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TMI Blog2020 (12) TMI 448X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of hearing.' [(*) be read as 'and'] 3. The facts in brief are that the assessee, a Regional Rural Bank (RRB), established under the Regional Rural Bank Act, 1976, promoted by Government of India (GoI), Government of Madhya Pradesh, and Central Bank of India, (with shareholding of 50%, 15% and 35% respectively), received a capital support of Rs. 20 crores during the relevant previous year, being financial year (f.y.) 2011-12, from GoI, to maintain capital adequacy. The assessee purchased computer hardware for Rs. 1779.09 lacs during the relevant year, claiming depreciation thereon in the impugned sum, at 50% of the eligible rate of 60%, having been put to use for a period of less than 180 days during the year. In view of the Assessing Officer (AO), section 43(1) read with Explanation 10 thereto, which reads as under, was applicable in the facts and circumstances of the case: 43. Definitions of certain terms relevant to income from profits and gains of business or profession. In sections 28 to 41 and in this section, unless the context otherwise requires- (1) "actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand, is that the amount had been received by the bank toward share capital. The same was for improving the Capital to Risk weighted Assets Ratio (CRAR), which had indeed shown an improvement, i.e., from 6.52% at the end of the immediately preceding year, to 7.62% at the end of the relevant year (PB pg. 125). The decision in Shree Renuka Sugars Ltd. (supra) is not applicable inasmuch as in the facts of that case the assessee had received capital subsidy from the State Government for commissioning a co-generation power plant. Further, though it was explained, on being enquired by the Bench, that the fixed assets are taken into account, and without any discount (i.e., at 100%), in computing the CRAR, so, however, that would not in any manner imply that the funds had been either used for or even granted for the acquisition of the fixed assets. Finally, even if regarded as financing the asset purchase indirectly, the reduction in the cost can only be on a proportionate basis. 5. We have heard the parties and perused the material on record. The law 5.1 Section 43(1) provides for, in reckoning 'actual cost', a reduction in the cost to the assessee, where the same is, to whatever exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unds and the acquisition may not be in tandem, to though no consequence. In the facts of the case, it also needs to be appreciated that the AO was constrained for want of the necessary details. No cash-flow statement, that would be required for the purpose, was provided by the assessee at any stage. The reason as to the money being given for recapitalization is, again, neither here nor there, as it does not, in any manner, preclude the same from being utilized by the assessee-bank for acquiring the fixed assets of it's business. 5.3 Coming to the merits of the case, we shall consider the case of the assessee, which has not based it, or entirely so, case on the findings by the ld. CIT(A), and only rightly so. This is as, without doubt, the matter would have to be based on definite findings, of fact and/or law, and which have thus far eluded the case, and which, in the main, is the Revenues' case. We are unable to place much store on the contention that the amount received being neither a 'subsidy' nor 'grant' nor 'reimbursement', the section is inapplicable. The said terms, even as clarified per the section itself, are illustrative, and it is the purpose for which the same has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets of the business, so that the time of their acquisition would not be material as long as it is, wholly or partly, attributable to the said sum. The plea, made w.r.t. the proviso to the Explanation 10, for applying the provision, where regarded as applicable, proportionately, i.e., though valid in principle, would also not be of much assistance to the assessee. This is as, as afore-stated, the gross acquisition of the fixed assets during the year is at Rs. 2130.85 lacs, almost matching the capital grant for Rs. 2000 lacs, so that it would cover almost (94%) the entire cost of the assets acquired during the year, inclusive of computer hardware at Rs. 1779.09 lacs. 5.4 We, however, for reasons discussed hereinafter, do not consider the provision of s. 43(1) as applicable in the facts and circumstances of the case. There is nothing to show of any proposal for the acquisition of fixed assets. Rather, the capital infusion is a part of an all India exercise, undertaken covering all RRBs across India, under the aegis of RBI & NABARD, under whose administrative control the RRBs function, to improve their capital adequacy. The funds have been provided by the Central and State Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of funds, even as explained in CIT v. Tata Iron & Steel Co. Ltd. [1998] 231 ITR 285 (SC). In the facts of that case, the assessee had borrowed funds in foreign exchange to acquire an asset. However, due to fluctuation in the foreign exchange rate, the assessee had to repay a much lesser amount than he would otherwise have. It was held that this was not a factor which could alter the cost incurred by the assessee for the purchase of the asset. The assessee might have raised funds to purchase the asset by borrowing, but what the assessee had paid for it was the price of the asset. That price could not change by any event subsequent to the acquisition of the asset. The manner or mode of repayment of the loan had nothing to do with the cost of an asset acquired by the assessee for the purpose of his business. The depreciation would thus have to be computed without reference to the said reduction in the borrowing on account of foreign exchange rate fluctuation. It went on to say that even if an asset is purchased with non-repayable subsidy received from the Government, the cost of the asset will be the price paid by the assessee for acquiring the asset. The observation was made without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the business enterprise is unable to generate sufficient funds on, or does not have adequate capital of, its' own. It is this capital that has been raised by the assessee-bank. Borrowing of money would fall in the same category. It is for this reason that the enumeration of the nature of the capital, as by way of subsidy, grant or reimbursement, defining the character of the sum, in the Explanation 10 appended to the provision, assumes significance. One could argue, and not unreasonably so, that the contribution by GoI, and consequently by others, is by virtue of its' status as the Central Government, and not in its' capacity as a shareholder, which was only incidental. That is, the contribution by it be regarded as by GoI, as envisaged by the provision, and not as a share-holder. It is not clear if the GoI is a major shareholder in all RRBs, as appears to be the case, or not so. Be that as it may, it is so in the case of the assessee. Not only that, it has insisted on a proportionate contribution by the other two shareholders, i.e., in their shareholding ratio, making its' contribution subject thereto (PB pg. 116). The amount received has been accordingly credited by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bank was facing shortage of capital, so that it, being obliged to maintain other statutory ratios, viz. SLR, CRR etc., would not, at least ordinarily, divert its' liquid resources for capital assets, as computers, which nevertheless are required to maintain its functional/business competence? The provision covers indirect meeting of cost as well. A one-to-one correspondence or direct nexus between the receipt and application of funds is therefore not required, even as the asset purchase, entail as it does different processes, would itself require some time to mature, as indeed would the receipt of the funds themselves, being from three different sources in the instant case, and in fact materialized from May to September, 2011 (PB pg. 115). Thus, even if envisaged to be acquired out of the said contribution, it would only fructify after a time lag. The money, in the meanwhile, could be retained as cash or parked in any liquid instrument by the bank. Further, the capital being at a fraction of the risk adjusted assets of the bank, an increase in both by like amount would increase the ratio of the capital and, thus, CRAR. As such, nothing turns on the increase in CRAR, which woul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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