1994 (2) TMI 54 - HC - Income Tax

Summary

Issues:
1. Whether the subsidy received by the assessee under the '10 per cent. Central Outright Grant of Subsidy Scheme, 1971' should be reduced from the cost of assets owned by the assessee under section 43 of the Income-tax Act, 1961?
2. Whether the Tribunal was justified in adjudicating upon the nature of the subsidy without obtaining relevant documents from the assessee constituting the basis of the subsidy?

Detailed Analysis:
Issue 1:
The case involved the interpretation of whether the subsidy received by the assessee should be deducted from the cost of assets for the purpose of granting depreciation/development rebate. The Tribunal held that the subsidy, received as part of a government scheme to promote industries in backward areas, did not reduce the actual cost of the assets acquired by the assessee. The court analyzed the scheme's provisions, which determined the subsidy based on the fixed capital investment in land, building, and machinery. The court emphasized that the purpose of the subsidy was to encourage industrial growth in specific regions, not to form part of the asset's cost. Various court judgments were cited, including the Punjab and Haryana High Court, which took a different view. However, the High Court disagreed with that view, stating that the subsidy should not be reduced from the asset's cost based on common parlance understanding of the term "subsidy."

Issue 2:
The second issue raised whether the Tribunal was justified in deciding on the nature of the subsidy without the relevant documents from the assessee. The court did not find it necessary to delve into this issue extensively as the primary question revolved around the treatment of the subsidy in relation to the asset's cost. The court's decision on the first issue, favoring the assessee, rendered the second issue less significant. Consequently, the court did not find fault with the Tribunal's decision-making process regarding the nature of the subsidy without the specific documents.

In conclusion, the High Court ruled in favor of the assessee, determining that the subsidy should not be reduced from the cost of the assets. The court highlighted the purpose of the subsidy scheme and the ordinary meaning of the term "subsidy" in commercial parlance to support its decision. The judgment clarified the treatment of subsidies in the context of asset costs for depreciation and development rebate purposes.