COMMISSIONER OF INCOME TAX vs. ADMARK PHARMA

ITR/136/1995HC GujaratGJHC24022461199522 January 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE ANIL R. DAVE3 pages
AI SummaryAllowed

What were the facts?

This case involves an Income Tax Reference No. 136 of 1995 before the High Court of Gujarat at Ahmedabad. The reference was made by the Income Tax Appellate Tribunal, Ahmedabad, concerning the assessment of Admark Pharma. The core issue revolves around whether a subsidy received by the assessee should be deducted from the actual cost of assets when calculating investment allowance and depreciation. The Assessing Officer's order, upheld by the CIT(A) and subsequently challenged by the Revenue before the Tribunal, directed the deduction of the subsidy. The Tribunal, however, dismissed the Revenue's appeal.

What did the High Court hold?

The High Court held that the Appellate Tribunal was correct in directing the Assessing Officer to allow investment allowance and depreciation on the actual cost of assets without deducting the subsidy received by the assessee. The Court relied on the Supreme Court's decision in CIT v. PJ Chemicals Ltd., which agreed with the view of various High Courts, including this Court's decision in CIT v. Grace Paper Industries Pvt. Limited. The Supreme Court held that government subsidies are incentives and do not partake of the character of a payment intended to meet the 'actual cost' of the asset. Therefore, the subsidy should not be deducted from the actual cost for computing depreciation, development rebate, and investment allowance. The question referred to the Court was answered in the affirmative, against the Revenue and in favour of the assessee. The Reference was disposed of accordingly.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in directing the Assessing Officer to allow investment allowance and depreciation on the actual cost of assets without deducting therefrom the amount of subsidy received by the assessee? (Question of law and fact, concerning Section 43(1) of the Income Tax Act, 1961). Assessee's Contention: The judgment does not record any specific contentions made by the assessee before the High Court. However, the Tribunal's decision, which was upheld, implies the assessee argued that subsidy should not be deducted from the actual cost. Revenue's Contention: The Revenue contended that the subsidy received by the assessee should be deducted from the actual cost of assets for the purpose of calculating investment allowance and depreciation. The Revenue's appeal to the Tribunal was dismissed.

Which sections of the Income-tax Act were involved?

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 136 of 1995

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE A.R.DAVE

============================================================ 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?

The order continues below.

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