COMMISSIONER OF INCOME TAX vs. AMOD STAMPING,

ITR/122/1995HC GujaratGJHC24022447199522 January 1998Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE ANIL R. DAVE3 pages
AI SummaryAllowed

What were the facts?

The Commissioner of Income Tax (Revenue) appealed an order of the Income Tax Appellate Tribunal (ITAT) concerning the assessment year(s) not specified. The ITAT had upheld the order of the CIT(A), which held that subsidy amounts should not be deducted from the actual cost of assets for the purpose of calculating depreciation and investment allowance. The Revenue's appeal was referred to the High Court of Gujarat at Ahmedabad for its opinion under Section 256(1) of the Income Tax Act, 1961. The core of the dispute revolves around the treatment of subsidies in determining the depreciable cost of assets.

What did the High Court hold?

The High Court held that the Appellate Tribunal was correct in its decision. The reasoning is based on the Supreme Court's judgment in CIT v. P.J. Chemicals Ltd., which affirmed the view taken by the Gujarat High Court in CIT v. Grace Paper Industries Pvt. Limited. The Supreme Court found that government subsidies are incentives and do not partake of the character of a payment intended to meet the 'actual cost' of an asset. Therefore, subsidies are not to be deducted from the actual cost of assets when computing depreciation and investment allowance. The question referred to the High Court is answered in the affirmative, in favour of the assessee and against the Revenue. The reference stands disposed of accordingly.

What were the issues?

1. Whether the Appellate Tribunal is right in law and on facts in holding that the amount of subsidy is not to be deducted from the actual cost of the assets, for the purpose of depreciation and investment allowance? (Question of law and fact, concerning Section 43(1) of the Income Tax Act, 1961). Assessee's Contention: The ITAT, relying on the High Court's decision in CIT v. Grace Paper Industries Pvt. Limited, held that subsidy does not form part of the actual cost of plant and machinery and therefore cannot be deducted. The Supreme Court in CIT v. P.J. Chemicals Ltd. agreed with this view. Revenue's Contention: The Revenue contended that subsidy should be deducted from the actual cost of assets for depreciation and investment allowance purposes. The judgment does not explicitly record the Revenue's specific arguments beyond their appeal against the ITAT's decision.

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 122 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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