ORDER
1. The Income Tax Appellate Tribunal, Delhi has referred the following questions of law under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for opinion to this Court:-
"1. Whether on the facts and in the circumstances of the case, the Tribunal was, in law, justified in directing the income tax officer to allow depreciation and investment allowance on the generating set without deducting the amount of subsidy from its cost ?
2. Whether on the facts and in the circumstances of the case, the Tribunal was, in law, justified in holding that the amount of Rs. 1,27,330 receivable as subsidy from the government did not directly or indirectly go to meet the cost of the generating set ?"
2. The reference relates to the assessment year 1982-83.
2. The reference relates to the assessment year 1982-83.
Briefly stated the facts giving rise to the present reference are as follows:
The respondent-assessee had purchased and installed a generator in the assessment year 1982-83, when it started functioning. It claimed depreciation and investment allowance on the generator. The income tax officer reduced a sum of Rs. 1,27,330 being 50 per cent of the value of generator which was receivable as a subsidy by the respondent for the purpose of working out the cost for granting depreciation and investment allowance which order was upheld by the Commissioner (Appeals). However, in further appeal the Appellate Tribunal has reversed the order by taking the view as follows:
"9. We have considered the rival submissions. One of the shades of the meaning of the word 'met' used in the definition of section 43(1) is satisfied by payment'. Therefore, the amount received by way of subsidy, in order that it can be said that it has met directly or indirectly any portion of the cost of the assets to the assessee, must have 'satisfied by payment' a portion of the cost of the asset now in question. After going through the scheme of the subsidy, we see that the whole purpose of the subsidy was to encourage sugarcane industries by providing incentive to lure the entrepreneurs to move the backward areas promising to grant subsidy which was measure as a percentage of the total investment. There is a scheme under which the terms and conditions for the grant of subsidy are mentioned which are cited above. This shows that the subsidy is given after a unit is established and has gone into production and that the beneficiary shall utilize this subsidy for the industrial unit in accordance with the scheme, which means for any purpose. This clearly demonstrates that the subsidy granted by the government under the Scheme has nothing to do with the meeting of the cost of any particular assets, though it may end up in such a result in a theoretical sense or in the ultimate analysis but that is not to say that the requirement of section 43(1) is satisfied which requires direct contribution to meet a particular depreciable asset. In this case the assessee had already established generating set in 1982-83. The subsidy was to be received in two instalments. First was to be released after generating set was installed and the, second was to be given after period of two years and under certain conditions mentioned above. The government has the option to recover the same. Therefore, in these facts the subsidy received cannot be treated to meet the actual cost of the generating set. In view of this, while granting depreciating and investment allowance, the amount of subsidy cannot be deduced from the cost of generating set. We, therefore, set aside the order of the Commissioner (Appeals) on this point and direct the income tax officer to allow the depreciation and investment allowance without deducting the amount, of subsidy received."
We have heard Sri A.N. Mahajan, learned standing counsel for the revenue. Nobody has appeared on behalf of the respondent-assessee.
We find that the controversy raised herein is squarely covered by the decision of the Apex Court in the case of CIT v. P.J. Chemicals Ltd (1994) 10 ITR 830 (SC), wherein it has been held that the amount of subsidy received from the government does not partake of the incidents which attract the conditions for its deductibility from actual cost and is not to be deducted under section 43(1) of the Act for the purpose of calculating depreciation etc. Respectfully following the aforesaid decision of the Apex Court we do not find any legal infirmity in the order of the Tribunal. We, Accordingly, answer the questions referred to us in the affirmative, i.e., in favour of the assessee and against the revenue. However, there shall be no order as to costs.