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TMI Blog1984 (9) TMI 147X X X X Extracts X X X X X X X X Extracts X X X X ..... virtue of definition of 'actual cost' in section 43(1) of the Act, the amount of subsidy had to be reduced from the actual cost to the company of its fixed assets for the purpose of qualifying the deductions admissible under sections 32, 32A and 80J(1) and, accordingly, he allowed deductions referred to above. 3. On appeal, the action of the ITO was challenged before the Commissioner (Appeals), who accepted the claim of the assessee referred to above on following the decision of the Madras Bench of the Tribunal in IT Appeal Nos. 2899 and 2971 (Mad.) of 1977-78 in Pioneer Match Works v. ITO [1982] 1 SOT 331 (SB). He further observed that since the company started production only on 21-1-1980 and the previous year under consideration was the period of twelve months ended on 30-6-1980, the full amount of deduction admissible under section 80J, viz. 71/2 per cent of the capital employed in the undertaking, was reduced in proportion to the period during which the undertaking was in productive operation, which is in accordance with the decision of the Madras High Court in the case of CIT v. Simpson Co. [1980] 122 ITR 283. Accordingly, he directed the ITO that he should, therefore, ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of value of plant and machinery acquired on site as well as expenditure incurred towards construction of building along with list of machinery and as such the assessee has no truth to bite the truth that the subsidy is given to meet the cost of plant and machinery (asset) installed and created on the satisfaction of the condition that the amount of Rs. 15 lakhs would be given to the assessee if the assessee furnished the certificate of an engineer mentioned above, which the assessee produced, then and then only subsidy is given to the assessee. Merely contending therein that the department has failed to prove the nexus between the subsidy amount in dispute and the cost of plant and machinery installed and created, so much so that the amount of Rs. 15 lakhs also is there towards the price of land and building. He, therefore, contends that the decision of the Special Bench in Pioneer Match Works' case is not good law in view of the decisions in Lucknow Producers' Co-operative Milk Union Ltd.'s case and Bombay Burmah Trading Corpn. Ltd. v. CIT [1983] 145 ITR 793 (Bom.). He contends that when there is a decision of one of the High Courts of the land contrary to the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it at Kulathur Village, Vedasandur Taluk, Madurai District, for the manufacture of cotton yarn. Relying on it and in particular on clauses 3 and 11, the learned departmental representative contends that the nexus between the subsidy of Rs. 15 lakhs and fixed assets installed and created, machinery and plant has been established in view of the fact that the subsidy is paid to the assessee on furnishing by the assessee the documentary evidence, that is the engineer's certificate and certificate from chartered accountants certifying the extent of value of plant and machinery acquired on site as well as expenditure incurred towards construction of building along with list of machinery and also clearance from all the regulatory authorities in connection with the setting up of the project/expansion scheme before disbursement of any part of the subsidy. Clause 11 is as under : "11. The unit should get the necessary clearance from all the regulatory authorities in connection with the setting up of the project/expansion scheme before disbursement of any part of the subsidy." It is substantiated from another documentary evidence, which is none else than an agreement of 1979 between the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 43(1) because it felt that the wide connotation of the word 'authority' would take within its purview 'Government' as well, besides other kinds of authorities. A State Government would, therefore, be an 'authority' for the purposes of section 43(1). Where an assessee purchased capital assets with the help of a grant from the State Government : Held, that for purposes of working out depreciation, the amount of grant should be deducted from the cost of the assets." Therefore, from the aforesaid decision of their Lordships of the Allahabad High Court and documentary evidence letter dated 4-7-1979, agreement and engineer's certificate and the conduct of the assessee in receiving the subsidy in satisfying the conditions of agreement and in furnishing engineer's certificate and thereby receiving the subsidy proves beyond doubt that the subsidy is there by the SIPCOT to meet the cost of assets. When this is so, then the nexus between the subsidy of Rs. 15 lakhs and the cost of assets has been proved and established by the department. Accordingly, we reject the contention of the learned counsel for the assessee that the subsidy is there for installing plant and machinery in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the interpretation of provision, in the interests of uniformity, it is better to follow the interpretation adopted by another High Court. 9. In this view of the matter, the contention of the learned counsel for the assessee cannot be accepted when he says that the practice in the Benches of the Tribunal at Madras is to follow its own order or that of the Special Bench and, therefore, the order of the Tribunal is to be followed in deciding the issue and not that of the Allahabad High Court. Their Lordships of the Madras High Court has nowhere held in the case of L.G. Ramamurthi that the decision of the Tribunal is to be followed by its Benches in preference to the decision of the High Court of the land and it cannot be there in view of the settled law and the decisions of the Hon'ble Madras High Court and in particular that of the Bombay High Court in Smt. Godavaridevi Saraf's case where it is held that the decision of the High Court is to be followed to that of the Tribunal. Therefore, following it with respect, we hold that the decision of the Allahabad High Court in Lucknow Producers' Co-operative Milk Union Ltd.'s case is to be followed and not that of the Special Bench of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... machinery only for a period of nine months and the department sought to reduce the deduction of six per cent of the capital further in proportion to the period during which it worked the machinery, but the Tribunal held that the assessee was entitled to relief of six per cent of the capital employed for each of the two years without any limitation on any proportionate time basis :" 11. When this is so, then we accept the contention of the learned departmental representative when he says that the case relied upon by the Commissioner (Appeals) in Simpson Co. is not applicable to the facts of this case as in this case the issue involved is that the cost of assets is to be reduced by the amount of subsidy in computing the relief under sections 32, 32A and 80J. 12. In view of our above discussions and reasons thereto, we hold that on the facts and in the circumstances of the case and the decision of the Allahabad High Court in Lucknow Producers' Co-operative Milk Union Ltd.'s case, the cost of assets is to be reduced by the amount of subsidy for computing the relief under sections 32, 32A and 80J in view of the fact that nexus between the amount of subsidy of Rs. 15 lakhs and cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Bench's order aforesaid. I may also refer to clause (vi) of the Deed of Agreement for Central Subsidy Amount, which reads as under : "The beneficiary shall refund the subsidy together with interest at the rate applicable to term loans sanctioned by SIPCOT if it is found that the beneficiary has violated any of the terms and conditions mentioned herein or that the subsidy has been obtained by fraud or by misrepresentation as to an essential fact or furnishing of false information or if the industrial unit goes out of production within five years from the date of commencement of production. The beneficiary solemnly assures and undertakes to refund the subsidy with interest as mentioned above." Thus, in the given circumstances the subsidy was fully refundable by the assessee to the Government. The assessee's case before us, in my view, is squarely covered by the Special Bench decision, with which I entirely agree. I would, hence, hold that the amount of subsidy received by the assessee cannot reduce the cost of the fixed assets to the assessee for the purpose of allowing the deduction under sections 32, 32A and 80J. The departmental appeal is, hence, dismissed. ORDER UNDER S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n assistance given to the assessee for the purchase of the specified assets. It is automatic that the subsidy goes to reduce the cost to the assessee of these assets. The provisions of section 43(1) leave no doubt about the fact that depreciation is to be granted on the actual cost as defined therein. In effect the cost for the purpose of depreciation is the expenditure incurred by the assessee on the assets. When the assessee received a subsidy based on the investment on the assets, factually his investment has gone down to the extent of the subsidy. The ITO has, therefore, correctly reduced the cost for the purpose of depreciation, etc., by the subsidy amount. 3. It is alternatively contended by the learned counsel that the receipt itself of Rs. 15 lakhs is connected with the business of the assessee. It is straightaway taxable as the income of the assessee received in the course of his business. In fact, the ITO made a mistake in not bringing to tax the entire receipt which went to swell the resources of the assessee, instead of only reducing the cost of assets by the subsidy. Reliance is placed in this connection on the decision of the Allahabad High Court in Lucknow Producer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the alternative argument raised for the department should not be entertained at all. 6. On this latter question it would not be proper to accept the assessee's claim. The real dispute between the ITO and the assessee is the manner of treatment to be accorded to a receipt of Rs. 15 lakhs from the SIPCOT. That it is a subsidy and has been received by the assessee is not in dispute, nor is the purpose of the subsidy in doubt. Since the receipt is entirely connected with the business of the assessee, whether paid before starting such business, that is during the gestation period or subsequently, the question of its being the assessee's income does arise for consideration. The mere fact that instead of considering the tax liability of this amount as a revenue receipt, the ITO treated it as reducing the price of fixed assets would not preclude the Tribunal in appreciating the correct facts about this matter or coming to the correct legal conclusion. Even though, therefore, the ITO dealt with the problem only from the point of view of reducing the cost of assets, insofar as the receipt itself might attract tax, this aspect cannot be ignored by the appellate authorities. It is not a se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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