1981 (3) TMI 98 - AT - Income Tax

Summary

Issues:
- Interpretation of the term 'actual cost' under sections 32, 33, and 43(1) of the Income Tax Act.
- Whether a subsidy received by an assessee should be deducted from the actual cost of assets for the purpose of claiming depreciation and development rebate.

Analysis:
1. The appeals before the Appellate Tribunal ITAT BOMBAY-A involved a common issue regarding the treatment of a subsidy received by an assessee against capital investment in building and machinery for the assessment years 1975-76 to 1978-79. The Commissioner contended that the actual cost of assets should be reduced by the subsidy received, as per section 43(1) of the Act, to calculate depreciation and development rebate correctly.

2. The assessee argued that the subsidy received was not related to the acquisition of capital assets and should not reduce the actual cost. The Tribunal considered the purpose of the subsidy, which aimed to encourage industries to move to backward areas, and referred to a similar decision by the Jaipur Bench. The Department, however, supported the Commissioner's interpretation of 'actual cost' as including any payment made directly or indirectly by the government or any authority.

3. The Tribunal analyzed the definition of 'actual cost' under section 43(1) and emphasized that it should be reduced by any portion of the cost met by another person or authority. However, the Tribunal distinguished between subsidies intended to reduce the expenditure on acquiring assets and those based on investments made in fixed assets for specific purposes. It noted that the subsidy received by the assessee was not related to the acquisition of assets and, therefore, should not reduce the actual cost.

4. Referring to a relevant decision of the Gujarat High Court, the Tribunal highlighted that grants-in-aid not specifically related to acquiring plant and machinery should not be deducted from the capital employed. As the subsidy received was not granted to meet the cost of assets, the Tribunal concluded that the actual cost of assets should not be reduced by the subsidy. Consequently, the Tribunal allowed the appeals, quashed the Commissioner's orders, and restored the orders of the Income Tax Officer for all the years under appeal.