COMMISSIONER OF INCOME TAX vs. DAYARAM METAL WORKS PVT. LTD.

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ITR/285/1994HC GujaratGJHC24020361199415 April 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE KUNDAN SINGH3 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the Income Tax Appellate Tribunal was justified in confirming the order of the CIT(A) and directing the ITO to allow depreciation and investment allowance on the total cost of assets without deducting the subsidy. The Court reasoned that the subsidy was granted as an incentive to encourage entrepreneurs to establish industries in backward areas, and the specified percentage of fixed capital cost used to quantify the subsidy was merely a measure of financial aid, not a payment directly or indirectly meeting any portion of the actual cost. Therefore, the amount of subsidy was not to be deducted from the actual cost under section 43(1) for the purpose of calculating depreciation and investment allowance. The Court relied on its own prior decision in CIT vs. Grace Papers Industries Pvt. Ltd. and the Supreme Court's decision in CIT vs. P.J. Chemicals Ltd. The question referred to the Court was answered in the affirmative against the Revenue. The Reference was disposed of.

What were the facts?

The assessee, Dayaram Metal Works Pvt. Ltd., received a government subsidy of Rs. 1,45,758/- for plant and machinery in a relevant assessment year. The Income Tax Officer (ITO) reduced the actual cost of the assets by this subsidy amount for calculating depreciation and investment allowance. The Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, directing the ITO to allow depreciation and investment allowance on the total cost without deducting the subsidy. The Revenue appealed to the Income Tax Appellate Tribunal (ITAT), which upheld the CIT(A)'s order, relying on a previous Gujarat High Court judgment. The ITAT referred a question of law to the High Court.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the ITAT was justified in confirming the CIT(A)'s order and directing the ITO to allow depreciation and investment allowance on the total cost of assets without deducting the subsidy of Rs. 1,45,758/- received by the assessee, as provided under section 43(1) of the Income-tax Act? Assessee's Contentions: The judgment does not record specific contentions made by the assessee before the High Court, but it relies on the CIT(A)'s finding that the ITO was not justified in deducting the subsidy. The assessee would have argued that the subsidy was not intended to reduce the actual cost of the assets. Revenue's Contentions: The Revenue's appeal to the ITAT was based on the ITO's view that the subsidy reduced the cost of the machinery for the purpose of investment allowance and depreciation. The Revenue likely argued that section 43(1) requires deduction of any subsidy received towards the cost of assets.

Which sections of the Income-tax Act were involved?

Section 256(1),Section 43(1),Section 80J

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 285 of 1994

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements?

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question 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?

-------------------------------------------------------------- COMMISSIONER OF INCOME TAX Versus DAYARAM METAL WORKS PVT. LTD. -------------------------------------------------------------- Appearance: MR Mihir Joshi for MANISH R BHATT for Petitioner NOTICE NOT RECD BACK for the Respondent --------------------------------------------------------

CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH Date of decision: 15/04/98

ORAL JUDGEMENT (Per R.K.Abichandani,J)

The Income-tax Appellate Tribunal, Ahmedabad has referred the following question for the opinion of this Court under section 256(1) of the Income-tax Act,1961. "Whether,on the facts and in the circumstances of the case, the I.T.A.T., Ahmedabad was justified in confirming C.I.T.(Appeals), Surat's order and in directing the I.T.O. to allow depreciation and investment allowance on thetotal cost of assets without deducting therefrom theamount of subsidy of Rs. 1,45,758/- received by the assessee from the Government to arrive at the "Actual cost" of the assets, as provided for under section 43(1) of the Income-tax Act ?"

2.

In the relevant assessment year, the ....

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