TMI Blog1989 (3) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... e Central Government and State Governments have been notifying policies from time to time. Here, we are concerned with such a policy notified by the Government of Punjab, vide Notification No. 28/35/78/51 Bl-79/1464, dated March 21, 1979, under the Rules made by the Governor of Punjab known as "The Punjab Industrial Incentives Code under the Industrial Policy Statement, 1978". Rule 2 defines certain words and phrases. Rule 3 provides for registration of a unit with a District Officer for seeking benefit of the industrial incentives. "Unit" is defined in rule 2.7 to mean a new industrial unit or manufacturing undertaking which has taken effective steps to set up industry on or after April 1, 1978, with new plant and machinery or part thereof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the fixed capital investment. Rent of a hired building will not be taken into account. Plant and machinery : The cost of plant and machinery as erected at site will be taken into account which will include the cost of productive equipment such as tools, jigs, dies and moulds, transport charges, insurance premium, erection cost, etc., will also be included. Balancing accessories, etc., added to the main plant and machinery for modernisation, diversification, etc., would also be taken into account while computing the value of plant and machinery. " Jindal Brothers, the assessee, obtained the benefit of the aforesaid incentive policy of the Government of Punjab and set up a new industry and got subsidy of 15 per cent. on plant, machin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... poses of depreciation allowance under section 32 of the Act ?" For decision of the aforesaid question, section 43(1) of the Act falls for consideration. It is in these terms: "43. (1) 'actual cost' means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority." Herein, we are to consider the meaning of "has been met directly or indirectly by any other person or authority". The argument on behalf of the Department is that the amount of subsidy on the cost of plant, machinery and building given by the State Government to the assessee comes within the ambit of the aforesaid provision, and, therefore, the actual cost thereof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Godavari Plywoods Ltd. [1987] 168 ITR 632 (AP); CIT v. Diamond Dies Manufacturing Corporation Ltd. [1988] 172 ITR 655 (Kar) ; CIT v. Premier Extraction (P.) Ltd. [1989] 175 ITR 22 (MP) and CIT v. Bhandari Capacitors (P.) Ltd. [1987] 168 ITR 647 (MP). On a consideration of the matter, we are of the opinion that the subsidy of 15 per cent. allowed on the cost of machinery, plant and building clearly comes within the ambit of section 43(1) and the "actual cost" of these items means the actual cost to the assessee reduced by the amount of subsidy for the purposes of granting depreciation allowance under section 32 of the Act. The aforequoted four judgments of the Andhra Pradesh, Karnataka and Madhya Pradesh High Courts do support the argu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because if Government policy is discriminatory, it would be liable to be struck down under article 14 of the Constitution of India. Therefore, to evolve a universal policy and to avoid discrimination, it is to be stated in the policy how much incentive Government wants to give and the only reasonable way to do so is by providing it at a percentage of the cost of plant, machinery and building. When it is specified in the incentive policy that 15 per cent. of the cost of plant, machinery and building would be provided by the State Government, the underlying object is to reduce the value of the plant, machinery and building by 15 per cent. of the actual cost. The actual cost would so stand reduced within the meaning of section 43(1) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsidy received had a nexus, direct or indirect, to meet a portion of the actual cost of any specific capital asset, it could not be brought within the purview of section 43 ( 1 ) of the Act." The incentive by way of subsidy is given for each item separately and it would not be open to the assessee to appropriate the subsidy for a purpose other than that for which it was given to him. Even if the assessee wrongly maintains the account books and utilises the entire subsidy against the value of the land to reduce its cost, the Income-tax Officer would not overlook the matter and would appropriate the subsidy in reducing the cost of the machinery, plant and building for which the subsidy was specifically granted. There is a nexus between the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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