COMMISSIONER OF INCOME TAX vs. ADVANCE CHEMICALS PVT LTD

PDF · subscribers
ITR/347/1993HC GujaratGJHC24021351199315 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 correct in holding that depreciation and investment allowance should be allowed without reducing the actual cost of the assets by the amount of subsidy received by the assessee from the Government. The High Court, in its decision, affirmed the Tribunal's finding. The reasoning is based on the established legal position as laid down by the Gujarat High Court in CIT vs. Grace Papers Industries Pvt.Ltd. and subsequently approved by the Supreme Court in CIT vs. P.J. Chemicals Ltd. These judgments held that when a Government subsidy is intended as an incentive to encourage industrial development in backward areas, it is a measure to quantify financial aid and not a payment directly or indirectly meeting any portion of the actual cost. Therefore, the subsidy amount is not to be deducted from the actual cost under Section 43(1) for calculating depreciation, development rebate, or investment allowance. The assessee is entitled to these reliefs without such deduction. The question referred to the High Court is answered in the affirmative against the Revenue.

What were the facts?

The assessee, Advance Chemicals Pvt Ltd, received a subsidy from the State Government against plant and machinery during a relevant assessment year. The Income Tax Officer (ITO) reduced the actual cost of the assets by the subsidy amount for calculating depreciation and investment allowance. The Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, directing the ITO to allow reliefs without deducting the subsidy. The Revenue appealed to the Income Tax Appellate Tribunal (Tribunal), which upheld the CIT(A)'s decision, relying on a Gujarat High Court judgment. The Tribunal referred a question of law to the High Court.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in holding that depreciation and investment allowance should be allowed without reducing the actual cost of the assets by the amount of subsidy received by the assessee from the Government? (Question of law and fact, concerning depreciation, investment allowance, and actual cost). Assessee's Contention: The assessee argued that the subsidy received from the Government should not be deducted from the actual cost of the 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. and the Supreme Court's decision in CIT vs. P.J. Chemicals Ltd. Revenue's Contention: The Revenue contended that the subsidy received against the cost of machinery should reduce the actual cost for the purpose of granting investment allowance and depreciation. The ITO initially took this view, which was challenged by the assessee.

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 347 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 ADVANCE CHEMICALS PVT 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 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 holding that depreciation and investment allowance should be allowed without reducing the actual cost of the assets by the amount of subsidy received by the assessee from the Government ?"

2.

In the relevant assessment year, the ***darji

More judgments on Section 256(1)

All 755 judgments and leading authorities on Section 256(1) →

Recent GST High Court judgments

Search GST case law →