COMMISSIONER OF INCOME-TAX vs. SANAND TEXTILES INDUSTRIES PVT. LIMITED

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ITR/191/1993HC GujaratGJHC24021245199315 April 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE KUNDAN SINGH3 pages
AI SummaryAllowed

What did the High Court hold?

The Tribunal was right in directing the ITO to grant depreciation and investment allowance without deducting the subsidy from the cost of the assets. The Tribunal's decision was based on the Gujarat High Court's judgment in CIT vs. Grace Papers Industries Pvt. Ltd., which held that government subsidy amounts cannot be deducted from the cost of assets in computing depreciation, development rebate, and investment allowance. The High Court reasoned that the subsidy was not intended to meet the cost of the assets, and therefore, the actual cost to the assessee should not be reduced by the subsidy for calculating capital employed. This view was subsequently approved by the Supreme Court in CIT vs. P.J. Chemicals Ltd., which clarified that subsidies intended as incentives for establishing industries in backward areas are not payments to meet any portion of the actual cost and should not be deducted from the actual cost under Section 43(1) for depreciation calculations. The question referred to the High Court was answered in the affirmative against the Revenue.

What were the facts?

The assessee, Sanand Textiles Industries Pvt. Limited, claimed relief under Section 80J of the Income Tax Act, 1961, for a relevant assessment year. During the previous year, the assessee received a subsidy from the State Government against plant and machinery. The Income Tax Officer (ITO) reduced the cost of these assets by the subsidy amount for calculating depreciation and investment allowance. The Commissioner of Income Tax (Appeals) disagreed, directing the ITO to grant reliefs without deducting the subsidy. The Revenue appealed to the Income Tax Appellate Tribunal, which upheld the CIT(A)'s decision, relying on a Gujarat High Court judgment.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in directing the ITO to grant depreciation and investment allowance without deducting subsidy from the cost of the assets? (Question of law and fact, concerning the computation of depreciation and investment allowance). Assessee's Contention: The assessee argued that the subsidy received from the State Government should not be deducted from the cost of assets for calculating depreciation and investment allowance. The Tribunal relied on the Gujarat High Court's decision in CIT vs. Grace Papers Industries Pvt. Ltd. (183 ITR, 591). Revenue's Contention: The Revenue contended that the subsidy received against the cost of machinery should reduce the cost of the assets for the purpose of granting investment allowance and depreciation. The Revenue appealed the CIT(A)'s order to the Tribunal.

Which sections of the Income-tax Act were involved?

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 191 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 SANAND TEXTILES INDUSTRIES PVT. LIMITED --------------------------------------------------------------

Appearance: MR Mihir Joshi for MR BHATT for Petitioner SERVED BY RPAD - (N) 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,the Appellate Tribunal is right in law and on facts in directing the ITO to grant depreciation and investment allowance without deducting subsidy from the cost of the assets ?"

2.

In the relevant assessment year, the ***darji

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