TMI Blog2000 (7) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... . The assessee is a co-operative society engaged in the marketing of milk and milk products. It had claimed for deduction, the contribution to Gujarat Rajya Co-operative Education Fund. The Tribunal held that the assessee's said claim, which is covered by the above question No. 1 was allowable and confirmed the order of the Commissioner of Income-tax (Appeals). It is pointed out that this question stands answered by a decision of this court in Mehsana District Co-operative Milk Producers' Union Ltd. v. CIT [1993] 203 ITR 601, in which it was held that as the assessee had to contribute to the education fund since it declared a dividend of 3 per cent. or more, the contribution made to the education fund was deductible. This decision was followed in the assessee's own case in CIT v. Kaira District Co-operative Milk Producers' Union Ltd. [1994] 209 ITR 898 (Guj), in which it was held by this court that the contribution to the Gujarat Co-operative Education Fund by the assessee was allowable as business expenditure. In view of the ratio of these decisions, question No. 1 stands concluded and is answered against the Revenue and in favour of the assessee. The assessee had claimed deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence was made to Mehsana District Co-operative Milk Producers' Union Ltd. v. CIT [1993] 203 ITR 601 (Guj), in which the question of loan given by the Government for setting up the milk drying plant was involved and it was held that if any expenditure was wholly or exclusively incurred by an assessee with a view to preserving and augmenting its prospects in future, such expenditure would be allowable expenditure under section 37 of the said Act was held that the loan was given for the purpose of setting up the milk drying plant and it would not mean that loan was given for purchasing plant and machinery only and that this aspect was not considered by the Tribunal. The Tribunal had to find out, as a result of conversion of part of the loan into subsidy, what should be regarded as the written down value of the asset for computing depreciation. (b) Ravi Leathers (P.) Ltd. v. CIT [1999] 240 ITR 702( Mad) was cited on the construction of the provisions of section 43(1) of the said Act. In that case the assessee claimed that it had been granted a loan free of interest by a foreign company and subsequently the foreign company expressed its desire to treat the amount as a total grant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estator and that was its market value. (b) The decision in Badridas Daga v. CIT [1958] 34 ITR 10 (SC) was cited for the proposition that while section 10(1) of the Indian Income-tax Act, 1922, imposed a charge on the profits or gains of a business, it did not provide how these profits were to be computed and that profits and gains which are liable to be taxed under section 10(1) are what are understood to be such under ordinary commercial principles. It was held that the claim for deduction arising out of carrying on business and incidental to it will be admissible on accepted commercial practice and trading principles. (c) The decision of the Supreme Court in CIT v. Bai Shirinbai K. Kooka [1962] 46 ITR 86 was referred to for the proposition that the assessable profits on the sale of the shares was the difference between the sale price of the shares and the market price of shares prevailing on the date when the shares were converted into stock-in-trade of the business in shares, and not the difference between the sale price and the price at which the shares were originally purchased by the assessee. (d) The decision in Kalooram Govindram v. CIT [1965] 57 ITR 335 (SC) was cite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 45(1) of the said Act, income chargeable under the head "Profits and gains of business or profession" shall be computed in accordance with the method of accounting regularly employed by the assessee. As held by the Supreme Court in Investment Ltd. v. CIT [1970] 77 ITR 533, 538, valuation of closing stock must be deemed to be a part of method of accounting. It is well settled that the valuation to be adopted when stock is purchased is its actual price paid by the assessee whether in cash or in kind [see Osborne (H. M. Inspector of Taxes) v. Steel Barrel Co. Ltd. [1942] 24 TC 293 (CA) and Craddock (Inspector of Taxes) v. Zevo Finance Co. Ltd. [1946] 27 TC 267 (HL)]. But what should be done when the stock is not purchased but received by way of a grant or a gift is the moot controversy here. In the present case, during the assessment period relevant, i.e., assessment year 1976-77, the assessee received without payment soya flour and skimmed milk powder of the value of Rs. 13,03,192 being the raw material for manufacturing high protein food. Consumption of soya flour and skimmed milk powder being raw material were debited to the profit and loss account and sales of high protein food ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Assistance issued by the International Accounting Standards Committee (IASC) and also Accounting Standard (AS) 12 issued by the Council of Institute of Chartered Accountants of India (ICAI)] on Accounting for Government Grants. The Government grants are assistance by the Government in the form of transfer of resources to an enterprise in return for past or future compliance with certain conditions relating to the operational activities of the enterprise. Such grants can be classified either as capital or revenue receipts depending on their nature. Where the grant is with reference to the total investments or capital outlay of the entity and the incentives are without any matching cost, it would be inappropriate to recognize it in the profit and loss account and capital approach would be favoured. However, where the grant is coupled with a liability to a matching contribution, its acceptance by itself creates a liability to incur the matching cost. In such a case, the conditions to be fulfilled to avail of a grant will be its cost and it cannot be said that there is any benefit given free of cost by way of a gift. In fact to call a grant based on a liability a gift, will be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth these aspects receiving and giving are recorded in terms of account. The account which receives the benefit is debited. Goods when received are coming into the business and that transaction is to be expressed or measured in terms of money in the account that receives the benefit. Therefore, the assessee rightly debited the value of the raw material of Rs. 13,93,192 and the value of consumable stores Rs. 1,87,154 in the two relevant previous years in the trading account and credited the same to the stores account. It, therefore, cannot be validly contended by the Revenue that the charging of the said amounts to the trading account by the assessee was not justified. Even if the supply of raw materials were to be treated as a gift to the assessee, it cannot be said that where such raw material is put in stock-in-trade, it should be valued at "nil" cost. The cost of a thing would be the sum of money it will be obtainable for. In the hands of the donee the gifted material has its value and he is the owner of that property even if no cost was incurred by him for acquiring it. He is free to put the goods received by way of gift into his business or purchase similar goods and put t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering, it will be appropriate to refer to the definition of "actual cost" in section 43(1) of the Act as it stood in the relevant years, for the purpose of sections 28 to 41, wherein under Explanation 2 it was provided that where an asset was acquired by the assessee by way of gift or inheritance, the actual cost of the asset to the assessee shall be the written down value thereof as in the case of the previous owner for the previous year in which the asset is so acquired or the market value thereof on the date of such acquisition, whichever is less. It will be seen that this has been said in Explanation 2 not to create any deeming fiction but to explain the meaning of the words actual cost, which may be obvious in the field of accounting practices, but required to be explained, ex abundanti cautela, to the legal field to allay groundless apprehensions. It is significant to note that the definition of "actual cost" and other terms in section 43 is given for defining "certain terms relevant to income from profits and gains of business or profession", as stated in the title of section 43. The words "actual cost" are relevant to income from profits and gains from business. In se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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