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Issues Involved:
The judgment involves the interpretation of whether a capital subsidy received by the assessee should be deductible in computing the actual cost of the asset for the purpose of calculating depreciation and investment allowance. Summary: Background: The Commissioner set aside the Income-tax Officer's assessment order for the year 1977-78, stating that the cost of plant and machinery should have been reduced by the capital subsidy received by the assessee. The Tribunal disagreed, holding that the subsidy was not granted to meet the cost of any specific item of plant or machinery. Tribunal's Decision: The Tribunal determined that the capital subsidy was not deductible in computing the actual cost of the asset as defined in section 43(1) of the Income-tax Act for the purposes of depreciation and investment allowance. The Tribunal's decision was based on the understanding that the subsidy was not intended to cover a portion of the asset's cost. Legal Precedent: Reference was made to a similar case before the Andhra Pradesh High Court, where it was held that subsidies were not granted to meet the cost of assets but as recompense for challenges faced by entrepreneurs in setting up industries in backward areas. Court's Opinion: The High Court agreed with the Tribunal's decision, emphasizing that the subsidy was not specifically intended to cover the cost of plant and machinery. The Court held that the capital subsidy should not be deducted from the actual cost of the asset for the purpose of calculating depreciation and investment allowance. Conclusion: The Court answered the referred question in the affirmative, ruling against the Revenue. Each party was directed to bear their own costs in this reference. Note: The judgment was delivered by G. G. SOHANI J., and the legal principles applied were in line with the interpretation that subsidies were not meant to cover the cost of assets but to compensate for challenges faced by entrepreneurs in certain areas.
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