2013 (10) TMI 214 - HC - Income Tax

Depreciation - reduction of subsidy from actual cost reduced - sec.43(1) of the Income Tax Act, 1961 Held that - Though ordinarily, it may be true that the subsidies, which are in the nature of capital receipts given for covering the capital details for acquisition of fixed assets such as plants, machineries, land and building etc., may go on to reduce the cost of acquisition of such assets and resultantly, may have an effect of reducing the depreciation available on the assets on such investment, nevertheless, this cannot be held to be a rule of universal application without examination of relevant facts - Tribunal to consider the issue afresh bearing in mind the nature of subsidy, purpose for which the same was made available and all other relevant factors bearing in mind the case laws cited before us and which may further be argued before the Tribunal by both the sides

Summary

Issues Involved:
1. Interpretation of the Income Tax Act regarding the treatment of subsidy received by the assessee.
2. Whether the Tribunal had the authority to give consequential directions on the treatment of subsidy as a capital receipt.

Analysis:

Issue 1: Interpretation of the Income Tax Act regarding the treatment of subsidy received by the assessee:
The case involved a dispute between the assessee and the revenue regarding the nature of a subsidy received by the assessee in the form of sales tax deferment from the Government of Haryana. The Assessing Officer initially treated the subsidy as a revenue receipt, but the Deputy Commissioner reversed this decision. The Tribunal partially upheld the Commissioner's view and directed the Assessing Officer to recalculate depreciation by reducing the amount of subsidy from the cost of fixed assets as per section 43(1) of the Income Tax Act. The High Court observed that the Tribunal had the discretionary power to pass orders it deemed fit after giving both parties a hearing. The Tribunal's consequential direction was seen as partially allowing the Revenue's appeal, as it accepted that the subsidy was capital in nature and should reduce the cost of acquisition, despite rejecting the Revenue's argument that it was a revenue receipt.

Issue 2: Authority of the Tribunal to give consequential directions on the treatment of subsidy as a capital receipt:
The High Court addressed the contention raised by the assessee that the Tribunal exceeded its jurisdiction by giving consequential directions on the treatment of the subsidy. The Court held that the Tribunal had the power to pass orders it deemed fit on appeal, provided both parties were given a hearing. The Tribunal's direction to reduce the cost of acquisition due to the capital receipt was considered within its authority. However, the Court noted that the Tribunal should have provided an opportunity for the assessee to be heard and should have discussed the relevant facts and applicable law before giving such directions. Consequently, the High Court requested the Tribunal to reconsider the issue, taking into account the nature and purpose of the subsidy and other relevant factors, without expressing any opinion on the merits of the rival contentions.

In conclusion, the High Court disposed of the Tax Appeals by requesting the Tribunal to revisit the issue of the subsidy treatment in accordance with the law and relevant considerations, emphasizing the need for a thorough examination of facts and legal provisions before giving consequential directions.