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TMI Blog2022 (4) TMI 809X X X X Extracts X X X X X X X X Extracts X X X X ..... be adjusted from the assets of the assessee. The object is to limit depreciation only on the actual cost of the assets of the assessee. The proviso takes care of the general financial assistance i.e. without specific purpose, received and the actual cost is worked as per the proviso. We follow the precedent in Sundaram Pillai case [ 1985 (1) TMI 306 - SUPREME COURT] on the point and hold that the proviso is an independent expression on working of actual cost of assets of assessee. The assessee, under t(he ASIDE, in the assessment year 2008-09 received and for the assessment year 2009-10 though has not received any financial assistance, the actual cost of the asset has been reworked by deducting the financial assistance received up to the financial year 2000-01. Any other interpretation or construction of Explanation 10 and proviso would be contrary to the explicit words used by the parliament for achieving a particular object of granting depreciation on the actual cost incurred by the assessee. The Explanation and the proviso, in our understanding, are clear and do not suffer from ambiguity. This relates other substantial questions of law and would be considered independently. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment is left to the discretion of the State Government and/or the authorities where export-oriented industries are set up to replenish the infrastructure from the financial assistance given to the assessee - This being the undisputed fact, treating the entire financial assistance received in the slab years as falling under the proviso introduced with effect from 01.04.1999 is illegal and unsustainable. It is not the case of Revenue before us that the amendment is retrospective. The justification offered for reworking the actual cost of assets is on the ratio decided in Saharanpur Electric Supply [ 1992 (1) TMI 2 - SUPREME COURT] - We have already held that the said judgment is distinguishable. No material is placed indicating that the amendment inserted through the Finance (No.2) Bill, 1998 has retrospective operation or nullified the dictum of PJ Chemicals. We are in complete agreement with the view expressed both by this Court and the Gujarat High Court, on the amendment to Section 43(1), Explanation 10 and the proviso as prospective. The adjustment of ₹ 13,75,00,885/- as noted in the assessment order is illegal, and even for the view, we have taken while answering the ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... common order dated 19.4.2018, filed the appeals under Section 260A of the Income Tax Act (for short, the Act ). The details of assessment order etc. are stated as follows: Sl.No. Assessment Year and Date of Assessment order Order of Commissioner of Income Tax (Appeals) Order of Income Tax Appellate Tribunal ITA No. 1 2008-2009; dtd 15.12.2010 Appeal No. ITA 97/R-1/E/CIT(A)II/2010-11; dtd 30.03.2014 I.TA. No. 354/Coch/2014; dtd 19.04.2018 I.T.A No.62/2018 2 2009-2010; dtd 17.11.2011 Appeal No. ITA 82/R-1/E/CIT(A)II/2011-12; dtd 30.03.2014 ITA No. 338/Coch/2014; dtd 19.04.2018 I.T.A No.65/2018 4. The common circumstances in both the appeals are stated thus: The assessee, a wholly-owned subsidiary company of Kinfra (a statutory body constituted by the Government of Kerala) has established and operated an industrial park at Kakkanad, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts credited the grant as capital reserve. According to the assessee, the assistance is a capital contribution under ASIDE from the Central Government, but not assistance for acquiring a specific asset. The assessee, on 30.09.2008, filed return of the assessment year 2008-2009. On 30.9.2009, filed the return for the assessment year 20092010. The Assessing Authority, by referring to Explanation 10 of Section 43 of the Act, in the respective assessment years detailing that the grant is a capital reserve and proportionately reduced the grant received from the written down value of fixed assets. The effect thereof, in computation, is that the depreciation claimed by the assessee has been found to be incorrect and the depreciation claimed has been disallowed in the final computation of income of the assessee as follows: Sl.No. Assessment year Depreciation Disallowance of 1 2008-2009 ₹ 48,04,760/- 2 2009-2010 ₹ 12,65,118/- 4.2 The Assessing Officer, for the assessment year 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 43(1) and Explanation thereto? 2) Whether on the facts and in the circumstance of the case, the Appellate Tribunal was right in holding that the grant received by the Appellant from the Government of India under the Scheme Centrally Sponsored Schemes for Export Promotion Industrial Park (EMP) is to be reduced from the cost of assets under Section 43(1) and Explanation thereto? 3) Whether on the facts and in the circumstances of the case there was any material or evidence on record for the Appellate Tribunal to hold that the Assessing Officer was in a position to identify the subsidy utilization specifically under the head of building, furniture. plant and machinery and computer software? 4) Whether on the facts and in the circumstances of the case Appellate Tribunal was right in confirming that the grant of ₹ 3,75,00 885/- received by the Appellant from the Government of India under the Scheme Assistance to States for developing Export Infrastructure and other allied activities (ASIDE) during the Financial Year 2006-07 is to be reduced from the value of cost of assets in Assessment Year 2009-10? 5) Whether on the facts and in the circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive control of the assessee. CIT vs PJ Chemicals (1994 210 ITR 830). 8. It is argued that on 14.09.1994, PJ Chemicals was decided and the Supreme Court interpreted the words viz. as has been met directly or indirectly by any other person or authority occurring in Section 43(1) of the Act and held that an incentive is not given for meeting a portion of the cost of the assets but is given to set up industries in backwards areas, such assistance cannot be deducted from the actual cost of the assets of the assessee for the purpose of Section 32 r/w Section 43 of the Act. According to the binding precedent, the financial assistance so received by the assessee is not adjusted from the cost of any asset of the assessee. PJ Chemicals deals with general financial assistance and the same analogy is applicable to the circumstances of the case as well. 8.1 Explanation 10, together with a proviso, has been inserted in Section 43(1) of the Act with effect from 1-04-1999. The memo explaining the reasons for insertion of explanation 10 in Finance (No.2) Bill, 1998 does not state that the instant amendment made is to overcome the effect of the ratio laid down or interpretation adopte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the insertion of Explanation 10 to Section 43(1) of the Act, does not change the position and the view of the Revenue to reduce that portion of the incentive received by the assessee from the actual cost of the assets is illegal and erroneous. 8.3 The explanation is appended to a Section only to explain the meaning of the parent Section. The purpose of the Explanation is to explain and may not expand or add to the scope of the original Section. By placing due deference to the opinion expressed on Explanation 10 to Section 43(1) (by the learned authors- Kanga and Palkhivala in the Law and Practice on Income Tax , (11th edition)) viz. certain observations in PJ Chemicals may be no longer valid . It is argued that the Learned authors have not observed that the judgment in PJ Chemicals is no more applicable for arriving at the actual cost of an asset. Explanation 10 provides that when a portion of cost is relatable to the subsidy, it is to be reduced. Therefore, the independent argument is that explanation 10 per se has not altered on the working of the actual cost of an asset. On the other hand, the proviso excludes or restricts the operation of the Section for which the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 69045370 37588500 The CIT(A) misread the utilisation certificate dated 03.01.2011 and recorded a finding that the Assessing Officer is in a position to identify the subsidy utilisation specifically under the head building, furniture, plant machinery and computer software. The deduction of subsidy from the cost of assets acquired or the additional investment of subsidy resulting in the increase of the cost of the asset is permissible. Therefore, on fact, the actual cost arrived at for the assessment year 2008-09 is illegal and to the extent of making the adjustment against all the assets of the assessee is illegal. In so far as the assessment year 2009-10 is concerned, it is already noticed that the last instalment of the incentive of ₹ 1,51,00,000/- was received on 31.03.2000. The Assessing Officer has treated the subsidy received in the financial year 2006-07 amounting to ₹ 3,75,00,885/- and adjusted from the actual cost of all the assets of the assessee, and disallowed the depreciation claimed. The Assessing Officer adjusted the actual cost of assets of the assessee in the assessment year 200910 as follows: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be applied to assets acquired before 01.04.1952. Incidental addition of ₹ 3,75,00,885/- in the assessment year 2009-10 is improper and denies the eligible depreciation to the assessee. 10. Adv. Jose Joseph, argues that the contention on the applicability of Explanation 10 r/w proviso to Section 43 of the Act is untenable. The appeals relate to assessment years 2008-09 and 200910. The actual cost of an asset for the purpose of Section 32, is determined strictly in accordance with Section 43(1), Explanation 10 r/w proviso. Explanation 10 and/or proviso take care of specific grant for acquisition of an asset or general grant received by an assessee. Therefore, the principle laid down by the Supreme Court interpreting the words the portion of the cost thereof, if any, has been met that the assistance or subsidy received must be relatable to an asset for adjustment for arriving at the actual cost of an asset is not applicable to the subject assessment years. Explanation 10 r/w proviso shall be understood as having been made by the parliament with full knowledge of the view taken by the Supreme Court in the P.J Chemicals. Therefore, the interpretation on Section 43, Explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he actual cost of assets in the hands of the assessee. The interpretation commended to the Court, by Mr Jose Joseph is that the golden rule of interpretation is applicable in all fours for construing Section 43(1) r/w Explanation and proviso and by such interpretation the three distinct situations viz. (a) Section 43(1) (b) Explanation 10 (c) Proviso are allowed to operate in their respective spheres. The interpretation placed or now suggested by the assessee would, for unavailable reasons in law, render the clear expression of legislature ineffective. The construction would lead to excluding the clear will of the Parliament. Read so, the adjustment of the subsidy in the assessment years by reference to the Section 43(1) Explanation 10 and proviso of the Act is tenable. Finally, it is contended that the argument on prospective application of Explanation 10 from 1-4-1999 is untenable. 12. The common substantial question (1) in ITA No.62 65/2018 is: Whether by virtue of Explanation 10 and/or proviso to Explanation 10 to Section 43(1) introduced with effect from 01.04.1999, a subsidy or grant received without reference to specific assets is to be apportioned and reduced to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld lay emphasis on P J Chemicals case and the similarity of expressions used in Section 43(1) and Explanation 10 for applying the view taken in P J Chemicals case. 13.1 The summary and ratio of CIT v. PJ Chemicals The majority of the High Courts, while interpreting what constitutes actual cost, opined that the subsidies granted to industries on a percentage of the capital costs ought not to be deductible from the actual cost under Section 43(1) of the Act for the purpose of calculation of depreciation. On the other hand, a few High Courts have taken the view that the subsidies so received by the assessee ought to be adjusted and reduced from the acquisition cost of the asset by the assessee. The ratio is the rebate as obtained on the point comes under the definition of actual cost under Section 43(1) of the Act. According to Section 43(1), 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 . The emphasis laid in the ratio is that if a portion of the cost is met directly or indirectly by any person or authority, the actual cost would, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so received with reference to which the subsidy or grant or reimbursement is so received. 14.2 The assessee claims that the grant received under ASIDE guidelines is not for the acquisition of a particular asset. Therefore, Explanation 10 is not attracted or adjustment of subsidy in the actual cost of the asset. A proviso excepts or excludes, and the proviso shall not be read as an independent section. 15. The decisions relied on by the parties are either prior to 1.4.1999, or the decisions have not considered Explanation 10 as a stand-alone provision or interpreted Explanation 10 and the proviso to Section 43(1) of the Act. Therefore, the learned counsel appearing for the parties commended to us construction of the Explanation and the proviso as it supports their respective arguments. For brevity, we are not referring to the argument once again at this juncture of the discussion. 15.1 Finance (No.2) Bill, 1998 is effective from 01.04.1999 and is introduced post PJ Chemicals case. The case law under Section 43(1) of the Act up to 31.03.1999 would be helpful, if the actual cost is determined only by interpreting Section 43(1) of the Act. Now the Court, in the case on hand, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he main enactment, to clarify the same so as to make it consistent with the dominant object which it seems to subserve. (c) to provide an additional support to the dominant object of the Act in order to make it meaningful and purposeful, (d) an Explanation cannot in any way interfere with or change the enactment or any part thereof but where some gap is left which is relevant for the purpose of the Explanation, in order to suppress the mischief and advance the object of the Act it can help or assist the Court in interpreting the true purport and intendment of the enactment, and (e) it cannot, however, take away a statutory right with which any person under a statute has been clothed or set at naught the working of an Act by becoming an hindrance in the interpretation of the same. 15.4. Precisely stated a proviso is a clause that introduces a condition by the word provided . A proviso is introduced to indicate the effect of certain things which are within the statute but accompanied with the peculiar conditions embraced within the proviso. It modifies the immediately preceding language. (James DeWitt Andrews- statutory construction) 15.5. The purpose and func ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or adding something by implication: Except as to cases dealt with by it. a proviso has no repercussion on the interpretation of the enacting portion of the section so as to exclude something by implication which is embraced by clear words in the enactment. 92.2. A proviso is construed in relation to the subject-matter of the statutory provision to which it is appended: The language of a proviso even if general is normally to be construed in relation to the subject-matter covered by the section to which the proviso is appended. In other words, normally a proviso does not travel beyond the provision to which it is a proviso. It is a cardinal rule of interpretation , observed Bhagwati, J., that a proviso to a particular provision of a statute only embraces the field which is covered by the main provision. It carves out an exception to the main provision to which it has been enacted as a proviso and to no other. 92.3. Where the substantive provision of a statute lacks clarity, a proviso may shed light on its true meaning: If the enacting portion of a section is not clear, a proviso appended to it may give an indication as its true meaning. As stated by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons to be fulfilled in order to make the enactment workable: (3) it may be so embedded in the Act itself as to become an integral part of the enactment and thus acquire the tenor and colour of the substantive enactment itself; and (4) it may be used merely to act as an optional addenda to the enactment with the sole object of explaining the real intendment of the statutory provision. 94. While enunciating the above principles, S. Sundaram Pillai took note of the decision in Hiralal Rattanlal v. State of U.P. where K.S. Hegde, J... speaking for a four-Judge Bench of this Court observed that while ordinarily, a proviso is in the nature of an exception, the precedents indicate that sometimes a proviso is in the nature of a separate provision, with a life of its own. The Court held: (Hiralal Rattanlal case2, SCC p. 224, para 22). (Emphasis supplied) 22. ... Ordinarily a proviso to a section is intended to take out a part of the main section for special treatment. It is not expected to enlarge the scope of the main section. But cases have arisen in which this Court has held that despite the fact that a provision is called a proviso, it is really at separate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alification alone. Such interpretation, in our considered view, goes against the text of the very proviso inserted with Explanation 10 by Finance (No.2) Bill, 1998. The proviso, however, as it stands, takes care of a situation where such subsidy or grant or reimbursement is of such nature but the subsidy or grant or reimbursement cannot be directly relatable to the asset acquired by the assessee. In such a situation, the proviso envisages that so much of the amount which bears to the total subsidy or reimbursement or grant, the same proportion as such asset bears to all the assets in respect of or with reference to which subsidy or grant or reimbursement is so received shall not be included in the actual cost of the asset to the assessee. The proviso enables adjustment of subsidy in all the assets of the assessee. The language of the proviso is clear that the subsidy received without specifics shall have to be adjusted from the assets of the assessee. The object is to limit depreciation only on the actual cost of the assets of the assessee. The proviso takes care of the general financial assistance i.e. without specific purpose, received and the actual cost is worked as per the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The actual cost of the asset has arrived arbitrarily. The CIT(A) fell in serious error by reading the utilisation certificate dated 03.01.2011 for assuming that the Assessing Authority knows the asset wise investment made by the assessee. The assessment order is dated 15.12.2010. The utilisation certificate is subsequent to the assessment order. The basis for apportioning is not tenable both in law and fact. The Revenue argues that in the absence of details from the assessee about the acquisition of assets proportionate distribution of financial assistance against all the assets by the assessing authority is tenable. 19. We have perused the assessment order and the other confirmation orders of CIT(A) and the Tribunal. The Revenue is unable to controvert the stand of the assessee that in the exercise of the discretion given to the assessee on utilisation of funds, the assessee has enhanced the capacity of existing facilities viz. power, water distribution in the Industrial Park under its administration. For the purpose of Section 32 of the Act, the actual cost of assets alone will have to be determined, and in a broad spectrum, the subsidy is deducted even in respect of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive operation. Therefore, financial assistance received till 31.03.1999 cannot be adjusted in the actual cost of any of the assets of the assessee for the financial years during which the assistance was received, because the financial assistance was not for acquiring any specific asset. At best without prejudice to the principal argument, it is contended that on 31.03.2000 a sum of ₹ 1,51,00,000/- was received. The reworking of the actual cost of the asset is limited only to the extent of the amount received subsequent to 01.04.1999. He relies on the judgment of this in CIT vs Sun Fiber Optics and Gujarat High Court in Banco Products vs DCIT for the proposition that amendment to Section 43(1) is prospective and applicable to the financial assistance received and assets acquired subsequent to 01.04.1999. The next limb deals with including ₹ 3,75,00,885/- in the assessment year 2009-10. The financial assistance is not received in the financial year ending on 31.03.2009 and assistance is adjusted against all the assets of the assessee in the assessment year 2009-10. Therefore, the reckoning of ₹ 13,75,00,885/- as financial assistance received in the financial year e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... planation 10 and the proviso as prospective. The adjustment of ₹ 13,75,00,885/- as noted in the assessment order is illegal, and even for the view, we have taken while answering the main question, unsustainable. 25. Having regard to the above discussion, we are of the view that the computation of depreciation under Section 32 r/w Section 43 for the assessment year 2009-10 is illegal and liable to be set aside and accordingly set aside. The Assessing Officer is directed to redetermine the actual cost by excluding the amount received by the assessee prior to 31.03.1999. 26. To sum up, this Court held that apportionment of ₹ 3,75,88,500/- on the written down value of the assets as on 01.04.2008 and also on all the assets of the assessee, for the assessment year 2008-09 is illegal. The adjustment at best could be against the assets which received the addition from financial assistance received under ASIDE. Therefore, insofar as the assessment year 2009-10 is concerned, the inclusion of the financial assistance received upto 31.03.1999 is incorrect and contrary to the ratio of PJ Chemicals judgment. Therefore by excluding assistance received upto 31.03.1999 the balance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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