COMMISSIONER OF INCOME-TAX VS MALWA OXYGEN AND INDUSTRIAL (P.) LTD., 1998 PTD-MADHYA-PRADESH-HIGH-COURT-INDIA 1310 (1996)

Income-tax---

----Reference---Depreciation---Investment allowance---Actual cost---Gas cylinder---Plant and machinery---Capital subsidy and pre-production expenses cannot be excluded from actual cost---No question of law arises-- Indian Income Tax Act, 1961, S. 256(2).

Held, dismissing the application, (i) that the Tribunal was right in holding that, the capital subsidy received by the assessee cannot be deducted from the cost of assets for the purpose of calculating depreciation and investment allowance.

(ii) That the gas cylinders were part of the plant and machinery for commencement of production of gas for marketing. Therefore, pre production expenses were to be included in the actual cost while calculating depreciation. No question of law arose for reference.

Challapalli Sugars Ltd. v. CIT (1975) 98 ITR 167 (SC) and CIT v. Bhandari Capacitors (Pvt.) Ltd. (1987) 168 ITR 647 (MP) ref.

D.D. Vyas for the Commissioner.

Nemo for the Assessee.

JUDGMENT

A. R. TIWARI, J.---The applicant (Commissioner of Income-tax, Bhopal) has filed this application under section 256(2) of the Income-tax Act, 1961 (for short, "the Act"), seeking direction to the Tribunal to state the case and refer the proposed questions of law, as extracted below, arising out of the order, dated June 28, 1991, passed by it in Income-tax Appeals, No.337/(Ind) of 1989 after rejection of its application under section 256(1) of the Act registered as Revision Application No.306/(Ind) of 1991 on December 12, 1991, for the assessment year 1985-86, for our opinion:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the capital subsidy received by the assessee is not deductible from the cost of assets for the purpose of depreciation and investment allowance when there is a nexus between the cost of the assets and the subsidy ?

(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified on holding that 100 per cent. depreciation on pre-production expenditure on gas cylinders adopted on pro rata basis is in order?

(3) Whether the Income-tax Appellate Tribunal was, justified in canceling the order of the Commissioner of Income-tax when the assessment made by the Assessing Officer was prejudicial to the interests of the revenue?"

Briefly stated, the facts of the case are that capital subsidy was deducted (sic) by the Assessing Officer while considering allowance of depreciation from the cost of assets. Besides this, the Assessing Officer had also allowed depreciation at the rate of 100 per cent. on the cost of gas cylinders. The Commissioner of Income-tax considered the order as erroneous and prejudicial to the interests of the Revenue and accordingly resorted to issuance of direction under section 263 of the Act to the Assessing Officer for refraining the assessment. Dissatisfied, the assessee filed appeal before the Tribunal. The Tribunal allowed the appeal on June 28, 1991. Dissatisfied the applicant filed the application under section 256(1) of the Act. The application was rejected on December 12, 1991. The applicant then filed this application.

We have heard Shri D.D. Vyas, learned counsel for the applicant/Department. None appeared for the non-applicant/assessee.

The case involved two points, (1) Claim of depreciation without deducting the amount of capital subsidy from the cost of the assets; and (2) Claim of depreciation at the rate of 100 per cent. on the cost of gas cylinders at Rs.35,d7,390 which included a sum of Rs.4,62,766 being the amount of pre-production expenditure allocated on pro rata basis.

The Tribunal held that the Income-tax Officer rightly computed the depreciation without deducting the amount of capital subsidy from the cost of the assets on placing reliance on CIT v. Bhandari Capacitors (Pvt.) Ltd. (1987) 168 ITR 647 (MP.). As regards the question of cost, the Tribunal followed Challapalli Sugars Ltd. v. CIT (1975) 98 ITR 167 (SC). In the aforesaid decision, the apex Court has held that the expression "actual cost" should be construed in sense in which commercial men may not misunderstand the same. It should be in accordance with the normal rule of accountancy prevailing in commerce and industries. It is not only on the expenditure on installation but all other expenditure, i.e., interest on borrowings, freight, insurance and several other expenses incurred to bring the asset into existence and to put it in working condition. The Tribunal, thus, held that the Commissioner of Income-tax wrongly held that the gas cylinder were complete in themselves and no expenditure was involved in installation. The Tribunal held that gas cylinders are part of the plant and machinery for commencement of production of gas for marketing. The Tribunal thus held that the order passed by the commissioner of Income-tax under section 263 of the Act was meritless.

On following the aforesaid two decisions, the Tribunal allowed the appeal of the assessee.

The application under section 256(1) of the Act was rejected on the ground that the points are covered by the aforesaid two decisions and, therefore, do not give rise to any referable question of law.

On consideration, we find that the Tribunal committed no error in refusing to state the case. In view 'of the aforesaid two decisions, there are no referable questions of law arising out of the order passed by the Tribunal.

Consequently we reject the application as being without merit.

Counsel's fee for counsel for the applicant is allowed at Rs.750, if certified.

M.B.A./1388/FCApplication rejected.