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TMI Blog1992 (12) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... ut reducing the cost or written down value of plant and machinery by the Central Subsidy and that he erred in relying on the decision of the Karnataka High Court in the case of Diamond Dies Mfg. Corpn. Ltd. because that decision has not become final. 3. The issue relating to the subsidy came up for consideration before the Tribunal in connection with the original assessments made for assessment years 1984-85, 1985-86 and 1986-87 and the Tribunal by its order dated 30-11-1990 set aside the assessments and restored the matter to the ITO in order to bring out the nature of the subsidy granted to the assessee and examine the scope and purpose of the subsidy granted before making fresh assessments adjusting the subsidy from the cost of the fixed assets. 4. In consequence of such a direction, the ITO passed fresh orders under section 143(3) read with section 251 of the I.T. Act, 1961, dated 8-2-1991, for all these years on the same pattern. After considering the relevant sanction orders, the ITO gave a categorical finding that the grant of subsidy to the assessee is not under the " Central Outright Grant or Subisdy Scheme 1971 ". He observed that the subsidy in this case was granted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Though the ITO has mentioned that what was received by the assessee was nothing but investment subsidy, he has not brought on record the salient features of the said subsidy. Therefore, the scope and purpose of the said investment subsidy is taken as the same as considered by the Courts in this regard. The Andhra Pradesh High Court in the case of CIT v. Godavari Plywoods Ltd. [1987] 168 ITR 632 had considered both the Central Subsidy Scheme 1971 as well as Andhra Pradesh State Incentive Scheme 1976. The Government of India in the year 1971 formulated what is known as " Central Outright Grant or Subsidy Scheme 1971 " for the country as a whole. The backward areas under the Scheme were clearly specified. All the industrial units including servicing units having fixed capital investment in land, building and machinery, whether in public sector or private sector, are eligible for the subsidy. For claims relating to the period ending 28-2-1973 the subsidy is 10 per cent of the fixed capital investment or Rs. 5 lakhs, whichever is lower. For claims relating to the period comnencing from 1-3-1973, the subsidy is 15 per cent of the fixed capital investment or Rs. 15 lakhs, whichever is l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in nature. 8. The Andhra Pradesh High Court considered the scheme of investment subsidy which is granted at a specified percentage of fixed capital cost. The expression " investment subsidy " is defined as the subsidy given at the specified percentage on the fixed capital cost. The phrase " fixed capital asset " is defined as investment in land, buildings, plant and machinery including jigs and fixutres. At page 635 of the judgment the Hon'ble High Court considered the question of grant of depreciation on the actual cost of land, buildings, plant and machinery in the context of Central Outright Grant or Subsidy Scheme 1971 and the State Incentive Scheme explained above. In that case, the subsidy received was adjusted by revenue authorities from the cost of the fixed assets under section 43(1) of the IT Act, 1961 pertaining to actual cost. Though several cases were in appeal, the case of Godavari Plywoods Ltd was taken as a representative case and therefore, the Andhra Pradesh High Court dealt with the material facts relating to that case. After considering the pros and cons and the contentions of both the parties and the relevant statutory provisions. the Andhra Pradesh High C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the department, namely, the subsidy goes to reduce the actual cost of the assets in terms of section 43(1) of the IT Act, 1961. It is also clear from the aforesaid judgment that the so-called investement subsidy as differentiated and distinguished by the ITO was duly considered by the Andhra Pradesh High Court vis-a-vis the Central Outright Grant or Subsidy Scheme to come to the conclusion that the subsidy cannot go to reduce the cost of fixed assets in terms of section 43(1) of the IT Act. On the other hand, both the Schemes of the Central and State Governments act together for the same objective and purpose. The High Court has clearly pointed out that under both the schemes there is no provision or condition that the subsidy granted should go to meet the cost of any fixed asset as sought to be made out by the revenue. 9. The Karnataka High Court in the case of Diamond Dies Mfg. Corpn. Ltd. considered the subsidy granted by the Central Government only. But the ratio decidendi of the Andhra Pradesh High Court in the case of Godavari Plywoods Ltd. was valid inasmuch as that High Court has dealt with both the State and Central Schemes of subsidy and that decision would be appli ..... X X X X Extracts X X X X X X X X Extracts X X X X
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