1983 (3) TMI 67 - AT - Income Tax

Summary

Issues:
1. Treatment of subsidy received towards the cost of a generator for determining 'actual cost' under section 43(1) of the Income-tax Act, 1961.
2. Allowance of development rebate based on the creation of development rebate reserve.

Analysis:

Issue 1: Treatment of Subsidy for Determining 'Actual Cost'
The case involved the question of whether a subsidy received towards the cost of a generator should be deducted from the 'actual cost' of the asset for the purpose of allowing depreciation and development rebate under section 43(1) of the Income-tax Act, 1961. The Income Tax Officer (ITO) deducted the subsidy amount from the actual cost, resulting in a lower amount eligible for depreciation and development rebate. The Commissioner (Appeals) disagreed, stating that the subsidy was received after the installation of the generator and should not be deducted from the actual cost. However, the Appellate Tribunal upheld the ITO's decision, emphasizing that the subsidy, even if received subsequently, related back to the date of installation. The Tribunal relied on legal precedents, including a decision of the Allahabad High Court, to support the view that the actual cost to the assessee was reduced by the subsidy amount received, regardless of the timing of receipt. Therefore, depreciation and development rebate were allowed only on the balance after deducting the subsidy amount.

Issue 2: Allowance of Development Rebate based on Reserve Creation
The second issue pertained to the allowance of development rebate based on the creation of a development rebate reserve. The ITO had allowed the development rebate only to the extent of the reserve created in the assessment year under appeal. The assessee contended that the unutilized development rebate reserve from a prior accounting year should also be considered. The Commissioner (Appeals) rejected this claim, but the Appellate Tribunal disagreed. Citing a decision of the Allahabad High Court, the Tribunal held that the carried forward development rebate reserve could be taken into account for allowing the development rebate in the year under appeal. The Tribunal emphasized that the observations of the Court supported the assessee's position, even though the specific case cited involved a reverse situation. Consequently, the Tribunal directed the ITO to allow the development rebate not only based on the reserve created in the current year but also considering the carried forward reserve from a prior year.

In conclusion, the Appellate Tribunal upheld the ITO's treatment of the subsidy received towards the generator's cost for determining 'actual cost' and allowed the development rebate based on both the current year's reserve creation and the carried forward reserve from a prior year. As a result, both appeals were allowed in favor of the department.