TMI Blog2005 (7) TMI 302X X X X Extracts X X X X X X X X Extracts X X X X ..... arded as a diversion of income at source for the purpose of repayment of loans raised by it for putting up the new unit. The ld. Assessing Officer considered the submissions of the assessee company. He found that the entire amount of sale proceeds had been credited to the profit and loss account and that showed the assessee had himself treated the funds generated by way of a higher free sale of sugar as its trading receipt. Moreover, such surplus funds could be said to be the value of benefit granted to the assessee by virtue of the provisions of section 28(2)(iv) of the Act. Clause 12 of the Incentive Scheme stated that the beneficiaries of the scheme shall ensure that the surplus funds were utilized for the repayment of loans taken from the institutions. Thus, the surplus funds were required to be applied for the stated purposes and it was not the income diverted at source. According to the ld. Assessing Officer, the purpose of application of income was immaterial and did not affect the assessee's liability to taxation of its income. The ld. Assessing Officer, therefore, rejected the claim of the assessee that sale proceeds of free sale quota sugar should be excluded from the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The ld. CIT(A) considered the arguments of the assessee. According to him, in effect it was not a subsidy in the general sense of the term. The excess realization received by the assessee over the levy price was to be utilized for discharging the loans raised by the assessee for setting up or expansion of sugar manufacturing capacity. Otherwise, the assessee had to surrender the excess price realized. Therefore, the excess price had a direct nexus with the capital goods employed by the assessee in the setting up of the factory. Following the judgment of Hon'ble Calcutta High Court in the case of CIT v. Balarampur Chini Mills, Ltd. [1999] 238 ITR 445 and of Hon'ble Supreme Court in the case of Sahney Steel Press Works Ltd. v. CIT [1997] 228 ITR 253 the ld. CIT(A) deleted the addition of the sum of Rs. 22,82,966 made by the ld. Assessing Officer by way of revenue receipt of the assessee. 32. During the course of hearing before us, at the outset, the ld. counsel for the assessee argued that revenue's ground of appeal in respect of free sale sugar was liable to be dismissed as the matter was covered in favour of the assessee and against the revenue by several High Court judgment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was an integral part of the trading activity of the assessee. The assessee was allowed to sale sugar in the open market. Sale proceeds of the assessee's stock-in-trade could not be viewed other than trading receipt. He pointed out that assessee's case was not covered by the Sugar Incentive Scheme, 1993 that was for the period 7-9-1992 to 31-3-1994 only whereas in the case of the assessee sugar mill was set up and commenced production from December, 1994. Without prejudice, the ld. DR. argued that if the assessee's contention was accepted the cost of assets acquired by the assessee from out of the term loans in question was required to be reduced by the amount of so-called incentive. He argued that Explanation 10 to section 43(1) was clarificatory. He further argued that in any case, the main provision of section 43(1) were sufficient and clearly required the cost of assets in question to be reduced by the amount claimed by the assessee as incentive/subsidy for acquisition of those assets. 35. We have carefully considered the rival submissions. We do not see much substance in the argument of the ld. DR that Sugar Incentive Scheme, 1993 did not apply to the assessment year before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Birmingham v. Barnes [1935] 3 ITR (Eng Cas) 26; [1935] 19 TC 195, the House of Lords took the view that it was not right to deduct any sums received from any outside source from the 'actual cost'. Lord Atkin said: '... the actual cost to the person "by whom the trade is carried on" used in this context have no relation to the source from which that person has received the money which he has expended on the plant .... But it is said that the words "to that person" in the phrase "actual cost to that person" plainly indicate that the section is intended to confine the relief to an aggregate equal to the sum of money which the person has defrayed out of his own resources, the cost of the burden which has ultimately fallen upon him. My Lords, I confess I do not think that this is the natural meaning of the words. What a man pays for construction or for the purchase of a work seems to me to be the cost of him; and that whether someone has given him the money to construct or purchase for himself, or before the event has promised to give him the money after he has paid for the work, or after the event has promised or given the money which recoups him what he has spent.' In the Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the 1922 Act. It is urged by Dr. Gauri Shanker, learned senior counsel for the Revenue, that as the intention of the Legislature was that depreciation should be allowed only on the 'actual cost' to the assessee, i.e., what is spent by the assessee from his own resources (otherwise the expression would have been 'cost' and not 'actual cost') the Legislature intervened by proposing an amendment to nullify the effect of the decisions. The Income-tax (Amendment) Bill contained an amendment proposal but it lapsed because Parliament was dissolved. It were reintroduced in 1952 and passed as the Income-tax (Amendment) Act, 1953. Explaining this change, this Court in Calcutta Electric Supply Corporation Ltd. v. CIT [1992] 194 ITR 294 at 302 stated that: 'The 1922 Act was amended by the Income-tax (Amendment) Act, 1953, with effect from April 1, 1952, in this respect'. This amendment was introduced as an Explanation to the definition of 'actual cost' in section 10(5) of the Indian Income-tax Act, 1922, to nullify the effect of the judicial interpretations to the contrary. Though, at the stage of the Bill, the proposal was to exclude from the concept of 'actual cost', any moneys reim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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