TMI Blog1998 (6) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... ers and the intention to that effect was conveyed by a letter of the foreign buyers dated October 5, 1976, enclosing a cheque for a sum of $ 30,000. The foreign company is one Meconomy and Company Limited and it is a London based company. In that letter, it was stated that the amount was meant as a contribution to the assessee for the purchase of a double width shaving machine, which according to them, would improve the production of the assessee. The case of the assessee was that the same was granted as a loan free of interest and the amount was credited to the account of the assessee in Bank of Baroda on October 13, 1976, and on January 5, 1978, the foreign company informed the assessee of its desire to treat the amount as a total grant t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as reduced by the amount of grant of Rs. 2,72,975 and the assessment required modification in that regard. The assessee has challenged that part of the order of the Appellate Tribunal holding that the amount of grant should be reduced from its purchase cost and the Appellate Tribunal has stated a case and referred the following questions of law for our consideration : "1. Whether the Tribunal was right in law in holding in the appeal filed by the Department where this question came to be considered for the first time that the original cost/written down value of the machinery, should be reduced by the sum of Rs. 2,72,975 and that the depreciation and investment allowance should be recomputed on that basis ? 2. Whether, on the facts and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he actual cost to the assessee would be the purchase cost as reduced by the portion of the contribution made by third parties. Admittedly, in the instant case, originally the amount was given by the foreign buyers as interest-free loan for the purchase of the machinery. Subsequently, it was converted as a gift by the foreign buyers to the assessee and the subsequent conversion as gift from loan has a material bearing to determine the actual cost of the machinery. Since the amount was contributed by the foreign buyers for the purchase of the machinery, the amount given as grant by the foreign buyers would go to reduce the actual cost incurred by the assessee for the purchase of the machinery. Under clause (1) of section 43 of the Act, the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. It is not a case where the foreign party acquired the machinery and then gifted the same to the assessee. It is a case where the assessee purchased the machinery and the contribution had been provided by the foreign buyers. Section 43(1) and Explanation 2 to that section deal with two different concepts. Clause (1) of section 43 deals with a case of an assessee purchasing a machinery and a portion of the actual cost of the machinery is met by a third party, On the other hand, Explanation 2 to section 43(1) deals with a case where the asset was purchased by a third party and later on gifted to the assessee. In our view, the case of the assessee does not fall within Explanation 2 to section 43(1) of the Act as the machinery was pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly in a matter which arose out of the order of assessment. We are of the opinion that the jurisdiction exercised by the Tribunal is correct. Further, the issue that arose before the income-tax authorities was whether the grant would be a capital or revenue receipt, and a decision on the question whether it has a capital receipt or not would have direct impact on the question of determination of depreciation allowance as the grant of depreciation in turn would depend upon the actual cost of the machinery, and, therefore, the Tribunal has the jurisdiction and rightly exercised its discretion to entertain the ground as to the mode of calculation of actual cost of the machinery. Therefore, the Tribunal was justified in entertaining the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X
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