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TMI Blog1989 (7) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... h the said allowances should be calculated. The assessee has claimed the above allowances of Rs. 9,99,611. The details are as under : Rs. CIF value of plant & machinery under Norwegian aid 6,76,336 Customs duty and clearance charges 3,05,410 Installation charges incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computing the abovementioned allowances. The plea of the assessee was that the said amount should be taken into account for calculating the abovementioned allowances. The assessee went in appeal before the CIT(A). The CIT(A) has held that the above amount was liable to be taken into account for calculating the abovementioned allowances. He relied on Explanation 2 to section 43(1) of the Income-tax Act, 1961. The department is now in appeal before us and grounds 2 to 4 relate to this controversy. 3. We have heard the parties. Copy of agreement between the assessee and Govt. of India is at pages Nos. 1 to 22 of the paper book. This agreement is for construction of one Exploratory Fishing Vessel (Training version) and one Exploratory Fishing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entation of Boat Building Programme the Govt. of the Kingdom of Norway had agreed under the agreement dated 22-11-1975 to supply free of cost to the Govt. the equipment and machinery required for strengthening the facilities in the Contractors yard for the construction of the vessels and that the said machinery and equipment would belong to the contractors. A list of said equipments and machineries to be supplied for that purpose was set out in annexures to the agreement. 4. It is under the above agreement that plant and machinery with which we are concerned was given to the assessee. As per the terms of the agreement the said plant and machinery was to belong to the assessee. It is obvious that the said plant and machinery was received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... question had been met directly or indirectly by the Norwegian Govt. and as such the CIF value was not liable to be taken into account. We are unable to accept this submission. This is not a case where the assessee has purchased plant and machinery and the cost of plant and machinery purchased by the assessee has been met directly or indirectly by any other person or authority. This is a case where the plant and machinery itself has been given as gift to the assessee. Consequently we are unable to accept this submission that it should be held that the cost of plant and machinery has been met by the Norwegian Govt. We hold that the actual cost to the assessee would be required to be determined in accordance with the provisions of Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation 2 would not be applicable at all. Explanation 2 lays down that either the written down value in the case of previous owner should be taken as cost to the assessee or the market value on the date of acquisition should be taken as cost to the assessee. The lesser of the two figures should be taken as cost to the assessee. The CIF value represents both the value in the hands of the Govt. of Norway and also the market value on the date of acquisition. Consequently the CIF value mentioned above should be taken as cost to the said asset to the assessee under Explanation 2 to section 43(1) of the Act. 10. The ITO has relied on the decision of the Kerala High Court in the case of Kerala Premo Pipe Factory Ltd. v. CIT [1979] 116 ITR 626. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e market value on the date of acquisition and that amount also represents the value in the hands of the Govt. of Norway. Consequently that value would be liable to be taken into account. In fact in the present case it is not the department's case that any other value would be liable to be taken into account. The case of the department is that the value of plant and machinery would not be liable to be taken into account at all because of the fact that no depreciation had been allowed to the Govt. of Norway in any prior year. We have already held that the fact that no depreciation had been allowed to the Govt. of Norway in any prior year would not render Explanation 2 ineffective. Explanation 2 would be applicable and CIF value would be liabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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