1998 (6) TMI 37 - HC - Income Tax

Depreciation Investment Allowance Actual Cost Appeal To Appellate Tribunal Powers Of Tribunal

Summary

Issues:
1. Whether the grant received by the assessee should be considered a capital receipt or revenue receipt.
2. Whether the grant should be deducted from the actual cost of the machinery for the purpose of depreciation and investment allowance.

Analysis:

Issue 1:
The case involved a private limited company that received a grant from foreign buyers, initially as an interest-free loan for the purchase of machinery. The foreign company later converted the amount into a gift for the benefit of the assessee. The Income-tax Officer treated the grant as revenue, but the Commissioner (Appeals) and the Tribunal considered it a capital receipt. The Tribunal upheld that the grant should reduce the actual cost of the machinery. The High Court analyzed the definition of "actual cost" under section 43(1) of the Income-tax Act, which allows for the deduction of contributions made by third parties from the purchase cost. As the entire purchase cost was met by the foreign buyers, the grant should indeed reduce the actual cost incurred by the assessee. The court rejected the argument that the grant should not affect the cost based on a different case precedent, emphasizing the specific circumstances of this case.

Issue 2:
The second issue revolved around whether the Tribunal had the jurisdiction to decide on reducing the actual cost of the machinery by the grant amount for depreciation and investment allowance. The High Court affirmed that the Tribunal had the authority to entertain new grounds raised during the appeal process. Since the nature of the grant directly impacted the determination of depreciation allowance, the Tribunal was justified in considering the mode of calculating the actual cost of the machinery. Consequently, the High Court ruled in favor of the Revenue, upholding the Tribunal's decision to reduce the actual cost by the grant amount for the purpose of depreciation. The court answered both questions of law in the affirmative, supporting the Tribunal's jurisdiction and decision.

In conclusion, the High Court affirmed that the grant received by the assessee should be treated as a capital receipt and allowed for the reduction of the grant amount from the actual cost of the machinery for depreciation purposes. The judgment favored the Revenue and awarded costs accordingly.