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TMI Blog2019 (3) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... THAT:- Similar question was considered in case of CIT v/s. Grace Paper Industries Pvt. Ltd. [1990 (3) TMI 66 - GUJARAT HIGH COURT]. The Court noted that, the subsidy was granted by the Government for development of industries in backward areas. It was not part of the actual cost of plant or machinery. The Court, therefore, held that it could not have been deducted towards costs of acquisition. Also as decided in SWASTIK SANITARY WORKS LIMITED.[2006 (4) TMI 89 - GUJARAT HIGH COURT] basis for determining the subsidy was only a measure adopted under the scheme to quantify the financial aid and it was not a payment, directly or indirectly to meet any portion of the actual cost of acquisition of capital asset. No question of law. Disallowance u/s. 14A if the assessee has own surplus funds - HELD THAT:- Question itself records that the issue at hand is covered by the decision of this Court in case of HDFC v/s. DCIT [2014 (8) TMI 119 - BOMBAY HIGH COURT] but that, the department has not accepted the decision of the High Court. In that view, this question also is not required to be entertained. - INCOME TAX APPEAL NO.1743 OF 2016 WITH INCOME TAX APPEAL NO.1744 OF 2016 WITH INCOME T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue with respect to the treatment that, the subsidy amounts received by the Respondent should be given. For setting up a new industry in Kutch District of the State of Gujarat, the Assessee was granted certain subsidies under the State Government as well as Central Government Schemes. As is well known, the State of Gujarat was hit by devastating earthquake which took place on 26th January, 2001, the Kutch District being the worst hit. Post such calamity, to put development of Kutch District back on track, the State Government had introduced a Sales Tax exemption/ deferment Scheme under which, at the option of the assesssee, for specified period, on new investment, there would either be exemption or deferment of sales tax. The preamble of the Schemes as noted by the Tribunal in the impugned judgment, read as under: The economic activities in the district of Kutch came to a standstill on account of the devastating earthquake in the State on 26th January, 2001. New employment, opportunities could be created if new investment takes place. The Government is committed to attracting industries in the district to make the industrial and economic environment live. Government of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, industry was highly capital intensive. The Revenue argued that, the subsidy was revenue in nature. This Court after referring to several decisions of the Supreme Court including the case of Ponni Sugars and Chemicals Ltd., reported in 306 ITR 392 and Sahney Steel and Press Works Ltd., reported in 228 ITR 253 held that, subsidy had not been granted for construction but only after setting up of a new industry which was in the nature of assistance given for the purpose of carrying on business. 7. On further appeal by the Revenue, Supreme Court confirmed the decision of this Court. It was noted that, Maharashtra Government's subsidy was not in form of an exemption from payment of entertainment duty to multiplex theater complex. The scheme was introduced to start new cinema houses in the State. The Supreme Court observed that, in such circumstance, the purpose tests for grant of subsidy should be applied. It was concluded as under: Applying the aforesaid test contained in both Sahney Steel as well as Ponni Sugars, we are of the view that the object, as stated in the statement of objects and reasons, of the amendment ordinance was that since the average occupancy in ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s costs of acquisition of plant and machinery. The assessee's claim of depreciation to that extent must shrink. Assessee argues that, the Tribunal correctly held that, the subsidy had not been given in relation to acquisition of plant or machinery and that, therefore, same cannot be adjusted towards cost of acquisition. 10. It is undoubted that, the subsidy had no relation to the assessee's acquisition of plant or machinery. It was to be granted to an industry which had set up the new industrial unit in the District of Kutch. In such background, question arises whether such subsidy would be adjustable towards assessee's costs of acquisition of capital assets. We may notice that, a similar question was considered by Division Bench of Gujarat High Court in case of CIT v/s. Grace Paper Industries Pvt. Ltd., reported in 183 ITR 591. The Court noted that, the subsidy was granted by the Government for development of industries in backward areas. It was not part of the actual cost of plant or machinery. The Court, therefore, held that it could not have been deducted towards costs of acquisition. The Court held as under: We have carefully considered the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilized by the entrepreneur in any manner he liked, could it be said that it was granted for meeting the cost of the capital assets? In our opinion, taking an overall view of the various provisions of the scheme, it is difficult to hold that cash subsidy was granted to entrepreneur to meet the cost of the fixed assets or part thereof. The cost of the fixed assets was merely adopted as a measure for working out subsidy. In fact, a careful examination of the scheme reveals that it is the value of the fixed assets and not its cost which is adopted as the basis for computing the amount of the subsidy. Emphasis on value and not the cost is evident from the fact that land and building already owned by an industrial unit, cost of tools, jigs, dies and moulds, transport charges, insurance premium, erection cost, value of second-hand machinery purchased by an industrial unit etc. were to be taken into account while computing the value of fixed assets for the purposes of subsidy. In other words, it was the value of the fixed assets which formed the basis for computation of subsidy to be granted under the scheme. Subsidy, in our opinion, did not meet the cost of the fixed assets directly or in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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