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TMI Blog2020 (9) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to as Act) dated 23/03/2016 & 27/12/2016 by the ld. DCIT-4(3)(1), Mumbai (hereinafter referred to as ld. AO). Identical issues are involved in both these appeals and hence, both the appeals are taken up together and disposed off by this common order for the sake of convenience. With the consent of both the parties, the appeal of the revenue for A.Y.2013-14 is taken as the lead case. The decision rendered for A.Y. 2013-14 would apply with equal force for A.Y.2014-15 also except with variance in figures. 2. The only effective issue to be decided in the appeal of the revenue is as to whether the ld. CIT(A) was justified in deleting the disallowance of depreciation on capital subsidy received by the assessee under Technology Upgradati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee. Accordingly, the assessee submitted before the ld. AO that it was justified in crediting the receipt of capital subsidy of Rs. 4.54 lakhs directly under the head 'capital reserve' in reserves and surplus in the balance sheet. We find that the ld. AO did not heed to this contention of the assessee and proceeded to reduce the capital subsidy of Rs. 4.54 lakhs from the value of plant and machinery and correspondingly, reduced the claim of regular depreciation and additional depreciation claimed thereon in the assessment. 3.1. We find that the ld. CIT(A) had granted relief to the assessee by categorically holding that the said capital subsidy is not linked directly or indirectly with any particular asset purchased by the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be met directly or indirectly by an authority either in the form of a subsidy or otherwise. So long as the subsidy is intended to encourage entrepreneurs to establish industries, the mere fact that a specified percentage of the fixed capital cost was taken as the base for determining the subsidy should not be mistaken as a payment intended to subsidise the cost of capital of the new industry. There is no material difference between language of Explanation 10 and language of section 43(1). Both define actual cost to be reduced by portion of the cost met directly or indirectly by any authority. Explanation 10 only clarifies what is stated in section 43(1). Emphasis is that the cost which is 'met directly or indirectly' has to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, the excess depreciation disallowed of Rs. 73,36,997/- is deleted. Therefore, the ground of appeal is allowed." 3.3. None of the aforesaid observations made by the ld. CIT(A) in the first appellate order were controverted by the revenue before us both on facts, purpose test of giving subsidy and on law. We find that the Hon'ble Supreme Court had already categorically held that the purpose test would be the determining factor to decide whether a particular subsidy is capital or revenue in nature in the case of Ponni Sugars and Chemicals Ltd., reported in 306 ITR 392 (SC). Respectfully following the various decisions relied upon by the ld. CIT(A) and the decision of the Hon'ble Supreme Court in the case of Ponni Sugars referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. We find that this interest subsidy also was given to the assessee under the TUF scheme and the Government of Gujarat / Maharashtra for the purpose of setting up of new unit and the amount of subsidy alone was measured as the small percentage of the total interest paid by the assessee. Again by placing reliance on the decision of the Hon'ble Supreme Court in the case of Ponni Sugars referred to supra which held that the purpose of subsidy is to be seen than the measurement of said subsidy, we find that the ld. CIT(A) had categorically observed that the object of the TUF subsidy was to increase the competitiveness in the textile industry and not to increase the profits and hence the said interest subsidy deserves to be treated only as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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