COMMISSIONER OF INCOME TAX vs. AMOD STAMPINGS,

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ITR/255/1994HC GujaratGJHC24020331199415 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 directing the Assessing Officer not to exclude the amount of subsidy from the cost of assets while working out depreciation allowance. The Court relied on its own decision in CIT vs. Grace Papers Industries Pvt. Ltd. (183 ITR, 591), which held that Government subsidy cannot be deducted from the cost of assets in 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. (210 ITR, 830). The Supreme Court held that where Government subsidy is intended as an incentive to encourage entrepreneurs, the fixed capital cost used to quantify the subsidy 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 calculating depreciation. The question referred is answered in the affirmative against the Revenue.

What were the facts?

The assessee, Amod Stampings, 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 the machinery by the subsidy amount for calculating depreciation and investment allowance. The Commissioner of Income Tax (Appeals) held 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 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 directing the Assessing Officer not to exclude the amount of subsidy from the cost of the assets while working out depreciation allowance? Assessee's Contention: The judgment does not record specific arguments made by the assessee before the Tribunal. However, the High Court's reasoning implies the assessee argued that subsidy should not reduce the cost of assets for depreciation purposes. 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 to the Tribunal against the CIT(A)'s order.

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 255 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 AMOD STAMPINGS, -------------------------------------------------------------- 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,the Appellate Tribunal is right in law and on facts in directing the Assessing Officer not to exclude the amount of subsidy from the cost of the assets while working out depreciation allowance ?"

2.

In the relevant assessment year, the ***darji

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