TMI Blog2012 (4) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... be necessary to examine the impact of Explanation 10 to the Section inserted with effect from 1.4.1999. The judgment of Apex Court in the case of PJ Chemicals Ltd. (1994 (9) TMI 1 - SUPREME Court) distinguished. The case of the assessee may not, therefore, fall under Explanation 10, but having regard to the facts as found which we have alluded to earlier, the waiver of the loan amounted to the meeting of a portion of the cost of the assets under the main provisions of Section 43(1) of the Act. The waiver of the loan is not a mere quantification of a subsidy granted generally for industrial growth. It was granted specifically to the assessee and the assessee in its books of accounts reduced the cost of the assets by the amount waived. This reflected a contemporaneous understanding of the purpose of the grant of the loan on the part of the assessee. As already mentioned earlier, the assessee is a public sector undertaking and the loan and the later waiver were from the Government of India. The loans under the SDF were specifically for meeting the capital cost of the assets, on which depreciation was being claimed. - Decided against the assessee. - ITA 37/2010, ITA 38/2010, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded on 31.3.2000 relevant to the assessment year 2000-01. 3. It is common ground that in its books of account the assessee reduced the cost of the assets such as building and plant and machinery by the amount of the loans waived by the Government of India and accordingly calculated depreciation. However, in the returns filed for the years under consideration, the assessee took a contrary stand and claimed depreciation on the assets without reducing the loans waived by the Government. In the assessments for all the years, the Assessing Officer took the view that depreciation ought to be allowed to the assessee in respect of the building and the plant and machinery and other assets on the reduced cost, after reducing the loans waived by the Government, in terms of Section 43(1) of the Act. It was his case that the loans were granted by the Government to the assessee to meet a portion of the cost of the assets and therefore, depreciation could be allowed only on the reduced cost. According to the Assessing Officer, the waiver of the loan was a confirmation of the fact that they were originally granted by the Government towards the cost of the assets. It would be appropriate to repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of waiver of loan by Central Government and thereafter computing depreciation on the reduced cost in terms of Explanation 10 to Section 43(1) and Section 32 of the Act? 6. The main contention put forth on behalf of the assessee is that on identical facts the Ahmedabad Bench of the Tribunal in the case of Steelco Gujarat Ltd. Vs. Assistant Commissioner of Income Tax (2009) 33 SOT 437, has taken a view that the cost or the written down value of the assets cannot be reduced by the amount of loans waived by the lender and that Explanation 10 to Section 43(1) of the Act cannot apply to the waiver. It is submitted that no appeal was filed by the Income Tax Department against the aforesaid order of the Ahmedabad Bench of the Tribunal and therefore, as held by the Supreme Court in Union of India and Ors. Vs. Kaumudini Narayan Dalal And Anr. (2001) 249 ITR 219, the department is not entitled to challenge the correctness of a later order without just cause in the case of other assessees after having accepted an order on the same facts and dealing with the same issue. This decision does not apply to the present situation where the appeals have been filed by the assessee. The Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 43 defines actual cost to mean 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 . This definition came up for consideration before several High Courts in the context of the subsidy granted by the Central or State Governments as an incentive for development of industries. The subsidy was granted with the aim of industrialising the State and particularly the industrially backward areas. The quantification of the subsidy was made as a percentage of the capital investment made by the assessees, which included land, building, plant and machinery etc. The Revenue treated these subsidies as amounts paid by the Government towards meeting the cost of the assets and accordingly, applying the definition of actual cost , suitably reduced the claim of depreciation. The dispute ultimately reached the Supreme Court in the case of CIT v. P.J. Chemicals Ltd. (1994) 210 ITR 830. The dispute was resolved in favour of the assessee, with the Supreme Court holding that the object of the subsidy was to promote industrial growth in the States and merely because the quantum of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be the basis for any tax allowance. This Explanation further provides that where such subsidy or grant or reimbursement is of such nature that it cannot be directly relatable to the asset acquired, so much of the amount which bears to the total subsidy or reimbursement or grant the same proportion as such asset bears to all the assets in respect of or with reference to which the subsidy or grant or reimbursement so received, shall not be included in the actual cost of the asset to the assessee. The amendment made through Explanation 10 will take effect from 1st April, 1999, and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years. 10. The contention put forth on behalf of the assessee before us is that Explanation 10 below Section 43(1) does not take in waiver of the loan and that, in fact, the said Explanation narrows down the ambit and scope of the Section 43(1). Counsel for the assessee contends that in order to bring the case under the Explanation, it is incumbent on the income tax authorities to prove that the waiver of the loan is in truth and reality a form of either a subsidy or a grant or reimbursement of the cost and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsence of any other evidence. They show that the assessee understood the receipt of the loans from the Government as having been given towards meeting a part of the cost of the assets. The waiver cannot, therefore, have a different effect on such intention. The intention of the parties, as reflected by the accounts of the assessee, appears to be that the loans had been granted towards a part of the cost of the assets. It is also to be noted that the assessee is a Government of India undertaking and the loans have been given by the Government of India from the SDF. It is apparent to us that even when the loans were granted, they were granted towards cost of the assets. The assessee s case is, therefore, caught within the mischief of Section 43(1) itself and in this view of the matter it may not be necessary to examine the impact of Explanation 10 to the Section inserted with effect from 1.4.1999. For the same reason it is also not necessary to refer to the other judgments cited on behalf of the assessee. 13. It is, however, necessary to refer to and distinguish the judgment of the Supreme Court in the case of PJ Chemicals Ltd. (supra). In that case, the Government gave subsidy un ..... X X X X Extracts X X X X X X X X Extracts X X X X
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