COMMISSIONER OF INCOME TAX vs. AMOL DICALITE LTD.

ITR/126/1995HC GujaratGJHC24022451199529 March 2006Author: HONOURABLE MR. JUSTICE J.M.PANCHAL,HONOURABLE MR. JUSTICE BANKIM.N.MEHTA6 pages
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What were the facts?

The assessee, Amol Dicalite Ltd., manufacturing filter aids, claimed depreciation on an ore shed and road to the factory as 'plant' for assessment year 1985-86. The Assessing Officer rejected this claim, noting the ore shed was not treated as plant in assessment year 1983-84, and also deducted subsidies from the cost of assets for depreciation calculation. The Commissioner of Income-tax (Appeals) directed the Assessing Officer not to deduct subsidies from asset costs for depreciation and to treat the ore shed as plant, allowing depreciation and extra shift allowance. The Income-tax Appellate Tribunal confirmed these directions. The Revenue sought a reference to the High Court on two questions.

What did the High Court hold?

The High Court held that the direction not to deduct subsidy from the cost of assets for depreciation was correct, citing the Supreme Court's decision in CIT vs. P.J. Chemicals Ltd. The Supreme Court held that government subsidy, intended as an incentive for backward areas, is not a payment to meet any portion of the 'actual cost' and should not be deducted from 'actual cost' under Section 43(1) for depreciation calculation. For the second issue, the Court found that the ore shed performed the functions of a 'plant' and was an integral part of it, based on the evidence. The CIT(A)'s finding that without the ore shed, including the ore hopper and foundation, it would not be possible to feed material into the plant was upheld. The Tribunal's confirmation of this finding, based on the ore shed's location within factory premises, its special structure with built-in machinery, and its role in smoothly feeding raw material, was also upheld. Therefore, the ore shed was correctly treated as plant, and depreciation and extra shift allowance were allowed.

What were the issues?

The Tribunal had to decide two questions of law and fact: 1. Whether the Appellate Tribunal was right in law and on facts in directing the Assessing Officer not to deduct the amount of subsidy from the cost of assets for the purpose of calculation of depreciation? 2. Whether the Appellate Tribunal was right in law and on facts in directing the Assessing Officer to treat the ore shed as plant and allow depreciation and extra shift allowance? The Revenue contended that subsidies should be deducted from the cost of assets for depreciation. The Assessee argued that the ore shed was an integral part of the plant and should be treated as such for depreciation purposes. The Tribunal relied on Gujarat High Court's decision in CIT vs. Grace Paper Industries P. Ltd. for the first issue and found the ore shed to be a special structure with built-in machinery integral to the plant for the second issue.

Which sections of the Income-tax Act were involved?

Section 256(1),Section 43(1)

AI-generated summary — verify with the full judgment below

ITR/126/1995 1/6 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 126 of 1995 For Approval and Signature: HONOURABLE MR.JUSTICE J.M.PANCHAL HONOURABLE MR.JUSTICE BANKIM.N.MEHTA ========================================= = 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ========================================= = COMMISSIONER OF INCOME TAX - Applicant(s) Versus AMOL DICALITE LTD. - Respondent(s) ========================================= = Appearance : MR MANISH R BHATT for Applicant(s) : 1, SERVED BY RPAD - (N) for Respondent(s) : 1, ================================================================== CORAM : HONOURABLE MR.JUSTICE J.M.PANCHAL and HONOURABLE MR.JUSTICE BANKIM.N.MEHTA Date : 29/03/2006 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE J.M.PANCHAL)

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