1945 (3) TMI 16 - HC - Income Tax

Summary

Issues:
1. Whether contributions made by the Government to the assessee company constitute trade receipts and are taxable.
2. If the contributions are deemed capital receipts, whether they form part of the actual cost for calculating depreciation.

Analysis:
1. The case involved the Commissioner of Income-tax seeking clarification on whether contributions made by the Government to the assessee company should be considered trade receipts and taxed accordingly. The Tribunal found that the contributions were towards capital expenditure for constructing new supply lines, making them capital receipts, not trading receipts. The company would not have undertaken the project without the contributions, indicating a capital nature. The High Court agreed that the contributions were capital receipts, not taxable as trade receipts.

2. The second issue was whether the capital contributions from the Government should be included in the actual cost for calculating depreciation under Section 10(5) of the Income-tax Act. The Tribunal had excluded the contributions from the actual cost, but the High Court disagreed. Referring to a similar English case, the High Court held that the actual cost should include the entire cost incurred, regardless of the funding source. Therefore, the contributions were deemed to form part of the actual cost for depreciation calculation.

In conclusion, the High Court ruled that the contributions from the Government to the assessee company were capital receipts, not taxable as trade receipts. Additionally, the contributions were considered part of the actual cost for calculating depreciation, as per Section 10(5) of the Income-tax Act.