1986 (5) TMI 72 - AT - Income Tax

Summary

Issues:
- Deduction of central subsidy from the cost of plant and machinery for depreciation calculation.
- Granting investment allowance without deducting central subsidy.
- Granting investment allowance on tubewells inside factory premises.

Analysis:
The judgment by the Appellate Tribunal ITAT GAUHATI involved three appeals related to the same assessee, heard together for convenience. The primary issue revolved around the deduction of central subsidy received by the assessee from the cost of plant and machinery for the purpose of calculating depreciation. The assessee contended that the subsidy should not be deducted, while the AO held otherwise. The CIT(A) sided with the assessee, directing the AO to allow depreciation on the full cost of plant and machinery without deducting the subsidy amount.

Regarding the investment allowance under section 32A, the CIT(A) directed that the allowance should be granted to the assessee without deducting the central subsidy received. The Tribunal examined relevant precedents and the central subsidy scheme's essential features. It was established that the subsidy was intended to encourage industrial units in backward areas and was not meant to offset the cost of any specific asset. Relying on previous Tribunal decisions, the Tribunal upheld the CIT(A)'s order, concluding that the subsidy amount should not be deducted from the cost of plant and machinery for depreciation or investment allowance purposes.

Another issue addressed in the judgment pertained to granting investment allowance on tubewells dug inside the factory premises. The CIT(A) allowed the investment allowance on these tubewells, considering them necessary for the manufacturing process and part of the factory complex. The Tribunal upheld this decision, emphasizing that the tubewells were essential for the industrial operations and not for residential purposes.

In conclusion, the Tribunal dismissed all three appeals, affirming the CIT(A)'s orders on allowing depreciation and investment allowance without deducting the central subsidy and granting investment allowance on the tubewells inside the factory premises.