M/S VARDHMAN OIL & CHEMICALS P LTD. vs. CIT ASR

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ITR/18/1997HC Punjab & HaryanaPHHC01035380199714 November 2006Bench: MR. JUSTICE RAJESH BINDAL,MR. JUSTICE ADARSH KUMAR GOEL2 pages
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What did the High Court hold?

The High Court answered both referred questions in favour of the assessee and against the revenue. The Court noted that the ITAT had followed the High Court's judgment in CIT v. Jindal Bros. Rice Mills (1989) 179 ITR 470. However, it was undisputed that the view taken in Jindal Bros.'s case had since been overruled by the Hon'ble Supreme Court in CIT v. P.J. Chemicals Limited (1994) 210 ITR 830. In P.J. Chemicals Limited, the Supreme Court held that an amount of subsidy received is not to be reduced from the cost of machinery and building for the purpose of calculating depreciation. Therefore, the High Court applied the Supreme Court's binding precedent. The operative direction was to dispose of the reference accordingly, implying the ITAT's order on this point was set aside.

What were the facts?

This case involves a reference to the High Court of Punjab and Haryana concerning an Income Tax Appellate Tribunal (ITAT) order dated August 27, 1992, for the assessment year 1983-84. The assessee is M/s. Vardhman Oil Extraction and Chemicals Private Limited, Amritsar, and the respondent is the Commissioner of Income Tax, Amritsar. The dispute centers on whether a subsidy of Rs. 7,25,570/- received from the Government of Punjab for establishing an industry in a backward area should be adjusted from the cost of machinery and building when calculating depreciation. The ITAT had decided this issue against the assessee, following a previous High Court judgment.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the amount of subsidy of Rs. 7,25,570/- was to be adjusted from the cost of machinery and building etc. while calculating depreciation? (Question of law) 2. Whether the appellate Tribunal has been right in law in holding that for arriving at the actual cost of machinery and building etc. for the purpose of depreciation the subsidy amount of Rs. 7,25,570/- receivable from the Government of Punjab for establishing an industry in a backward area is to be deducted from the cost of such machinery and building etc.? (Question of law) Assessee's Contention: The judgment does not record any specific contentions made by the assessee before the High Court. However, the outcome indicates the assessee's position was that the subsidy should not be deducted from the cost for depreciation. The assessee would have likely relied on the Supreme Court's subsequent ruling. Revenue's Contention: The revenue, represented by Dr. N.L. Sharda, Advocate, would have supported the ITAT's decision, likely relying on the High Court's earlier judgment in CIT v. Jindal Bros. Rice Mills.

Which sections of the Income-tax Act were involved?

Section 32

AI-generated summary — verify with the full judgment below

ITR No.18 of 1997 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITR No.18 of 1997 Date of decision:14.11.2006 M/s. Vardhman Oil Extraction and Chemicals Private Limited, Amritsar

....Petitioner versus The Commissioner of Income Tax, Amritsar ....Respondent CORAM: HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE RAJESH BINDAL Present: Dr. N.L.Sharda, Advocate, for the revenue. JUDGMENT: Following questions of law have been referred for the opinion of this Court by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar, (for short, 'the Tribunal') arising out of its order dated 27.8.1992 in ITA No.210(ASR)/1988, for the assessment year 1983-84:- “i) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the amount of subsidy of Rs.7,25,570/- was to be adjusted from the cost of machinery and building etc. while calculating depreciation? ii) Whether the appellate Tribunal has been right in law in holding that for arriving at the actual cost of machinery and building etc. for the purpose of depreciation the subsidy amount of Rs.7,25,570/- receivable from the Government of Punjab for establishing an industry in a backward area is to be deducted from the cost of such machinery and building etc.?” The Tribunal following the judgment of this Court in CIT v. Jindal Bros. Rice Mills, (1989) 179 ITR 470, decided the issue giving rise to the above questions, against the assessee. It is not disputed that the view

ITR No.18 of 1997 2 taken by this Court in Jindal Bros's case (supra) has since been over-ruled by the Hon'ble Supreme Court in CIT v. P.J.Chemicals Limited, (1994) 210 ITR 830 and it has been held that amount of subsidy is not to be reduced from the cost of machinery and building for calculating depreciation. Accordingly, the questions referred are answered in favour of the assessee and against the revenue. Reference is disposed of accordingly. (Adarsh Kumar Goel) Judge November 14, 2006 (Rajesh Bindal) 'gs' Judge

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