COMMISSIONER OF INCOME-TAX vs. FATEHSINHJI GINNING PRESSING &MANUFACTURING CO

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

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?

Whether it is to be circulated to the Civil Judge? : NO -------------------------------------------------------------- COMMISSIONER OF INCOME-TAX Versus FATEHSINHJI GINNING PRESSING & MANUFACTURING CO -------------------------------------------------------------- Appearance: MR BB NAIK with MR MANISH R BHATT for Petitioner MR KC PATEL for Respondent No. 1

The respondent is a Company having its factory in Limbdi which is declared to be a backward area. The respondent assessee had obtained subsidy of Rs.94,557/from the State Government for establishing an industry at Limbdi. The assessee had claimed depreciation on the plant and machinery installed in its factory as per the depreciation rate schedule contained in the Income-tax Rule, 1962. While framing the assessments, the Income-tax Officer was of the view that the subsidy received by the assessee from the Government was revenue receipt. He, therefore, included the amount of subsidy received by the assessee in computing its total income. In appeal before the Commissioner (Appeals), it was held that the subsidy received by the assessee from the Government was not revenue receipt in the hands of the assessee. Being aggrieved by the order of the Commissioner (Appeals), the revenue approached the Income-tax Tribunal, Ahmedabad Bench "A" by filing ITA No. 1066/Ahd/1983 for Assessment Year 1976-77 and ITA No. 1067/Ahd/1983 for Assessment Year 1978-79. The portion of the `actual cost'. After interpreting the expression `actual cost' appearing in Section 43(1) of the Income-tax Act, 1961 liberally, the Supreme Court has held that such a subsidy does not partake of the incidents which attract the conditions for its deductibility from `actual cost' and 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. We may state that while holding that the subsidy received by the assessee was not revenue revenue receipt in its hands, the Tribunal had relied upon the judgment rendered in Lucknow Producers' Co-Op. Income-tax (Supra). In view of the specific finding recorded by the Tribunal to the effect that the State Government had granted subsidy to the assessee by way of impetus to establish an industry in the backward area without any further conditions or stipulations to invest a part of such subsidy in the purchase of capital assets, we are of the opinion that the Tribunal did not commit any error in holding that investment allowance and depreciation should be allowed without reducing the cost of capital asset by the amount of subsidy received. We accordingly answer the question in the affirmative i.e. against the revenue and in favour of the assessee.