(a) Income-tax---

----Depreciation---Actual cost---Subsidy received from Government--Amount of subsidy not to be reduced from cost of assets for calculating depreciation---Indian Income Tax Act, 1961, S.43(1).

The subsidy received by the assessee from the Government is not to be reduced from the cost of assets under section 43(1) of the Income Tax Act, 1961, for calculating depreciation.

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

(b) Income-tax---

----Industrial machinery---Initial depreciation---Paper tubes and cones-- Required as accessories for winding yarn as part of textile machinery---Not industrial machinery---Not entitled to initial depreciation---Indian Income Tax Act, 1961, S.32(1)(vi).

The assessee is not entitled to initial depreciation under section 32(1)(vi) of. the Income Tax Act, 1961, on paper tubes and cones 'required as accessories for winding yarn as part of textile machinery as manufacturing paper tubes and cones do not amount to manufacture of industrial machinery.

CIT v. Indian- Textile Paper Tube Co. Ltd. (No. 1) (1998) 234 ITR 47 (Mad.) fol.

C. V. Rajan for the Commissioner.

P. H. Aravindh Pandian for the Assessee

JUDGMENT

K. A. THANIKKACHALAM, J.---At the instance of the Department, the Tribunal referred the following questions, for the assessment years 1975-76 and 1976-77, for the opinion of this Court, under section 256(1) of the Income-tax Act:

"(1) Whether, on- the facts and in the circumstances of the case, the Appellate Tribunal is correct in law in holding that the assessee is entitled to initial depreciation in, respect of the machinery installed during the year?

(2) Whether, the Tribunal's finding that the subsidy received from SIPCOT should not be taken into account while arriving at the cost of the assets under section 43(1.) for purpose of depreciation is sustainable in law?"

In so far as question No. 2 is concerned, the point for consideration is, whether. subsidy received from SIPCOT should be taken into account, while arriving at the cost of the assets under section 43(1) of the Act for the purpose of depreciation. A similar question carne up for consideration before the Supreme Court in the case of CIT -v. P. J. Chemicals Ltd. (1994).210 ITR 830, wherein the Supreme Court held that the amount of subsidy is not to he deducted from the actual cost under section 43(1) for the purpose of depreciation, etc.

Inasmuch as the order passed by the Tribunal on this point is in. accordance with the above cited decision of the Supreme Court, we answer this question No. 2 referred to us in the affirmative and against the Department.

In so far as question No. 1 is concerned, the point for consideration is, whether the assessee is entitled to initial depreciation in respect of the machinery installed during the year. The Tribunal found that the paper cones and paper tubes were manufactured by the assessee, which are accessories of the textile machinery as per. item No. 8A(1) of the First Schedule to the Industries (Development and Regulations) Act, 1951. The assessee is not manufacturing industrial machinery. Manufacturing, a part of the, machinery would not amount to manufacturing machinery. According to the Department, the assessee is not entitled to the initial depreciation. However, the Tribunal held that the assessee is entitled to initial depreciation even with regard to the accessories manufactured by it. A similar question came up for consideration before this Court in the case of the same assessee in T. C. Nos.765 of 1984, wherein by judgment, dated February 4, 1997---CIT v. Indian Textile Paper Tube Co. Ltd. (No. 1) (1.998)' 234 ITR 47, this Court held that the assessee is not entitled to initial, depreciation since the assessee was not manufacturing machinery, but only accessories of the machinery. In view of the foregoing decision of this Court we answer question No. 1 referred to us in the negative and in favour of the Department. No costs.

M.B.A./3382/FC Reference answered.