godavari Plywoods case (supra).
17. Similarly the Karnataka High Court has also taken the same view in Commissioner of Income-tax v. Diamond Dies Manufacturing Corporation Ltd. as has been taken by the Andhra Pradesh and Madhya Pradesh High Courts. The Karnataka High Court has also followed the view taken by the Andhra Pradesh High Court in the case of Godavari Plywoods Ltd. (supra) It was observed as under:
the scheme for the grant of subsidy was to develop industries in selected backward areas. On a perusal of the scheme, it was clear that the subsidy amount granted was percentage of the total fixed capital investment, which was only taken as a measure for qualifying the subsidy. From the proforma prescribed under the scheme to find out the total fixed capital investment, it could be seen that in other assets on which depreciation was not admissible, such as tools, goods carrier, promotional and preoperative expenses capitalised or to be capitalised and margin money for working capital, were also included. Nowhere had the scheme provided as to how the subsidy should be utilised and for which assets. It was open to the assessee to legitimately reduce the cost of land in its books of account to the full extent of the subsidy, in which case the cost of plant and machinery would remain at invoice price uninfluenced by the amount of subsidy. The amount received by way of subsidy could be utilised for any purpose such as acquiring land on which no depreciation was admissible or on plant and machinery or for erection of buildings or for working capital or for repaying the loans already borrowed. Hence, unless the subsidy received had a nexus, direct or indirect, to meet a portion of the actual cost of any specific capital asset, it could not be brought within the purview of Section 43(1) of the Act. Therefore, the subsidy could not be deducted from the actual cost of the assets to the assessee and depreciation should be allowed without reducing the same by the amount of subsidy granted.
18. Similarly, the Kerala High Court in Commissioner of Income-tax v. Relish Foods observed as under:
the subsidy received from the Government for setting up industry in a backward area is really an incentive. It has nothing to do with the cost of a particular asset. The subsidy cannot, therefore, be deducted from the cost of assets for the purpose of allowing depreciation and development rebate on such assets or for computation of relief Under Section 80J of the Income-tax Act, 1961.
19. In Commissioner of Income-tea v. Grace Paper Industries Pvt. Ltd , a Division Bench of the Gujarat High Court has also taken the same view. It was observed as under:
The Central Government as well as the State Government noticed that areas specified as backward areas and tribal areas were undeveloped or underdeveloped and entrepreneures were not willing to set up industries in such undeveloped or under-developed areas. The Government, therefore, decided to give financial incentives to encourage and induce entrepreneurs to move to backward areas and establish industries there so that the region may develop and promote the welfare of the people living in that region. One of the incentives which the Government decided to grant was cash subsidy. The dictionary meaning of “Sub-sidy” is “a enterprise considered as beneficial to the public.” The Government, in order to determine the amount of cash subsidy, decided to follow one of the recognised methods of working it out on the basis of the amount invested by an entrepreneur in acquiring capital assets and specified a certain percentage of the amount so invested in the capital assets as cash subsidy. The basis adopted for determining the cash subsidy with reference to the cost or value of fixed assets was only a measure for quantifying the subsidy and the subsidy was not given for the specific purpose of meeting any portain of the cost of the fixed assets. Consequently, the subsidy did not form part of the actual cost of plant and machinery within the meaning of Section 43 of the Income-tax Act, 1961. It cannot be deducted from the cost of assets in computing depreciation, development rebate and investment allowance.
20. The Gujarat High Court has also placed a heavy reliance on the decision given by the Andhra Pradesh High Court in Godavari Plywoods and the Madhya Pradesh High Court in Bhandari Capacitors (Supra). They have also followed the decision of the Karnataka and Kerala High Court in Diamond Dies Manufacturing Corporation and Relish Foods (supra).
21. learned Counsel has also invited our attention to the subsequent decisions of the Madhya Pradesh High Court in Commissioner of Income-tax v. Steel Tubes of India (P) Ltd. ; Commissioner of Income-tax v. Steel Ingots (P) Ltd. and Commissioner of Income- tax v. Steel Tubes of India Ltd. reiterating the same view as was taken in the case of Bhandari Capacitors Private Ltd. (supra). Therefore, the Andhra Pradesh, Madhya Pradesh, Karnataka, Gujarat and Kerala High Courts have taken the view that such subsidy shall not be deducted in computing the actual cost of the assets for the purpose of calculating the depreciation allowance admissible to the assessee.
22. As regards this, the learned Counsel for the Revenue has invited our attention to Commissioner of Income-tax v. Jindal Brother Rice Mills . The Punjab & Haryana High Court has taken the view that the amount of subsidy received by the assessee shall be deducted from his assets for arriving at the actual cost. With utmost respect, we do not agree with the view taken by the Punjab & Haryana High Court. Moreso, the Central Scheme which has been reproduced above shows that the subsidy or the investment subsidy was not given item-wise. The Punjab Government issued a notification on 21-3-1979 and under that scheme subsidy was given to the various units and there also it was laid down that the subsidy will be given at the rate of 15 per cent of the fixed capital investment made by the unit in certain specified areas. 15 percent of the fixed capital investment was to be assessed on the basis of land, building etc. as was in the case of the notification of the Central Government of 1971. As a matter of fact, that was only a mode to arrive at 15% on the basis of the fixed capital investment. This was only a mode to arrive at the percentage of the subsidy but unfortunately the learned Judges have taken to mean that when the Government has specified in the investment policy that 15% of the cost of the plant and machinery, building would be provided by the State Government, the underlying object is to reduce the value of the plant, machinery and building by 15% of actual cost. This line of reasoning with due respect is not correct. In fact, it was a mode to arrive at 10% or 15% of the subsidy on the land, building and machinery. This 10% or 15% subsidy was wholly misconstrued by the Hon’ble Judges to mean an investment on the plant, building and machinery so as to reduce this amount from the actual cost. With great respect, we do not agree with the view taken by the Division Bench of the Punjab and Haryana High Court.
23. The case came up for consideration before the Gujarat High Court also in Grace Paper Industries Pvt. Ltd. (surpa) and the Gujarat High Court differed with the view taken by the Division Bench of the Punjab & Haryana High Court.
24. Our attention was also drawn to Ludhiana Central Cooperative Consumers’ Stores Ltd. v. Commissioner of Income-tax, Patiala-I . In that case, the assessee Cooperative Stores did not succeed in its venture and approached the Government for subsidy which was given in the sum of Rs. 15,719/- (Rs. 2,500/- for delivery van, Rs. 1,250/-for equipment and Rs. 11,969/- for managerial and rental expenses) for the assessment year 1965-66, and Rs. 12,815/- on account of managerial expenses for the assessment year 1967-68. The assessee’s case for both the years in question was that the subsidy was a receipt of casual and non-recurring nature and was hence exempted form tax. The ITO did not accept this contention. But on appeal the AAC upheld the claim. The appellate Tribunal agreed with the ITO and held that the receipts were revenue receipts. The Punjab & Haryana High Court held that it is a revenue receipt. But that case is distingusihable as in that case the subsidy was given itemwise and it was not a subsidy by way of incentive for encouraging the entrepreneurs to establish their units in backward district or areas. It was given for the purpose of grant for specific items like for delivery van, equipment and for managerial and rental expenses. As against this, the subsidy which has been given under the Central Scheme of the 1971 or the investment subsidy was a subsidy to the entrepreneurs so as to attract them for establishing the industries in the selected backward district/areas. Thus, this kind of subsidy cannot be equated with the case of Ludhiana Central Cooperative Consumers Stores. This case also came up for consideration before the Gujarat High Court in the case of Grace Paper Industries Pvt. Ltd. (supra) and it was observed as under:
Since the subsidy was not granted to meet the cost of fixed assets or a portion thereof, there is no question of it taking the colour of the cost of the fixed assets. It is the character of the receipt that has to he considered. Here, the subsidy, though based on the cost of the fixed assets, was not to meet the cost of the fixed assets, but was given as an incentive, cost being only a measure to quantify it. In our opinion, therefore, the said decision of the Punjab and Haryana High Court is of no assistance to the Revenue.
25. We are in respectful agreement with the view expressed by the Gujarat High Court and we are also os the view that the case of the Ludhina Central Cooperative Consummers’ Stores Ltd. (supra) is distignuishable and cannot be of any assistance to the Revenue.
26. Commissioner of Income-tax v. J.K. Cotton Spinning and Weaving Mills Ltd. is not relevant for the present purpose as it was not case of subsidy.
27. Commissioner of Income-tax, Gujarat-I: Ahmedabad v. Kaira District Cooperative Milk Producers’ Union Ltd. does not also relate to subsidy. This was a case of grant-in-aid, which was found to be not included for computation of the capital investment under the Income-tax Act, 1961.
28. Commissioner of Income-tax (Central), New Delhi v. Dalmia Dadri Cement Ltd. was also not a case of subsidy.
29. Rohtak & Hissar Districts Electric Supply Co. (P) Ltd. v. Commissioner of Income-tax, Delhi-I was also not a case of subsidy. In this case, it was held that since the assement year was 1962-63, the “Actual cost” had to be determined Under Section 43(1) of the Act of 1961 and the written down value as on April 1,1961 had to be determined under that section. Therefore, the “actual cost” had to be determined after deducting the contributions received from the consumers and, therefore, the written down value as on April 1,1961 could not be the same as that on March 31, 1961.
30. In Jeewanlala (1929) Ltd. v. Commissioner of Income-tax (Central Circle-II) Calcutta one of the questions was that the cash assistance received by exporters from the Government for the purpose of encouraging more exports constitutes revenue receipt or capital receipt and in that context it was fould that this is a subsidy inextricably connected with the act of exportation. It was observed that this is incidental to and supplemental to trading receipts and this is to be treated as revenue receipt. Therefore, this question whether the subsidy received from the Government should be treated as actual cost or not was the question before the Calcutta High Court.
31. Similary, in Dhrangadhra Chemical Works Ltd. v. Commissioner of Income-tax, Bombay City II the same question came up for consideration before the Bombay High Court. The question was that subsidy or grant received from the Government to assits the business should be treated as a revenue receipt or a casual or non-recurring receipt. The Bombay High Court relying upon the test laid down in Ostime (H.M. Inspector of Taxes) v. Pontypridd and Rhondda Joint Water Board (1946) 28 TC 261 held that such receipts would clearly be treated as a revenue receipt and the same shall be taken into account in arriving at the income, profits and gains of the business. In this case also the question did not call for consideration as to whether such subsidy can be deducted or not from the actual cost of the industrial unit.
32. In Commissioner of Income-tax, Bihar & Orissa v. Ranchi Electric Supply Co. Ltd. , it was observed that the effect of amendment under the Amendment Act of 1953 is to nullify the decision of the Bombay High Court on Poona Electric Supply Company’s case (1946) 14 ITR 622. In the context, it was observed that by means of the Amending Act a new explanation has been added to Section 10(5) (c) which is in the following terms:
For the purposes of this Sub-section, the expression, ‘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 Government or by any public or local authority, and any allowance in respect of any depreciation carried forward Under Clause (b) of the proviso to clause (Vi) of Sub-section (2) shall be deemed to be depreciation ‘actual allowed.
33. This case also docs not help the Revenue for the simple reason that before Patna High Court the question was that what should be the effect of a general subsidy granted by the Government. Therefore, these stray observations will not be of any help to the Revenue which barely interpreted that text of the provision without regrad to the nature of the subsidy.
34. Jogta Coal Co. Ltd. v. Commissioner of Income- tax, West Bengal was a case in which the question was the interpretation of saledeed and whether the goodwill purchased by the assessee can be taxed or not by the ITO. It was held that goodwill is an asset well understood business and capable of valuation. In this connection, it was held that the cost to be calculated for the purpose of depreciation allowance is the cost to the assessee and not to the person who sells to the assessee. It was observed that this is the discretion of the ITO to determine the cost which the assessee had actually incuried. It was for the ITO to find out that in reality what is the actual cost excluding the collusive, unduly inflated of fictitious cost. This case has no relevnace whatsoever with the case in hand.
35. In the case of V.S.S.V Meenakshi Achi and Anr. v. Commissioner of Income-tax, Madras the question was regarding payment made by the Government out of Cess Fund against the expenditure incurred or mainatenance of plantation. Whether such payment will be included in the income or is a capital receipt. In this context, it was observed that the amount received from the fund ear marked for the assessee on the basis of the rubber produced by them were paid against the expenditure incurred by them for maintaining the rubber plantations and producing the rubber, the amounts received by the assessees were revenue receipts and, therefore, liable to be included in their assessable income. Here, also there was no question whether the grant given by the Government could be duductible from the acutal cost or not.
36. Commissioner of Income-tax Madras v. South Mardas Electric Supply Corporation Ltd. was a case where the question was that after the amendment of the Income-tax Act, of 1922 and the Income-tax Act, 1961 coming into force, the term actual cost occurring in Section 43(1) should be applied only in respect of assets which came into existence on or after 1-4-1961. The Madras High Court took the view that actual cost for the purpose of arriving at the written down value Under Section 43(6)(b) of the Act of 1961 for the assesement years 1962-63 onwards will be as defined in Section 43(1) of the Act. It was further held that the contribution by the consumers towards the cost of house service connections should be deducted in arriving at the actual cost thereof. Thus, in this case, the question was that the contribution made by the consumers towards the cost of house service connections should be deducted or not in order to arrive at the actual cost. This was not a case of a subsidy or grant made by the Government. As such this case has no relevance whatsoever with the case in hand.
37. In Lucknow Producers’ Cooperative Milk Union Ltd. v. Commissioner of Income-tax the question was that when an assessee purchased capital assets with the help of grant of Government, whether that grant or amount should be deducted from the actual cost or not for the purpose of arriving at depreciation. It was held that in order to work out the depreciation the amount of grant should be deducted form the cost of the assets. This was not the case for subsidy, but it was a grant made by the Government which is different from that of subsidy to the backward areas.
38. Commissioner of Income-tax, Bombay City-I v. Bassein Electric Supply Co. Ltd. ; Ranchi Electric Supply Co. Ltd. v. Commissioner of Income-tax ; Commissioner of Income-tax, API, Hyderabad v. Sahney Steel and Press Works Ltd. ; and Commissioner of Income- tax, Gujarat v. Hides & Leather Products Pvt. Ltd. have no relevance whatsoever with the case in hand. All these case are not of subsidy as such they are distinguishable on that point.
39. Thus, from the survey of all the cases, which have been cited on behalf of the assessee and the Revenue the consensus of opinion which emerges from the various decision of the High Courts through out the country is that the subsidy or investment subsidy given by the Government which is for development of the industries in the selected backward district areas cannot be deducted from the actual cost for giving the benefit of depreciation. As a matter of fact, the subsidy is a grant for encouraging the entrepreneurs to come forward and develop the backward areas. As such it cannot be deducted from the assets of the assessee for denying the benefit of depreciation.
40. Thus, we are in respectfull agreement with the views expressed by the Andhra Pradesh, Gujarat, Karnataka, Kerala High Courts.
41. In the result, for the reasons mentioned above, we answer this reference and the references mentioned in the Schedule appended with this judgment in favour of the assessee and against the revenue.
