Subsidy receipt under "10 per cent. Central Outright Grant of Subsidy Scheme, 1971"-Actual cost of assets for purposes of allowance of depreciation and development rebate-Section 43(1) of the Income-tax Act, 1961--Clarification regarding. - Income Tax - 190/1976

Circular No. 190 Dated 1/3/1976 Subject: Subsidy receipt under "10 per cent. Central Outright Grant of Subsidy Scheme, 1971"-Actual cost of assets for purposes of allowance of depreciation and development rebate-Section 43(1) of the Income-tax Act, 1961--Clarification regarding. Reference is invited to Board's Circular letter No.142 dated 5th August, 1974 (F.No.204/25/74-ITA.II)* whereby the Board had issued clarification that the amount of subsidy received under "10% Central Outright Grant of Subsidy Scheme, 1971" for industrial units to be set up in certain selected backward districts/areas would constitute capital receipt in the hands of the recipient. 2. A question has arisen for consideration whether the amount of subsidy is to be reduced from the actual cost of the assets for purposes of allowing development rebate and depreciation on such assets. Under section 43(1) of the Income-tax Act, 1961, "actual cost" means the actual cost of the assets to the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. The Board has, therefore, been advised that since the subsidy is related to various assets, provisions of section 43(1) of the Income-tax Act, 1961, are attracted. The amount of subsidy will accordingly be deducted from the cost of assets for purposes of allowing development rebate and depreciation on such assets.