COMMISSIONER OF INCOME-TAX vs. K PATEL CHEMO PHARMS (P) LTD

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ITR/248/1993HC GujaratGJHC24021279199315 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 ITO not to deduct the subsidy amount from the cost of assets while calculating depreciation and investment allowance. The Court reasoned that the subsidy was intended as an incentive to encourage entrepreneurs and was not a payment directly or indirectly to meet any portion of the actual cost of the assets. The Court relied on the Supreme Court's decision in CIT vs. P.J. Chemicals Ltd., which held that such Government subsidies are not to be deducted from the actual cost under Section 43(1) for the purpose of calculating depreciation, investment allowance, etc. The Court also noted that the Gujarat High Court in CIT vs. Grace Papers Industries Pvt. Ltd. had taken a similar view. Therefore, the assessee is entitled to the reliefs without deducting the subsidy amount from the actual cost of plant and machinery. The question referred to the Court is answered in the affirmative against the Revenue.

What were the facts?

The assessee, K Patel Chemo Pharms (P) Ltd, received a subsidy from the State Government against plant and machinery during the relevant assessment year. 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) [CIT(A)] disagreed, holding that the subsidy should not be deducted from the asset cost. 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 ITO to deduct the amount of subsidy from the cost of assets while calculating depreciation and investment allowance? (Question of law and fact, concerning Sections 32 and 32A of the Income Tax Act, 1961). Assessee's Contention: The assessee argued, and the CIT(A) and Tribunal agreed, that the subsidy received from the State Government should not be deducted from the cost of assets for calculating depreciation and investment allowance. They 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, through the ITO, contended that since the subsidy was received against the cost of machinery, the cost should be reduced to that extent for the purpose of granting investment allowance and depreciation.

Which sections of the Income-tax Act were involved?

Section 256(1),Section 80J,Section 43(1),Section 32,Section 32A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 248 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 K PATEL CHEMO PHARMS (P) 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 directing the ITO andto deduct the amount of subsidy from the cost of assets while of calculating depreciation and investment allowance ?"

2.

In the relevant assessment year, the ***darji

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