COMMISSIONER OF INCOME-TAX vs. CADILA LABORATORIES P LTD

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ITR/244/1993HC GujaratGJHC24021276199315 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 right in law and on facts in directing the ITO to calculate depreciation and investment allowance without deducting the amount of subsidy from the actual cost. The Gujarat High Court in CIT vs. Grace Papers Industries Pvt.Ltd. (183 ITR, 591) held that Government subsidy cannot be deducted from the cost of assets for computing depreciation, development rebate, and investment allowance, as the subsidy was not intended to meet the cost of the assets. This view was approved by the Supreme Court in CIT vs. P.J. Chemicals Ltd. (210 ITR, 830), which held that subsidies intended as incentives for backward areas are not payments to meet the actual cost and should not be deducted from the actual cost under Section 43(1) for depreciation calculation. Therefore, the assessee is entitled to reliefs without deducting the subsidy from the actual cost of plant and machinery. The question is answered in the affirmative against the Revenue.

What were the facts?

The assessee, Cadila Laboratories 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 against plant and machinery. The Income Tax Officer (ITO) reduced the actual cost of the machinery by the subsidy amount for calculating depreciation and investment allowance. The Commissioner of Income-tax (Appeals) disagreed, directing the ITO to compute reliefs without deducting the subsidy. The Revenue appealed to the Income-tax Appellate Tribunal (ITAT), which upheld the CIT(A)'s decision, relying on a Gujarat High Court judgment.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in directing the ITO to calculate depreciation and investment allowance without deducting the amount of subsidy from the actual cost? Assessee's contention: The judgment does not record specific contentions for the assessee, but the outcome implies they argued that subsidy should not reduce the actual cost for depreciation and investment allowance purposes. 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.

Which sections of the Income-tax Act were involved?

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

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 244 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 CADILA LABORATORIES 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 to calculate depreciation and investment allowance without deducting the amount of subsidy from the actual cost ?"

2.

In the relevant assessment year, the ***darji

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