COMMISSIONER OF INCOME TAX vs. GRACE PAPER INDUSTRIES (P)LTD.

ITR/121/1995HC GujaratGJHC24022446199522 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. 121 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 Grace Paper Industries (P) Ltd. The core issue revolved around whether a subsidy received by the assessee should be deducted from the cost of assets when calculating depreciation. The Assessing Officer's action, which was upheld by the CIT(A) and subsequently the Tribunal, directed that the subsidy should not be deducted. The Revenue preferred an appeal to the High Court against the Tribunal's order.

What did the High Court hold?

The High Court held that the Appellate Tribunal was correct in directing the Assessing Officer not to deduct the subsidy amount from the cost of assets for calculating depreciation. The Court relied on its own previous decision in CIT v. Grace Paper Industries Pvt. Limited (183 ITR 591) and the Supreme Court's decision in CIT v. P.J. Chemicals Ltd. (210 ITR 830). The Supreme Court had agreed with the majority view of High Courts, including this Court's decision in Grace Paper's case. The reasoning was that government subsidy is an incentive and does not partake of the character of a payment intended to meet the 'actual cost' of the asset. Therefore, the question referred to the Court was answered in the affirmative, in favour of the assessee and against the Revenue. 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 not to deduct the amount of subsidy from the cost of the assets for the purpose of calculating depreciation? (Question of law and fact, concerning Section 43(1) of the Income Tax Act, 1961). Assessee's Contention: The assessee, Grace Paper Industries (P) Ltd., argued that the subsidy received should not be deducted from the cost of assets for depreciation calculation. This position was upheld by the CIT(A) and the Tribunal. Revenue's Contention: The Revenue contended that the subsidy amount should be deducted from the cost of assets before calculating depreciation. The Revenue's appeal to the High Court was against the Tribunal's decision.

Which sections of the Income-tax Act were involved?

Section 43(1),Section 256(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 121 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.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 43(1)

All 577 judgments and leading authorities on Section 43(1) →

Recent GST High Court judgments

Search GST case law →