TMI Blog1997 (10) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the case, the Tribunal was justified in holding that the power subsidy received by the assessee was a capital receipt, not liable to be taxed within the meaning of section 28(iv) of the Income-tax Act, 1961?" The facts, in brief, are that the assessee, a registered firm, derived income from manufacture and sale of starch, liquid glucose and cattle feed in the main unit and also commenced a new business activity of manufacture and sale of dextrose mono hydrate in a second unit which commenced operation from January 16, 1988. The Assessing Officer noticed that the assessee had claimed depreciation for the entire period from January 7, 1987 to March 31, 1989, in respect of an entirely separate unit. Since the unit commenced its production from January 16, 1988, the Assessing Officer allowed depreciation for a period of 15 months in view of the third proviso to sub-section (2) of section 3 of the Act read with rule 5 of the Tenth Schedule to the Act. Similarly, the Assessing Officer allowed the assessee's claim under sections 80HH and 80-I of the Act on the income after allowing deduction under section 32AB of the Act. While completing the assessment the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction from such profits and gains of an amount equal to twenty per cent. thereof." "80-I. (1) Where the gross total income of an assessee includes any profits and gains derived from an industrial undertaking or a ship or the business of a hotel, to which this section applies, 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 profits and gains of an amount equal to twenty per cent. thereof : Provided that in the case of an assessee, being a company, the provisions of this sub-section shall have effect, as if for the words 'twenty per cent.', the words 'twenty five per cent.' had been substituted." From the aforesaid provisions it is clearly perceivable that certain benefits are conferred on the industrial undertakings on certain conditions being satisfied. As the factual matrix is portrayed it is noticeable that the Assessing Officer had granted benefit under sections 80HH and 80-I to the assessee but after computing the deductions as provided under section 32AB. Section 80AB refers to deductions to be made with reference to the income included in the "gross tota ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. [1997] 224 ITR 604, wherein the apex court while dealing with deduction under section 80P of the Act took into consideration the provision envisaged under section 80B(5) of the Act and held as follows : "Having regard to the law as laid down by this court in Distributors (Baroda) Pvt. Ltd.'s case [1985] 155 ITR 120 and H. H. Sir Rama Varma's case [1994] 205 ITR 433, it must be held that before considering the matter of deduction under section 80P(2), the Income-tax Officer had rightly set off the carried forward losses of the earlier years in accordance with section 72 of the Act and on finding that the said losses exceeded the income, he rightly did not allow any deduction under section 80P(2) and the Appellate Assistant Commissioner as well as the Tribunal and the High Court were in error in taking a contrary view. The principle of statutory construction invoked by Mrs. Ramachandran has no application in construing the expression 'gross total income' in sub-section (1) of section 80P. In view of the express provision defining the said expression in section 80B(5) for the purpose of Chapter VI-A, there is no scope for construing the said expression differently in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Co. Pvt. Ltd. [1978] 113 ITR 84 (SC), while dealing with deductions under section 80K of the Act. From the preceding analysis, we are of the considered view that sections 80HH and 80-I have to be read along with the provisions of sections 80AB and 80B(5) and the deductions granted under Chapter VI-A have to be allowed after computing the "gross total income" as contemplated under section 80B(5). At this juncture, we may hasten to add that sometimes a doubt arises as to while computing deduction under section 80-I of the Act relief granted under section 80HH should be deducted from the "gross total income" or not. This court in the case of J. P. Tobacco Products Pvt. Ltd. v. CIT [1998] 229 ITR 123, has held that as far as the benefit of section 80-I is concerned, it has to be granted on the "gross total income" and not on the income reduced by the amount allowed under section 80HH. From the aforesaid analysis, these two questions are answered in favour of the Revenue and against the assessee. The third and most important question pertains to the correctness of the finding of the Tribunal in holding that the power subsidy received by the assessee is a capital receipt, not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em of incentives to facilitate industrial growth in all parts of the State and the 45 districts of M. P. have been divided into three categories, namely, Category A, Category B and Category C districts. In the said booklet it is provided that new industrial units coming into production after April 1, 1981, will be allowed power subsidy for a period of five years from the date of commencement of production. Different rates of subsidy are prescribed depending upon the nature of industry and the area in which it is established. Apart from the said documents, a set of rules has been framed which are called "Power Subsidy Rules" for industrial units in M. P. The rules which are relevant for our present purpose are reproduced below : "3. The amount and period of availability of subsidy under these rules will be in accordance with the scales and conditions specified in Schedule A. 4. The concessions in rule three will be made available to the traditional industries enumerated below subject to the condition that the new industrial unit is situated outside at least 8 kms. radius of the boundary of municipal committee/corporation/notified area : (1) Flour mills (excluding roller flour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a copy of the same to the M. P. Electricity Board or the Managing Director of the Rural Electric Co-operative Society, as the case may be. (ii) The M. P. Electricity Board shall compile such particulars for the whole State and prefer a claim with the Director of Industries, Madhya Pradesh. The General Manager of the District Industries Centre shall similarly intimate the Director of Industries about the claim preferred by the Divisional Engineer of the M. P. Electricity Board. (iii) The Managing Director of the Rural Electric Co-operative Society shall complete the particulars for the jurisdiction of the society to which the concession has been extended and prefer a claim with the general manager of the District Industries Centre of the District concerned. The general manager shall sanction the claim within thirty days of the receipt thereof and intimate the Director of Industries, Madhya Pradesh, about the sanction issued. Adequate funds shall be placed at the disposal of the Rural Electric Co-operative Society." It is relevant to produce "Schedule-A" as that would give an idea with regard to the amount and period of availability of subsidy under the rules : SCHEDULE "A" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1994] 210 ITR 830, wherein the apex court while dealing with the concept of actual cost in the matter of depreciation and reduction of a portion of the cost met by Governmental subsidy as incentive for setting up of industries in backward areas opined that the amount of subsidy is not to be deducted in computing the actual cost of assets under section 43(1) of the Act for the purpose of calculation of depreciation. After referring to divergent views of the various High Courts, their Lordships expressed thus : "On a consideration of the matter the view that commends itself as acceptable is the one which has commended itself to the majority of the High Courts. It is, of course, not the numerical strength that prevails---though the fact that a particular view has commended itself to a majority of the High Courts in the country is a matter for consideration---but the tensile strength of the acceptable logic in those decisions. It is aptly said that 'a judge who announces a decision must be able to demonstrate that he began from recognised legal principles and reasoned in an intellectually coherent and politically neutral way to his result'. In the present case the reasoning underlyin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dictionary is 'financial aid given by Government towards expenses of an undertaking or institution held to be of public utility, or to producers of commodities, etc., to enable goods or services to be provided at lower cost to the consumer'. From the definition of subsidy, it appears that it is in the nature of pecuniary assistance from the Government to the entrepreneurs so as to encourage the establishment of industries in all backward areas. Therefore, such subsidy/investment subsidy cannot be excluded from the actual cost for giving the benefit of depreciation. This assistance will certainly form part of the total assets of the assessee." The High Court of Orissa in the case of CIT v. Orissa Industries Ltd. [1992] 198 ITR 251, also took the view that the subsidy is not paid to meet the cost of any asset of the assessee but it is given as an incentive for setting up industrial units in backward areas and the formula contained for grant of subsidy is a measure for determining the amount of subsidy. Similar view was expressed by the High Court of Delhi in the case of CIT v. Ravindra Tubes Ltd. [1994] 206 ITR 676. We would like to note that these decisions were considered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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