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Interpretation of section 10(5) and section 10(2)(vib) of the Indian Income-tax Act, 1922 regarding deduction of contributions received from Government or public authorities in calculating development rebate on machinery. Analysis: The case involved a reference under section 66(1) of the Indian Income-tax Act, 1922, regarding the deduction of contributions received from the Government or public authorities in calculating development rebate on machinery. The assessee claimed development rebate on machinery worth Rs. 53,44,232, out of which contributions of Rs. 1,36,436 were received. The Income-tax Officer deducted the contributions and allowed rebate on the balance, leading to a dispute. The Appellate Tribunal held that the Explanation to section 10(5) did not apply to section 10(2)(vib) and allowed the rebate on the entire machinery value. The court analyzed the provisions of section 10(2)(vib) and the Explanation to section 10(5) to determine the actual cost for rebate calculation. The court discussed the definition of "actual cost" under section 10(5) and its applicability to section 10(2)(vib). The Explanation to section 10(5) defines "actual cost" as the cost reduced by contributions from the Government or public authorities. However, the court held that this definition applies only to the expressions defined in section 10(5) and not to section 10(2)(vib). Therefore, the actual cost for rebate calculation should not exclude contributions received. Referring to precedent, the court cited the case of Commissioner of Income-tax v. Poona Electric Supply Co. Ltd., where it was held that actual cost is determined irrespective of the funding source. The court emphasized that the actual cost is the amount spent on the assets, regardless of contributions received. The court rejected the argument that actual cost should only include expenses borne solely by the assessee, emphasizing that the source of funding does not alter the actual cost determination. The court also addressed the comparison with the new Income-tax Act, 1961, specifically section 43, which defines "actual cost" to include contributions from any other person or authority. However, the court clarified that the provisions of the old Act should be interpreted independently, and the new Act's definitions do not apply retroactively. Therefore, the court answered the referred question in the negative, favoring the assessee, and directed the department to pay the costs of the reference to the assessee.
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