1989 (3) TMI 76 - HC - Income Tax

Actual Cost, Deduction For New Industrial Undertaking, Deduction U/S 80HH, Developement Rebate, New Industrial Undertaking, Production

Summary

Issues:
1. Whether subsidy received should be deducted from the cost of assets for development rebate, depreciation, and relief under section 80J of the Income-tax Act.
2. Whether the business involves production and is entitled to exemption under section 80HH of the Income-tax Act.

Analysis:
1. The case involved the question of whether the subsidy received by the assessee should be deducted from the cost of assets for the purpose of allowing development rebate, depreciation, and relief under section 80J of the Income-tax Act. The assessee, a firm engaged in purchasing shrimps, peeling, freezing, and exporting them, claimed deductions under section 80HH, depreciation, and relief under section 80J. The Income-tax Officer initially rejected the claim, stating that the subsidy received should be reduced from the value of assets for computation of depreciation and relief under section 80J. However, the Commissioner of Income-tax (Appeals) accepted the plea of the assessee, ruling that the subsidy should not be reduced from the cost of assets for depreciation and relief calculations. The Tribunal upheld this decision, citing that the subsidy received was an incentive for industries in backward areas and did not impact the initial acquisition or cost of assets. The court, based on various precedents, held that the subsidy should not be deducted from the cost of assets for development rebate and depreciation purposes, ruling in favor of the assessee.

2. The second issue revolved around whether the assessee's business involved production and was entitled to exemption under section 80HH of the Income-tax Act. The court referred to a previous decision where it was held that processing and exporting goods constituted production. Relying on this precedent, the court determined that the assessee's business involved production, making them eligible for exemption under section 80HH. Consequently, the court answered both questions in favor of the assessee and against the Revenue, affirming that the subsidy should not be deducted from the cost of assets and that the business qualified for exemption under section 80HH. The judgment was to be forwarded to the Income-tax Appellate Tribunal, Cochin Bench for further action.