2002 (8) TMI 54 - HC - Income Tax

(i) Whether Tribunal was right in holding that the order of the Commissioner of Income-tax under section 263 was with jurisdiction when the assessment order had merged with the appellate order dated May 24 1984 as well as the second appellate order of the Tribunal dated May 15 1985? - (ii) Whether Tribunal was right in law in holding that the subsidy received by the petitioner from the State Government under the Subsidised Industrial Housing Scheme is to be deducted from the cost of machinery and plant and building under section 43(1) of the Income-tax Act 1961 for determining the actual cost for the purposes of depreciation allowance under section 32 of the Act? - In this case it is an admitted fact that a part of the construction of the tenements was made by the grant from the State by way of subsidy. The amount spent by the assessee on the construction was only total cost minus the subsidy received. The definition of actual cost given in section 43(1) is applicable to sections 28 to 41 of the Act. This includes section 32 which deals with depreciation. The assessee s claim for depreciation for the tenements could therefore only be with reference to the actual cost as computed in accordance with section 43(1) of the Act. The Commissioner was therefore right in holding that the amount of subsidy should be deducted from the total cost of the construction of the tenements.

Summary

Issues:
1. Interpretation of "actual cost" under section 43(1) of the Income-tax Act for claiming depreciation.
2. Jurisdiction of the Commissioner under section 263 of the Income-tax Act regarding the revision of assessment orders.

Issue 1: Interpretation of "actual cost" under section 43(1) of the Income-tax Act for claiming depreciation:

The case involved a co-operative sugar mill receiving a subsidy from the State Government for constructing tenements for its workers during the assessment year 1979-80. The Assessing Officer allowed depreciation on the total cost of the asset initially. However, the Commissioner revised the assessment under section 263, stating that depreciation should be denied to the extent of the subsidy received as it was meant to cover the construction cost. The Tribunal upheld the Commissioner's decision, leading to the appeal. The key question was whether the subsidy received should be deducted from the total cost of construction for determining the "actual cost" under section 43(1) of the Income-tax Act.

The Supreme Court's interpretation in CIT v. Shri Arbuda Mills Ltd. clarified the powers of the Commissioner under section 263. The court emphasized that the Commissioner's power extends to matters not considered in an appeal due to subsequent amendments. Applying this precedent, the High Court ruled in favor of the Revenue, stating that the subsidy should indeed be deducted from the total cost of construction as per the definition of "actual cost" under section 43(1) for depreciation purposes. Therefore, the second issue was decided in favor of the Revenue.

Issue 2: Jurisdiction of the Commissioner under section 263 of the Income-tax Act regarding the revision of assessment orders:

The first question raised in the case pertained to the jurisdiction of the Commissioner under section 263, considering whether the assessment order had merged with the appellate orders, thus limiting the Commissioner's authority. The High Court referred to the amended Explanation to section 263(1) of the Act, which expanded the Commissioner's powers retrospectively. Citing the Supreme Court's ruling and the amended provision, the High Court concluded that the Commissioner's jurisdiction extended to matters not addressed in previous appeals. Therefore, the first question was answered in favor of the Revenue and against the assessee, affirming the Commissioner's authority to revise the assessment order despite the appellate proceedings.

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