Income-tax---

----Reference---Question of law---Depreciation---Actual cost---Not to be reduced by capital subsidy received by assessee from Central Government-- No question of law arises for reference---Indian Income Tax Act, 1961, Ss.32, 43(1) & 256(2).

Capital subsidy received by the assessee should not be deducted from the value of the assets while working out the cost for allowing depreciation. No question of law arises for reference.

CIT v. P.J. Chemicals Ltd. (1994) 210 ITR 830 (SC) fol.

CIT v. Janak Steel Tubes (Pvt.) Ltd. (1989) 179 ITR 536 (P & H) and CIT v. Jindal Brothers Rice Mills (1989) 179 ITR 470 (P&H) ref.

S.S. Mahajan for Petitioner.

Nemo for Respondent.

JUDGMENT

G. S. SINGHVI, J. ---In all these petitions filed under section 256(2) of the Income Tax Act, 1961, by the Revenue, a prayer has been made for directing the Income-tax Appellate Tribunal to refer the question of law as to whether the Tribunal has been right in law in holding that the capital subsidy received by the assessee should not be deducted from the value of the assets while working out the cost for allowing depreciation. .

For the purpose of this order, it will be sufficient to give a brief factual background of Income Tax Case No.37 of 1989.

The respondent-assessee is a private limited company incorporated on January 4, 1974. It is engaged in the business of milling wheat, suji, atta, etc., and selling them in the market. During the assessment year 1978-79, the assessee has claimed that the amount of subsidy received under the Central Investment Subsidy Scheme is not to be deducted from the total assets for the purpose of allowing depreciation under the Act. This contention did not find favour with the assessing authority which held that the amount of subsidy should be deducted from the value of assets while calculating the depreciation. The appeal filed by the assessee was accepted by the Commissioner of Income-tax (Appeals), Chandigarh, who directed the Inspecting Assistant Commissioner (Assessment) to allow depreciation on machinery and plant without reducing the cost of subsidy form the actual cost of plant and machinery. Feeling dissatisfied with the order of the Commissioner of Income-tax (Appeals), the Revenue filed an appeal before the Income-tax Appellate Tribunal. That appeal was dismissed by the Tribunal. A reference application filed by the Department under section 256(1) was also declined by the Tribunal. This is how the Department has filed this petition under section 256(2) of the Act has sought reference of the question of law framed by it.

In other petitions, the facts are more or less identical and the question sought to be referred is also identical.

Learned counsel for the Department relied on a decision of this Court in CIT v. Janak Steel Tubes (Pvt.) Ltd. (1989) 179 ITR 536 and another decision in CIT v. Jindal Brothers Rice Mills (1989) 179 ITR 470 (P & H) and argued that an important question of law arises for determination by this Court and the Tribunal should be directed to refer that question.

In our opinion, the submission of learned counsel cannot be accepted because the two decisions on which reliance has been placed by Shri Mahajan stand reversed/overruled by the Supreme Court in CIT v. P.J. Chemicals Ltd. (1994) 210 ITR 830. Their Lordships of the Supreme Court were considering the appeals filed by the Department against the judgments of the Andhra Pradesh High Court and some other Courts including this Court on the issue of deduction of subsidy from the total assets for the purpose of computing the actual cost of the asset. Their Lordships approved the ratio of the decisions of the Allahabad, Bombay, Calcutta, Gauhati, Gujarat Karnataka, Kerala, Madras, Orissa and Rajasthan High Court and disapproved the view taken by this Court in the two decisions relied upon by Shri Mahajan and held (headnote):

"Where Government subsidy is intended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the 'actual cost'. The expression 'actual cost' in section 43(1) of the Income Tax Act, 1961, needs to be interpreted liberally. Such a subsidy does not partake of the incidents which attract the conditions for its deducibility from 'actual cost'. The amount of subsidy is not to be deducted from the 'actual cost' under section 43(1) for the purpose of calculation of depreciation, etc."

In view of the authoritative pronouncement of the Supreme Court and the fact that the two decisions rendered by this Court have been reversed/overruled by the Supreme Court, we hold that no question of law arises for determination by this Court. Hence, these petitions are dismissed-

M.B.A./1416/FCOrder accordingly.