COMMISSIONER OF INCOME TAX vs. POWER BUILD LTD

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ITR/268/1993HC GujaratGJHC24021295199315 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 Tribunal was right in its decision. The Court referred to its own prior decision in CIT vs. Grace Papers Industries Pvt. Ltd. (183 ITR, 591) and the Supreme Court's decision in CIT vs. P.J. Chemicals Ltd. (210 ITR, 830). These judgments established that where a government subsidy is intended as an incentive to encourage entrepreneurs, and the subsidy amount is quantified based on a percentage of fixed capital cost, it is not a payment directly or indirectly to meet any portion of the actual cost. Therefore, the amount of subsidy is not to be deducted from the actual cost under section 43(1) for the purpose of calculating depreciation, investment allowance, or other reliefs like section 80J. The Court answered both referred questions in the affirmative, in favour of the Revenue. The reference was disposed of accordingly.

What were the facts?

The assessee, Power Build Ltd., claimed investment allowance and depreciation. The Income Tax Officer (ITO) reduced the cost of plant and machinery and building by the amount of cash subsidy received from the State Government for these purposes. The Commissioner of Income Tax (Appeals) disagreed, holding that the subsidy should not be deducted from the cost of assets. The Revenue appealed to the Income Tax Appellate Tribunal (ITAT). The ITAT, in turn, relied on a Gujarat High Court judgment and rejected the Revenue's appeal, finding in favour of the assessee. The ITAT referred two questions of law to the High Court for its opinion.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in directing the ITO to allow investment allowance on the cost of plant and machinery without deducting therefrom the amount of cash subsidy received by the assessee? 2. Whether the Appellate Tribunal is right in law and on facts in directing the ITO to allow depreciation on the cost of building without deducting therefrom the amount of cash subsidy received by the assessee? Assessee's Contentions: The judgment does not explicitly record the assessee's contentions. However, the outcome implies the assessee argued that the subsidy should not reduce the cost of assets for calculating investment allowance and depreciation. Revenue's Contentions: The Revenue contended before the ITAT that the cash subsidy received against the cost of machinery and building should be deducted from the cost of these assets for the purpose of calculating investment allowance and depreciation. The ITAT rejected this contention.

Which sections of the Income-tax Act were involved?

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

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 268 of 1993

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 POWER BUILD LTD -------------------------------------------------------------- Appearance: MR MANISH R BHATT for Petitioner NOTICE NOT RECD BACK for Respondent No. 1 --------------------------------------------------------

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 questions for the opinion of this Court under section 256(1) of the Income-tax Act,1961. "

1.

Whether,the Appellate Tribunal is right in law and on facts in directing the ITO investment allowance oncost of plant and machinery without deducting therefrom the amount of cash subsidy received by the assessee ?"

2.

Whether the Appellate Tribunal is right in law and on facts in directing the Income-tax officer to allow depreciation on cost of building without deducting therefrom the amount of cash subsidy received by the assesee ?"

2.

In the relevant assessment year, the ***darji

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