ORDER The Income Tax Appellate Tribunal, Allahabad has referred the following question of law under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as the Act) for opinion to this court :
"Whether on the facts and in the circumstances of the case, the Tribunal was legally correct in upholding the A.A.C.s order directing the Income Tax Officer to work out depreciation for the assessment year 1978-79 by adopting the W.D.V. as per assessment order for the assessment year 1977-78 dated 3-6-1978 ?"
2. Briefly stated, the facts giving rise to the present reference are as follows :
2. Briefly stated, the facts giving rise to the present reference are as follows :
The present matter relates to the assessment year 1978-79. The respondent assessee is a registered firm and ran a cold storage, called M/s. Rakesh Cold Storage. It maintained its account on mercantile basis. It purchased a generator for Rs. 2,18,035.00 on 17-11-1974, falling in the assessment year 1976-77. The Income Tax Officer had allowed depreciation of Rs. 21,803.00 @ 10 percent oil the total cost of the generator. Subsequently it was found that the respondent-assessee had received subsidy, sanctioned vide order 18-10-1975, amounting to Rs.30,000.00on 15-1-1976, Rs. 24,075.00 on 30-8-1976 and Rs. 54,075.00 on 13-3-1978, total Rs. 1,08,150.00, from the U.P. Financial Corporation towards the purchase of the generator. The department was of the view that though the subsidy received in different years, had actually accrued to the respondent-assessee immediately when the generator was installed. The Commissioner of Income Tax initiated proceedings under section 263 of the Act and the assessment for the assessment year 1976-77 was cancelled vide his order dated 2-1-1980 directing the Income Tax Officer to work out the cost of the generator for the purposes of depreciation after deducting the amount of subsidy receivable from the U.P. Financial Corporation. The. respondent-assessee appealed to the Tribunal who vide order elated 26-12-1980 cancelled the order of the CIT (if Income Tax that he had no jurisdiction to revise the order of the Income Tax Officer as the same had merged in the order of the Appellate Assistant Commissioner, dated 5-12-1979. The department filed a reference application under section 256(1) of the Act against the said order dated 26-12-1980, which was referred to this court on 7-6-1984. Meanwhile the Income Tax Officer revised the assessment for the assessment years 1976-77,1977-78 and 1978-79 and determined the cost of the generator by reducing it by the amount of subsidy received and allowed depreciation on such reduced amount. This order was cancelled by the Appellate Assistant Commissioner following the order of the Tribunal dated 26-12-1980. Departmental appeals against this order were dismissed by the Tribunal vide order dated 11-2-1983, against which reference applications under section 256(1) of the Act were filed by the department and the matter was referred oil 6-4-1984.
3. For the assessment year 1978-79 (account period being 24-12-1976 to 31-12-1977), original assessment was made on 23-6-1979 wherein depreciation was allowed as under :
3. For the assessment year 1978-79 (account period being 24-12-1976 to 31-12-1977), original assessment was made on 23-6-1979 wherein depreciation was allowed as under :
Generator cost Rs. 2,48,035.00 Less : Subsidy on accrued basis Less : Subsidy on accrued basis 1,08,150.00 1,39,885.00 Less : Depreciation for assessment year 1976-77 @ 10% Less : Depreciation for assessment year 1976-77 @ 10% 13,988.00 1,25,897.00 Less : Depreciation for assessment year 1977-78 Less : Depreciation for assessment year 1977-78 12,589.00 1,13,308.00 Depreciation allowed for assessment year 1978-79 11,330.00
4. The respondent-assessee filed an appeal before the Appellate Assistant Commissioner who vide his order dated 31-12-1982 held that no subsidy was received in the accounting year relevant for this year. Since the order dated 2-1-1980 passed by the Commissioner of Income Tax was cancelled by the Tribunal, the Appellate Assistant Commissioner directed the Income Tax Officer to work out depreciation for the year by adopting the W.D.V. as per assessment order for the assessment year 1977-78, dated 3-6-1978. Departmental appeal against the said order was dismissed by the Tribunal on 31-3-1984 with following observations :
4. The respondent-assessee filed an appeal before the Appellate Assistant Commissioner who vide his order dated 31-12-1982 held that no subsidy was received in the accounting year relevant for this year. Since the order dated 2-1-1980 passed by the Commissioner of Income Tax was cancelled by the Tribunal, the Appellate Assistant Commissioner directed the Income Tax Officer to work out depreciation for the year by adopting the W.D.V. as per assessment order for the assessment year 1977-78, dated 3-6-1978. Departmental appeal against the said order was dismissed by the Tribunal on 31-3-1984 with following observations :
"In our opinion, the order passed by the CIT under section 263 having been cancelled, the original assessment made by the Income Tax Officer dated 3-6-1978 stands as valid assessment. Therefore, the depreciation that was allowed by the Income Tax Officer in the assessment order dated 3-6-1978 would not be changed or varied. Viewed thus, we uphold the order of the A.A.C."
5. We have heard Shri Shambhoo Chopra, the learned counsel for the revenue. No body has put in appearance on behalf of the respondent-assessee.
5. We have heard Shri Shambhoo Chopra, the learned counsel for the revenue. No body has put in appearance on behalf of the respondent-assessee.
6. The question as to whether the amount of subsidy received should be deducted while working out the cost of capital asset, has been considered by the Honble Supreme Court in the case of CIT v. P. Chemicals Ltd. (1994) 210 ITR 830 (SC). The Honble Supreme Court has held as under :
6. The question as to whether the amount of subsidy received should be deducted while working out the cost of capital asset, has been considered by the Honble Supreme Court in the case of CIT v. P. Chemicals Ltd. (1994) 210 ITR 830 (SC). The Honble Supreme Court has held as under :
"Where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the actual cost. The expression actual cost in section 43(1) of the Income Tax Act, 1961, needs to be interpreted liberally. Such a subsidy does not partake of the incidents which attract the conditions for its deductibility from actual cost. The amount of subsidy is not to be deducted from the actual cost under section 43(1) for the purpose of calculation of depreciation, etc." (p. 830) The aforesaid decision has been followed by this court in the case of CIT v. Jayana Cold Storage & Ice Factory (2003) 260 ITR 430 (All).
7. Respectfully following the aforesaid decisions, we are of the considered opinion that the amount of subsidy could not have been deducted from the actual costs of the generator.
7. Respectfully following the aforesaid decisions, we are of the considered opinion that the amount of subsidy could not have been deducted from the actual costs of the generator.
8. in view of the foregoing discussions, we answer the question in the affirmative, i.e., in favour of the assessee and against the revenue. There shall be no order as to costs.
8. in view of the foregoing discussions, we answer the question in the affirmative, i.e., in favour of the assessee and against the revenue. There shall be no order as to costs.