1997 (6) TMI 3 - HC - Income Tax

Scientific Research, Capital Expenditure, Industrial Sheds, Depreciation, Actual Cost, Central Subsidy

Summary

Issues:
1. Whether central subsidy received should be reduced from the cost of the asset for depreciation and investment allowance.
2. Whether the cost of land and building could be allowed as a deduction during the relevant assessment year when ownership vested later.

Issue 1: Central Subsidy and Depreciation
In the first case, the court addressed whether the central subsidy received should be deducted from the cost of the asset for depreciation and investment allowance. The court noted that the issue was settled by a Supreme Court decision in favor of the assessee. Citing the decision in CIT v. P. J. Chemicals Ltd., the court ruled against the Revenue and in favor of the assessee, stating that the central subsidy should not be reduced from the cost of the asset for depreciation and investment allowance.

Issue 2: Deduction for Land and Building Ownership
In the second case, the court examined whether the cost of land and building could be allowed as a deduction during the relevant assessment year when ownership vested later. The assessee, engaged in the manufacture and sale of pesticides, acquired sheds for business purposes. The assessing authority initially disallowed depreciation and capital expenditure on scientific research due to ownership registration issues. The Commissioner of Income-tax also limited the allowable amount. However, the Tribunal overturned these decisions, allowing the deductions. The court agreed with the Tribunal, stating that the ownership need not be acquired in the previous year for capital expenditure deduction under section 35(1)(iv). It held that Explanation 2, though inserted later, should be considered declaratory and applied to the relevant assessment year. Consequently, the court ruled in favor of the assessee, allowing the deductions for the cost of land and building.

In conclusion, the court ruled in both cases in favor of the assessee, emphasizing the interpretation of relevant provisions and the applicability of legal explanations to determine deductions for capital expenditure and subsidies in income tax assessments.