COMMISSIONER OF INCOME TAX vs. RAMA PHARMA LAB. PVT. LTD.

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ITR/284/1994HC GujaratGJHC24020360199415 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 law in confirming the CIT(A)'s order allowing depreciation on the total cost of the plant and machinery without deducting the cash subsidy. The High Court relied on its own previous 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 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. (210 ITR, 830). The Supreme Court held that where a government subsidy is intended as an incentive to encourage entrepreneurs, the specified percentage of fixed capital cost used to quantify the financial aid is not a payment 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 calculating depreciation. The question is answered in the affirmative against the Revenue.

What were the facts?

The assessee, Rama Pharma Lab. Pvt. Ltd., claimed relief under Section 80J for a particular assessment year. During the relevant previous year, the assessee received a cash subsidy of Rs. 4,81,320/- from the State Government against plant and machinery. The Income Tax Officer (ITO) reduced the cost of the machinery by the subsidy amount for the purpose of calculating investment allowance and depreciation. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the appeal, holding that the ITO was not justified in deducting the subsidy from the cost of assets. The Revenue appealed to the Income Tax Appellate Tribunal (ITAT), which confirmed the CIT(A)'s order, relying on a Gujarat High Court judgment.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in confirming the CIT(A) Surat's order allowing depreciation on the total cost, without deducting the amount of cash subsidy of Rs. 4,81,320/-, from the provisions contained in section 43(1) of the Act for computation of "Actual Cost" of the Plant and Machinery? Assessee's Contention: The assessee argued that the subsidy received should not be deducted from the cost of assets for calculating depreciation and investment allowance. The CIT(A) and the Tribunal upheld this view. Revenue's Contention: The Revenue contended that the subsidy received against the cost of machinery should reduce the cost of the machinery for the purpose of granting investment allowance and depreciation. The ITO initially took this position.

Which sections of the Income-tax Act were involved?

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

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 284 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 RAMA PHARMA LAB. PVT. LTD. -------------------------------------------------------------- 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,on the facts and in the circumstances of the case, the Tribunal was correct in law in confirming the C.I.T.(A) Surat's order allowing depreciation on the total cost therefrom the amount of cash subsidy of Rs. 4,81,320/- provisions contained in section 43(1) of the Act for computation of "Actual Cost" of the Plant and Machinery ?"

2.

In the relevant assessment year, the ***darji

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