COMMISSIONER OF INCOME TAX vs. BROACH TEXTILE MILLS LTD

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ITR/276/1987HC GujaratGJHC24012008198707 March 2001Author: HONOURABLE MR. JUSTICE J.M.PANCHAL,HONOURABLE MR. JUSTICE MOHIT S. SHAH3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the Appellate Tribunal was correct in its decision. The reasoning was based on the Supreme Court's ruling in COMMISSIONER OF INCOME-TAX v. P.J. CHEMICALS LTD. (1994) 210 ITR 830. The Supreme Court had established that when a Government subsidy is provided as an incentive to encourage industrial development in backward areas, the subsidy amount is not to be deducted from the 'actual cost' of the assets for the purpose of calculating depreciation and investment allowance. The Court reasoned that the subsidy is a financial aid quantified by a percentage of fixed capital cost and does not represent a payment to meet any portion of the 'actual cost'. Therefore, the expression 'actual cost' in Section 43(1) should be interpreted liberally, and the subsidy does not partake of the incidents that would necessitate its deduction. The High Court answered the question in the affirmative, in favour of the assessee and against the Revenue. The reference was disposed of with no order as to costs.

What were the facts?

The Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench 'A', referred a question of law to the High Court of Gujarat concerning Assessment Year 1977-78. The appeal was at the instance of the Revenue against the assessee, Broach Textile Mills Ltd. The core issue revolved around whether depreciation and investment allowance should be allowed without deducting a subsidy of Rs. 2,15,053/- from the total asset value, as per Section 43 of the Income-tax Act, 1961. The High Court heard the Revenue's counsel, while the respondent remained unrepresented despite being served.

What were the issues?

1. Whether, in law and on facts, the Appellate Tribunal is right in holding that depreciation and investment allowance should be allowed without deducting the value of subsidy amounting to Rs. 2,15,053/- from the value of the total assets, as provided under section 43 of the Income-tax Act, 1961? Assessee's Contention: The judgment does not record any specific contentions made by the assessee. However, the Tribunal's decision, which the High Court upholds, implies the assessee argued for allowing depreciation and investment allowance without deducting the subsidy. Revenue's Contention: The Revenue, through its counsel, fairly stated that the question referred to the High Court is squarely covered by the Supreme Court's decision in COMMISSIONER OF INCOME-TAX v. P.J. CHEMICALS LTD. (1994) 210 ITR 830, which supports the assessee's position.

Which sections of the Income-tax Act were involved?

Section 43

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 276 of 1987

For Approval and Signature:

Hon'ble MR.JUSTICE J.M.PANCHAL and Hon'ble MR.JUSTICE M.S.SHAH

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : NO 3. Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus BROACH TEXTILE MILLS LTD -------------------------------------------------------------- Appearance: MR BB NAIK for MANISH R BHATT for appellant NOTICE SERVED for the respondent

--------------------------------------------------------------

CORAM : MR.JUSTICE J.M.PANCHAL and MR.JUSTICE M.S.SHAH

Date of decision: 07/03/2001

ORAL JUDGEMENT (Per : MR.JUSTICE J.M.PANCHAL)

At the instance of the Revenue, the Income-tax Appellate Tribunal, Ahmedabad, Bench 'A' has referred the following question of law for the opinion of this Court in respect of A.Y. 1977-78 :-

"Whether,in law and on facts, the Appellate Tribunal is right in holding that depreciation and investment allowance should be allowed without deducting the value of subsidy amounting to Rs. 2,15,053/- from the value of the total assets, as provided under section 43 of the Income-tax Act, 1961 ?"

2.

We have heard the learned counsel for the Revenue. Though served, no one appears on behalf of the respondent. The learned counsel for the Revenue fairly states that the question referred to us for our opinion is squarely covered by the decision of the Supreme Court in COMMISSIONER OF INCOME-TAX v. P.J.CHEMICALS LTD. (1994) 210 ITR 830. In the said decision, the Supreme Court has ruled that where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the 'actual cost' and the expression 'actual cost' in section 43(1) of the Income-tax Act, 1961, should be interpreted liberally because subsidy does not partake of the incidents which attract the conditions for its deductibility from 'actual cost'. According to the Supreme Court, the amount of subsidy is not to be deducted from the 'actual cost' under section 43(1) for the purpose of calculation of depreciation etc.

3.

In view of the principles laid down by the Supreme Court in the above quoted decision as well as the findings recorded by the Commissioner of Income-tax (Appeals) and the Tribunal, we are of the opinion that the Appellate Tribunal is right in holding that the depreciation and investment allowance should be allowed without deducting the value of subsidy amounting to Rs. 2,15,053/- from the value of the total assets as provided under section 43 of the Income-tax Act, 1961. The question is, therefore, answered in the affirmative i.e. in favour of the assessee and against the Revenue. The Reference accordingly stands disposed of with no order as to costs.

(J.M.Panchal,J.)

(M.S.Shah, J. )

(patel)

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