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2015 (10) TMI 1282 - GUJARAT HIGH COURT

2015 (10) TMI 1282 - GUJARAT HIGH COURT - [2015] 379 ITR 1 (Guj) - Subsidy received prior to insertion of Explanation 10 to section 43(1) - whether can still be reduced from the cost of assets? - Held that:- On the date when the assessee had invested in fixed capital assets, Explanation 10 to sub-section (1) of section 43 of the Act was not on the statute book and hence, the actual cost came to be computed in terms of the law as existing at the relevant time. Nothing happened in the year under c .....

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l was not right in law in holding that the amount of subsidy received prior to insertion of Explanation 10 to sub-section (1) of section 43 of the Act can still be reduced from the cost of assets. - Decided in favour of assessee.

Deduction u/s 80HHC - ITAT held that for the purpose of calculating deduction u/s 80HHC gross interest income without reducing therefrom the interest expenditure, is required to be excluded - Held that:- As decided in ACG Associated Capsules Pvt. Ltd. v. Comm .....

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- Dated:- 5-10-2015 - MS. HARSHA DEVANI AND MR. A.G.URAIZEE, JJ For the Petitioner : Mr SN Soparkar, Senior Advocate with Mrs Swati Soparkar, Advocate For the Respondent : Mr KM Parikh, Advocate JUDGMENT PER : HONOURABLE MS.JUSTICE HARSHA DEVANI 1. The appellant assessee in this appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act ) has challenged the order dated 31.7.2006 passed by the Income Tax Appellate Tribunal, Ahmedabad Bench A , Ahmedabad (hereinafte .....

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Tax Appellate Tribunal was right in law in holding that for the purpose of calculating deduction u/s 80HHC of the Act, gross interest income without reducing therefrom the interest expenditure, is required to be excluded? 3. The assessment year is 2000-2001 and the relevant accounting period is the previous year 1999-2000. The assessee is a public limited company engaged in the business of manufacturing of radiators, gaskets and compressed fiber jointing sheets (CFJS). The assessee had got a sub .....

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tments in fixed capital assets, in view of the provisions of Explanation 10 to section 43(1) of the Act, the proportionate cost of the assets is required to be reduced to the extent of ₹ 25,00,000/- because this cost has been met by the State Government in the form of subsidy. The assessee carried the matter in appeal before the Commissioner (Appeals) but did not succeed. The assessee carried the matter in further appeal on various grounds before the Tribunal, which dismissed this ground o .....

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t was invited to the definition of written down value as contained in section 43(6)(c) of the Act, to submit that written down value in the case of block of assets means the opening written down value as increased or decreased by the two circumstances enumerated thereunder, namely, increase in the block of assets on account of acquisition of new asset, provided such asset is put to be use in the year under consideration; and decrease in case where the asset is sold or otherwise disposed of in th .....

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present case. According to the learned counsel, the concept of actual cost has bearing only in year No.1, once the asset enters the block, it loses its identity and thereafter the question of calling upon the assessee to forego depreciation on the ground that the cost has been subsequently reduced, would not arise. It was pointed out that Explanation 10 to sub-section (1) of section 43 of the Act came to be inserted with effect from 1.4.1999 whereas the assets were purchased prior thereto. 4.1 .....

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1998, the court held that Explanation 10 to sub-section (1) of section 43 was not applicable. 4.2 Reliance was also placed upon the decision of the Supreme Court in the case of Commissioner of Income Tax v. Tata Iron and Steel Company Ltd., 1998 (231) ITR 285, wherein it was held that what is the actual cost must depend on the amount paid by the assessee to acquire the asset. The amount may have been borrowed by the assessee. But even if the assessee does not repay the loan it will not alter the .....

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o independent identity of their own. 5. On the other hand, Mr. K. M. Parikh, learned senior standing counsel for the respondent supported the impugned order passed by the Tribunal by submitting that having regard to the provisions of Explanation 10 to sub-section (1) of section 43 of the Act, the amount received by way of subsidy is required to be reduced from the actual cost of the assets. It was submitted that Explanation 10 has been brought on the statute book with effect from 1.4.1999 and th .....

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has to be the cost of the assets to the assessee minus the subsidy received by it. 5.1 In support of his submissions, the learned counsel placed reliance upon the decision of the Allahabad High Court in the case of Commissioner of Income Tax v. Paliwal Glass Works, 2010 (326) ITR 407 (All) wherein the court held that the subsidy received from the Government for the purpose of generator set was liable to be deducted to find out the actual cost of the asset. It was submitted that the impugned ord .....

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indirectly by any other person or authority. Explanation 10 thereto, which has been inserted with effect from 1.4.1999, postulates that where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant of reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or .....

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ded in the actual cost of the asset to the assessee. 7. Sub-section (6) of section 43 of the Act which defines written down value , and to the extent the same is relevant for the present purpose, reads thus: (6) written-down value means- (a) in the case of assets acquired in the previous year, the actual cost to the assessee; (b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act, or under the Indi .....

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ncome Tax Act, 1922 (11 of 1922), where such depreciation was not deductible in determining the written-down value for the purposes of the said clause (vi); (c) in the case of any block of assets,- (i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written-down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted,- (A) by the increase by the actual cost of an .....

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atutory provisions. At the relevant time when the assets came to be acquired in the year 1993-94, the subsidy, though sanctioned had not been disbursed. At the time when the assets came to be acquired, section 43(1) of the Act did not provide for non-inclusion of the subsidy received in the actual cost. Accordingly, the actual cost came to be computed in terms of the provisions in force at the relevant time. It may be noted that the assets in relation to which subsidy has been granted, form part .....

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the Assessing Officer held that the cost of assets is required to be reduced out of the written down value of their respective blocks to the extent of ₹ 25,00,000/-. 9. At this juncture, it may be noted that the expression actual cost envisages the actual cost of asset as reduced by any amount received directly or indirectly from any person or authority and Explanation 10 to section 43 (1) of the Act, clearly provides that where a portion of the cost of an asset acquired by the assessee h .....

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s, the cost of the asset in the hands of the assessee would stand reduced to the extent of subsidy received by the assessee for the purchase of such asset. However, in the present case, the assessee created total facility by constructing building and installing various machineries in 1993-94. Thus, the actual cost of the assets in respect of which subsidy has been granted, came to be determined at the relevant time. Thereafter, the assets entered the block of assets and lost their independent id .....

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me after the actual cost of assets came to be determined under section 43(1) of the Act. The question that arises for consideration is as to whether Explanation 10 to section 43(1) of the Act can be given effect to in the facts and circumstances of this case, by reducing the actual cost of the assets by the amount of subsidy received by the assessee. To put it differently, whether at this stage it would be possible to ascertain the actual cost of such assets in terms of Explanation 10 to section .....

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is sold, discarded or demolished or destroyed during the previous year together with the amount of the scrap value. The statute does not contemplate any other category for computing the written down value of a block of assets. Therefore, section 43(6)(c) of the Act does not permit reducing the written down value of the block of assets by the amount of subsidy received in relation to some of the assets forming part of the block of assets. Consequently, the costs of assets cannot be reduced out of .....

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the statute does not contemplate computation of actual cost of asset after it becomes part of a block of assets, Explanation 10 to subsection (1) of section 43 of the Act cannot be made applicable to assets of which the actual cost has been determined much before the insertion thereof and which also form part of a block of assets. Therefore, when it is not possible to apply Explanation 10 of section 43(1) of the Act, in relation to an asset which has entered into the block much before the insert .....

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erms of the law as existing at the relevant time. Nothing happened in the year under consideration so as to justify the action of reduction from the written down value of the block of assets. Explanation 10 to sub-section (1) of section 43 of the Act came into effect only from 1.4.1999 that too prospectively and, therefore, has no application, more so, when plant itself was set-up in assessment year 1993-94. 11. In the light of the above discussion, the first question is answered in the negative .....

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2,237/- which was not taken into consideration for deduction as per Explanation (baa) to sub-section (4B) of section 80HHC of the Act. It was the case of the assessee that such income was not other income and was to be treated as business income and, therefore, should not be reduced for the purpose of section 80HHC. It was submitted that the entire interest was out of application of the money made by the company from borrowed funds and, therefore, only the net interest should be taken into consi .....

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the assessee had surplus funds which it had parked with the bank and had also made excess payment of income tax with the intention of earning interest. Placing reliance on various decisions of the Supreme Court as referred to in the assessment order, the Assessing Officer held that interest income cannot be considered as income from business and that no netting is possible as the interest paid is for the purpose of business whereas the interest earned by the assessee on deposits with banks, exce .....

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thus : 9. Explanation (baa) extracted above states that profits of the business means the profits of the business as computed under the head Profits and Gains of Business or Profession as reduced by the receipts of the nature mentioned in clauses (1) and (2) of the Explanation (baa). Thus, profits of the business of an assessee will have to be first computed under the head Profits and Gains of Business or Profession in accordance with provisions of Section 28 to 44D of the Act. In the computatio .....

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ins of Business or Profession from which deductions are to made under clauses (1) and (2) of Explanation (baa). 10. Under Clause (1) of Explanation (baa), ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in any such profits are to be deducted from the profits of the business as computed under the head Profits and Gains of Business or Profession . The expression included any such profits in clause (1) of the .....

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omputed under the head Profits and Gains of Business or Profession , ninety per cent of such quantum of receipts cannot be reduced under Clause (1) of Explanation (baa) from the profits of the business. In other words, only ninety per cent of the net amount of any receipt of the nature mentioned in clause (1) which is actually included in the profits of the assessee is to be deducted from the profits of the assessee for determining profits of the business of the assessee under Explanation (baa) .....

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domestic company, there shall, in accordance with and subject to the provisions of this Section, be allowed, in computing the total income of the assessee, a deduction from such income by way of dividends an amount equal to a certain percentage of the income mentioned in this Section. The Constitution Bench held that the Court must construe Section 80M on its own language and arrive at its true interpretation according to the plain natural meaning of the words used by the legislature and so con .....

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h profits will not only refer to the nature of receipts but also the quantum of receipts included in the profits of the business as computed under the head Profits and Gains of Business or Profession referred to in the first part of the Explanation (baa). Accordingly, if any quantum of any receipt of the nature mentioned in clause (1) of Explanation (baa) has not been included in the profits of business of an assessee as computed under the head Profits and Gains of Business or Profession , ninet .....

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