COMMISSIONER OF INCOME-TAX vs. APPOLLO INDUSTRIES PRODUCTS PVT LTD.

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ITR/203/1984HC GujaratGJHC24011877198415 April 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE KUNDAN SINGH3 pages
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What did the High Court hold?

The High Court held that the Tribunal was correct in its decision. The Court referred to its own decision in CIT vs. Grace Papers Industries Pvt. Ltd. (1990) 183 ITR 591 (Guj), which held that government subsidy cannot be deducted from the cost of assets for computing depreciation, development rebate, and investment allowance. The Court further noted that this view was approved by the Supreme Court in CIT vs. P.J. Chemicals Ltd. (2004) 210 ITR 830 (SC). The Supreme Court held that if a government subsidy is intended as an incentive to encourage entrepreneurs, the specified percentage of fixed capital cost used to quantify the aid is not a payment to meet any portion of the actual cost. Therefore, the subsidy amount is not to be deducted from the actual cost under Section 43(1) for depreciation calculation. The Court answered Question 1 in the affirmative, in favour of the Revenue. Question 2 was considered overlapping and not necessary to answer. The reference was disposed of.

What were the facts?

The assessee, Appollo Industries Products Pvt Ltd, claimed relief under Section 80J for a relevant assessment year. During the previous year, the assessee received a subsidy from the State Government for plant and machinery. The Income Tax Officer (ITO) reduced the cost of machinery by the subsidy amount for calculating investment allowance and depreciation. The Commissioner of Income-Tax (Appeals) [CIT(A)] disagreed, holding that the subsidy should not be deducted from the cost of assets. The Revenue appealed to the Income-Tax Appellate Tribunal (ITAT), which upheld the CIT(A)'s decision, relying on a Gujarat High Court judgment. The ITAT referred two questions of law to the High Court.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that cash subsidy received from the State Government for machinery is not to be deducted for calculating depreciation allowance and relief under Section 80J? (Question of law turning on Section 80J and Section 43(1)). 2. Whether, on the facts and circumstances of the case, cash subsidy received from the State Government for machinery attracted relief under Section 80J and depreciation allowance? (Question of law turning on Section 80J and Section 43(1)). Assessee's Contention: The assessee argued, and the lower authorities agreed, that the subsidy should not be deducted from the cost of machinery for calculating depreciation and Section 80J relief. The Tribunal relied on CIT vs. Grace Papers Industries Pvt. Ltd. (1990) 183 ITR 591 (Guj). Revenue's Contention: The Revenue contended that the subsidy received against the cost of machinery should reduce the cost for calculating depreciation and investment allowance. The ITO initially took this view. The Revenue appealed to the Tribunal.

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 203 of 1984

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 APPOLLO INDUSTRIES PRODUCTS PVT LTD. -------------------------------------------------------------- Appearance: MR MANISH R BHATT for Petitioner MR B.D.Karia with Mr. R.K.Patel for KC PATEL for the Respondent.

--------------------------------------------------------------

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

ORAL JUDGEMENT

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 on the facts and in the circumstances of the case, the Tribunal is correct in law in taking decision that the cash subsidy received from the State Government for machinery is not to be deducted for calculating depreciation allowance and relief under section 80J ?"

2.

Whether on the facts and circumstances of the case, cash subsidy received from the State Government for machinery as relief attracted to section 80J and depreciation allowance ?"

2.

In the relevant assessment year, the ***darji

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