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TMI Blog1988 (9) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... time granted substantial funds either by way of loans or by way of grants. For purpose of claiming depreciation in various assets, the assessee did not deduct the value of the grants received by it from the State Government from the cost of the various assets. The ITO while making the assessments for these years also did not notice this feature and allowed depreciation at the cost of various assets without reducing it by the capital grant received from the Government. The Commissioner on perusing the records of the assessee, came to the conclusion that the capital grant of Rs. 22.50 crores and Rs. 97.25 crores respectively for the asst. years 1981-82 and 1982-83 received by the assessee from the Government should have been reduced from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O. Nos. 687 dt. 12-5-81, 760 dt. 27-5-81, 894 dt. 16-6-1981, 998 dt. 1-7-81, 1063 dt. 8-7-81, 1096 dt. 13-7-81, 1212 dt. 28-7-81 and 1354 dt. 13-8-81 for the asst. years 1982-83) issued by the PWD on different dates sanctioning the aforesaid sums of Rs. 22.50 crores and Rs. 20.00 crores as grants for the above project. Shri Rao contends that the grants have been given for the execution of the project and it was for financing the project as a whole and not for acquisition of any particular asset. In the circumstances, it is contended that the grants should not be reduced from the actual cost of the assets in order to find out the amount on which depreciation is allowable. Reliance in this connection was sought to be placed on the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts received from the Tamilnadu Government by the assessee for incurring the capital expenditure in the execution of the project should be reduced from the cost of the assets to the assessee in order to find out their actual cost on which depreciation could be allowed. There is no dispute that the assessee will be entitled to depreciation on the actual cost of the various assets. The words "actual cost" are defined in sec. 43(1) of the Act as meaning the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. The assessee has during these years executed the above project which is one of the plant schemes of the Government of Tami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment allowance could be given. The very purpose of the provisions of sec. 43(1) is to see that the assessee will be getting depreciation only on that portion of the cost as is actually incurred by it and it will not be entitled to depreciation on the portion of the cost, which is met by some other person. The argument of Shri Rao, the learned representative for the assessee, is that the grant is not given specifically to meet the cost of any particular asset but it is given to meet the capital expenditure of the project as a whole. As it is not possible to distribute it over different assets, his contention is that such a grant should not be reduced from the cost of the assets to the assessee. We do not agree. If for instance the entire cos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntitled to higher and some lower depreciation, cannot be the basis for rejecting the claims either of Revenue or the assessee. In the case of CIT v. Best Co. (P.) Ltd. [1966] 60 ITR 11, the Supreme Court held that the difficulty in apportionment cannot be a good ground for rejecting the claims either of the Revenue or of the assessee. In that case a composite amount was received by the assessee which was held to be partly of Revenue and partly of capital nature. While upholding that a part of the amount is of revenue nature, the Court held that there is no principle which prevented its apportionment between the two heads on a reasonable basis. The Calcutta High Court in CIT v. Dunlop Rubber Co. (I) Ltd. [1977] 107 ITR 182 held that the fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... misplaced. That was a case where a subsidy was given by the Central Government under Central Subsidy Scheme to various entrepreneurs specifically for the purpose of meeting a portion of the cost of the assets. The Court in that case held that the financial incentives granted by the Central Government as well as the State Government are basically directed to encourage and induce the entrepreneurs to move to backward areas and establish industries there so that the region may develop in promoting the welfare of the people, living in that region. It was held that the basis adopted for determining cash subsidy with reference to the fixed capital cost is only a measure (of quantification) adopted and cannot be considered for the specific purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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