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TMI Blog1994 (9) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... nted to industries on a percentage of the capital cost are not deductible from the "actual cost" under section 43(1) of the Act for the purpose of calculation of depreciation, etc. The second batch consists of matters in which the High Court has taken a contrary view against the assessee and where the assessee has come up in appeal. There is thus a divergence of judicial opinion on this question. We may refer to the facts of one case on either side to place the controversy in perspective. In Civil Appeal No. 2474 of 1991, the Commissioner of Income-tax, Andhra Pradesh-I, Hyderabad, has questioned the correctness of the order dated November 28, 1990, of the Division Bench of the Andhra Pradesh High Court in Income-tax Case No. 267 of 1989. The respondent-assessee, Messrs. P. J. Chemicals Ltd., filed its return of income for the assessment year 1983-84 declaring a net loss of Rs. 6,90,643. In the course of its return, the assessee had capitalised the entire pre-operative expenditure amounting to Rs. 25,64,395 and claimed depreciation thereon. There were, however, some disallowances of the items in this capitalisation and a ratio of 80:20 was accepted as the formula for ascertai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 987] 168 ITR 632, answered the question in the affirmative and against the Revenue. The Revenue has now come up in appeal. Civil Appeal No. 3699 of 1990 is a case typical of the opposite point of view where the assessee has come up in appeal. The appellant, Messrs. Janak Steel Tubes P. Ltd., filed returns of income for the assessment year 1978-79 declaring a loss. Some time thereafter the appellant revised its returns. It claimed that the subsidy of Rs. 7,58,000 received by it should not be deducted while computing depreciation on the "actual cost". The Income-tax Officer, by his order dated May 27, 1980, rejected the claim of the appellant and reduced the "actual cost" by the amount of the subsidy. The appeal preferred by the appellant before the Commissioner of Income-tax (Appeals) was dismissed on October 9, 1980. The appellant filed a second appeal in Income-tax Appeal No. 4810/(Del.) of 1980 before the Income-tax Appellate Tribunal, Jabalpur Bench, Camp at New Delhi. The Tribunal has discussed this point in paragraph 4 of the appellate order. It allowed the appellant-assessee's claim. On the motion of the Revenue under section 256(1) of the Income-tax Act, 1961, the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of cases are broadly similar to the subsidies which came up for consideration in the above cases. The Punjab and Haryana High Court's judgments under appeal have taken the opposite view. Such rebate as obtains on the point turns on the definition of "actual cost" in section 43(1) of the Income-tax Act, 1961. Section 43(1) provides definitions of certain terms and, inter alia, stipulates that for purposes of section 28 to 41 and 43, "actual cost" means "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." Thus, if a portion of the cost is met directly or indirectly by any person or authority, the "actual cost" would, for the purposes of the aforesaid sections, be the cost minus the subsidies. The "actual cost" of an asset which should be given a meaning in a commercial sense, logically includes whatever even any other person or authority has met ; but the legislative intent is that the assessee should not have the benefit of depreciation on the cost which he did not himself pay. Indeed, the provision for wastage of capital in the earning of income by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruct the tramway and then we will repay to you the cost to which you have been put.' What would be the answer of the Corporation to the question : 'What did that tramway cost you in the end ?' I should have thought the Corporation might conceivably have said : 'Well, the tramway cost us pound 54,752, but, having regard to the fact that that was repaid to us by the Dunlop Rubber Co., the actual cost to us was nil.' I find, like Lord Justice Slesser, the words in sub-rule (6) too strong to enable me to say that the only object and effect of the section is to correct the anomaly that was pointed out in Richman's case [1906] 1 KB 311). For these reasons, I think the appeal should be allowed and the decision of the Commissioners restored." Disagreeing with the said observations, Lord Atkin said : ".....I myself should not have thought the answer of Birmingham Corporation to the question put by Lord Justice Romer would have been what he suggests. On the hypothesis that the Dunlop Company had recouped the Corporation the whole of the cost of the first tramway I should have thought the answer to 'What did it cost you ?' or 'What did it actually cost you ?" would have been 'It act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ended as an incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost which is the basis for determining the subsidy being only a measure adopted under the scheme to quantify the financial aid. The contention is that it is not a payment, directly or indirectly, to meet any portion of the "actual cost" but intended as an incentive to entrepreneurs, its quantification determined at a percentage of the fixed capital cost. In Godavari Plywoods' case [1987] 168 ITR 632, the Andhra Pradesh High Court, adopting this view, observed : "Nowhere had the scheme provided as to how the subsidy should be utilised and for which assets. It was open to the assessee to legitimately reduce the cost of land in its books of account to the full extent of the subsidy, in which case the cost of plant and machinery would remain at invoice price uninfluenced by the amount of subsidy. The amount received by way of subsidy could be utilised for any purpose such as acquiring land on which no depreciation was admissible or on plant and machinery or for erection of buildings or for working capital or for repaying the loans alr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iate the subsidy for a purpose other than that for which it was given to him. Even if the assessee wrongly maintains the account books and utilises the entire subsidy against the value of the land to reduce its cost, the Income-tax Officer would not overlook the matter and would appropriate the subsidy in reducing the cost of the machinery, plant and building for which the subsidy was specifically granted. There is a nexus between the cost of each item and the subsidy under each head." On a consideration of the matter the view that commends itself as acceptable is the one which has commended itself to the majority of the High Courts. It is, of course, not the numerical strength that prevails--though the fact that a particular view has commended itself to a majority of the High Courts in the country is a matter for consideration--but the tensile strength of the acceptable logic in those decisions. It is aptly said that "a judge who announces a decision must be able to demonstrate that he began from recognized legal principles and reasoned in an intellectually coherent and politically neutral way to his result". In the present case the reasoning underlying, and implicit in, the con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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