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TMI Blog1994 (7) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... her the Tribunal was right in holding that till the period of five years from the date of grant of the subsidy is not completed its nature is that of a loan from the Government ? 2. Whether the Tribunal was right in coming to the conclusion that deduction under section 80J on the subsidy amount would not be available as the said amount was not the assessee's own capital contribution ? " The brief facts of the case are that the Income-tax Officer deducted the amount of subsidy for the purpose of granting various deductions on account of depreciation, investment allowance and deduction under section 80J. According to the Income-tax Appellate Tribunal, the grant of subsidy to an undertaking was subject to the condition that it must continue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money and debts due cannot be included in the capital employed. Rule 19A has contemplated exclusion of borrowed monies and debts due. This court in CIT v. Ambica Electrolytic Capacitors Pvt. Ltd. [1991] 191 ITR 494 has held that the subsidy or investment subsidy given by the Government which is for development of industries in selected backward districts/areas cannot be deducted from the actual cost for giving the benefit of depreciation or investment allowance. It was further observed that, as a matter of fact, the subsidy is a grant for encouraging entrepreneurs to come forward and develop the backward areas. As such, it cannot be deducted from the cost of the assets to the assessee for denying the benefit of depreciation or investment al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (V), 'written down value' has the same meaning as in clause (6) of section 43." The Explanation to clause (11) makes it clear that actual cost has the same meaning as has been given in clause (1) of section 43. From the judgment given above by this court, it is clear that the subsidy granted is an incentive for setting up of industries in backward areas and, it was with a view to attract entrepreneurs to set up industries in backward areas, so that those areas may be developed. The basis for grant of subsidy was the cost of the fixed assets of the new unit and it was to encourage the entrepreneurs. The subsidy was not with reference to a particular asset and beyond a certain limit, it was not payable even if the entrepreneur has in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed money" and "debts due" by the assessee which are to be excluded contemplate the existence of a third party from which the money is borrowed or to which the debt is due. The subsidy can neither be considered as borrowed money nor a debt due. Therefore, we are of the opinion that it cannot be excluded for the purpose of computation of deduction under section 80J. In view of this interpretation, it is held that the Income-tax Appellate Tribunal was not justified in holding that till the period of five years from the date of grant of the subsidy is completed, its nature is that of a loan from the Government. The Tribunal was also not justified in coming to the conclusion that deduction under section 80J on the subsidy amount would not be ava ..... X X X X Extracts X X X X X X X X Extracts X X X X
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