COMMISSIONER OF INCOME-TAX vs. SHARP REFFILS CO PVT LTD

ITR/144/1994HC GujaratGJHC24020221199405 October 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI3 pages
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What were the facts?

The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench 'B', referred a question of law to the Gujarat High Court concerning assessment year 1984-85. The dispute involved whether depreciation on assets should be granted on their cost without deducting the subsidy amount received. The Commissioner of Income-tax (CIT) was the applicant (revenue), and Sharp Refils Co Pvt Ltd was the respondent (assessee). The ITAT had directed the Assessing Officer (AO) to grant depreciation on the cost of assets without deducting the subsidy. The revenue challenged this direction. The High Court heard the revenue's counsel, Mr. M.R. Bhatt, but noted no appearance from the assessee despite service.

What did the High Court hold?

The High Court held that the Income Tax Appellate Tribunal was correct in law and on facts in directing the Assessing Officer to grant depreciation on the cost of assets without deducting the subsidy amount. The Court applied the ratio of its own decision in CIT v. Grace Paper Industries P. Ltd., which was affirmed by the Supreme Court in CIT v. P.J. Chemicals Ltd. The principle established is that subsidies received for acquiring assets do not reduce the cost of those assets for the purpose of calculating depreciation under the Income Tax Act. Therefore, depreciation is to be calculated on the full cost of the asset, irrespective of any subsidy received. The question referred was answered in the affirmative, in favour of the assessee and against the revenue. The reference was disposed of accordingly.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to grant depreciation on the cost of the assets without deducting the amount of subsidy therefrom, under the Income Tax Act, 1961. Assessee's Contention: Not recorded in the judgment. Revenue's Contention: The revenue, through its counsel Mr. M.R. Bhatt, argued that the ITAT erred in directing the AO to grant depreciation on the cost of assets without deducting the subsidy. However, Mr. Bhatt fairly conceded that the ITAT's decision was based on this Court's prior ruling in CIT v. Grace Paper Industries P. Ltd., 183 ITR 591, which was subsequently approved by the Apex Court in Commissioner of Income Tax v. P.J. Chemicals Ltd., [1994] 210 ITR 830.

Which sections of the Income-tax Act were involved?

Section 256(1)

AI-generated summary — verify with the full judgment below

ITR/144/1994 1/3 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 144 of 1994 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA HONOURABLE MS.JUSTICE H.N.DEVANI ============================================================== 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 SHARP REFILS CO PVT LTD - Respondent(s) ============================================================== Appearance : MR MANISH R BHATT for Applicant NOTICE SERVED for Respondent : 1, ================================================================== CORAM :  HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 05/10/2005 ORAL JUDGMENT (Per : HONOURABLE MS.JUSTICE H.N.DEVANI) 1.The Income Tax Appell

The order continues below.

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