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TMI Blog2021 (9) TMI 1026X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to a group company Sermo Sable (SS), on account of purchase of Plant and machinery, ceased to be payable and was straightway credited to Capital reserve in the Financial year 2005-06 without reducing it from the asset value. The assessee had claimed depreciation of Rs. 6,54,950 in the previous year relevant to the A.Y. 2011-12 under consideration on such amount which was transferred to Capital reserve account. On being show caused, the assessee submitted that write back of the capital creditor was made in the A.Y. 2006-07 and it had no relation with the year under consideration. Not convinced, the AO disallowed depreciation claim of Rs. 6,54,950. The ld. CIT(A) echoed the assessment order on this point, against which the assessee has approached the Tribunal. 4. We have cogitated the rival submissions and scanned the relevant material on record. A little more elaboration of facts is essential for understanding the controversy. The assessee purchased certain Plant & machinery items from SS during the previous year ending 31.03.2003. A sum of Rs. 45.18 lakhs was payable to SS which was waived off by the company on 31.12.2005. The assessee wrote off the amount payable to SS and cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A similar Note was given by the assessee in its Final accounts for all the succeeding years including the year in question. 6. Section 32 is a provision governing the grant of depreciation. Sub-section (1) mandates that depreciation: `shall be allowed ... in the case of any block of assets, (at) such percentage on the written down value thereof as may be prescribed'. It is the `written down value' of the block that constitutes the bedrock for allowing depreciation and hence it is out of point to claim or allow depreciation on any value other than the w.d.v. of the block. The term `written down value' has been defined u/s 43(6) to mean: `(a) in the case of assets acquired in the previous year, the actual cost to the assessee; (b) in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under this Act. Clause (c) of section 43(6) applies in the case of any `block of assets' and explains the written down value to mean: `(i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written down values of all the assets falling within tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anting depreciation. This provision opens by providing actual cost to mean: `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'. It is followed by two provisos and some Explanations, which are not relevant for our purpose except the Explanation 10, which provides that `Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee....'. When we read the opening part of section 43(1) in conjunction with the Explanation 10, it follows that the opening part, providing for reducing the actual cost of the asset to the assessee by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority, refers to such reduction taking place at the ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uary and is actually put to use in May with the year ending on 31st March, interest on capital borrowed for the purchase of the asset from the date of purchase in February to the year ending in March and from the beginning of the next financial year in April up to the putting it to use in May is required to be taken as part of `actual cost' of the asset. Thus, it is graphically clear that the interpretation suggested by the ld. AR for restricting the modification of the `actual cost' of an asset only to the year of its purchase does not sound well. 10. Coming back to our context, we find that the assessee spent hypothetical figure of Rs. 100 on the purchase of the Machinery in the year ending 31.3.2003. This Rs. 100 constitutes the actual cost to the assessee in that year in terms of section 43(1) without the aid of the Explanation 10. It was during the year ending 31.3.2006 that the assessee got waiver of loan of Rs. 40. Such waiver of loan is in the nature of `the cost of an asset ... met directly or indirectly ... by any other person, in the form of ... reimbursement (by whatever name called)' as per the terminology of the Explanation 10. This amount qualifies to reduce the `ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te income. Section 2(24)(xviii) is activated in the year when the `waiver or concession' takes place. It assumes the character of income in the year of its receipt. The point worth noting is that whereas the subsidy or grant or reimbursement received in terms of Explanation 10 to section 43(1) adjusts the actual cost of asset, any amount of such incentive or reimbursement or waiver etc. which does not fall within the realm of the Explanation 10 assumes the character of income directly in the year of its receipt without disturbing the `actual cost' or `written down value' of the block of asset. 12. The logic behind section 2(24)(xviii) is simple and clear that if the assessee has received any subsidy or grant or waiver or concession or reimbursement etc. in respect of an asset, which is otherwise a capital receipt and further that the same cannot be reduced from the actual cost of the asset or the w.d.v., then it should be subjected to tax as an income of such a year. This provision runs on parity with section 41(1) of the Act, which provides for taxation of remission or cessation of a trading liability. One thing which is common to both - sections 2(24)(xviii) and 41(1) - is that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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