COMMISSIONER OF INCOME-TAX vs. KAILASH OIL CAKE INDUSTRIES

ITR/130/1995HC GujaratGJHC24022455199522 January 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE ANIL R. DAVE3 pages
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What were the facts?

The Income Tax Appellate Tribunal (ITAT) referred a question of law to the High Court of Gujarat concerning the assessment of Kailash Oil Cake Industries. The dispute revolved around whether a subsidy received by the assessee should be deducted from the cost of assets when calculating investment allowance and depreciation. The ITAT had dismissed the Revenue's appeal, upholding the order of the Commissioner of Income Tax (Appeals) which held that the subsidy should not be deducted. The ITAT relied on a previous decision of the High Court in CIT v. Grace Paper Industries Pvt. Limited.

What did the High Court hold?

The High Court held that the Appellate Tribunal was correct in its decision. The Court referred to its own prior ruling in CIT v. Grace Paper Industries Pvt. Limited, which held that subsidy does not form part of the actual cost of plant and machinery under Section 43 of the Act and therefore cannot be deducted for computing depreciation, development rebate, and investment allowance. Furthermore, the Supreme Court in CIT v. P.J. Chemicals Ltd. agreed with the majority view of High Courts, including the Grace Paper case. The Supreme Court reasoned that government subsidy is an incentive and does not partake of the character of a payment intended to meet the 'actual cost' directly or indirectly. Consequently, the question referred to the High 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 holding that for the purpose of investment allowance and depreciation, the amount of subsidy received by the assessee was not to be deducted for the purpose of arriving at the cost of assets, as per Section 43(1) of the Income Tax Act, 1961. Assessee's Contention: The judgment does not record any specific arguments made by the assessee before the High Court. However, the ITAT's decision, which was upheld, implies the assessee argued that subsidy does not reduce the actual cost of assets for depreciation and investment allowance purposes. Revenue's Contention: The Revenue contended that the subsidy received by the assessee should be deducted from the cost of assets for the purpose of calculating investment allowance and depreciation. The Revenue's appeal to the High Court was based on challenging the ITAT's finding.

Which sections of the Income-tax Act were involved?

Section 256(1),Section 43(1),Section 43

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 130 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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