Cit vs Sara Services & Engg. P. Ltd.
2003 Latest Caselaw 907 Del

JUDGMENT

At the instance of the revenue, the Income Tax Appellate Tribunal, Delhi Bench, New Delhi has referred under section 256(1) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') the following question for the opinion of this court:

"Whether in the facts and circumstances of the case, the Tribunal was right in holding that the amount of subsidy received under the Central outright Grant of Subsidy Scheme, 1971, in not contribution towards cost of any asset and, therefore, not be to be deducted for determining the cost of the asset as defined in section 43(1) of the Act for allowing depreciation on-the assets belonging to the assessed?"

Since the issue raised by the revenue, namely, whether the subsidy granted by the government as an incentive for setting up of industry in backward areas is to be deducted while computing the actual cost of the asset for the purpose of depreciation, is purely legal, we deem it unnecessary to state the facts. Suffice it to note that the reference pertains to the assessment year 1986-87.

A similar issue came up for consideration of the Apex Court in CIT v. P.J. Chemicals Ltd., (1994) 210 ITR 830 (SC), wherein their Lordships were pleased to hold that the expression "actual cost", as appearing in section 43(1) of the Act has to be interpreted liberally and subsidy, granted by the government as an incentive for setting up industries in backward areas do not partake of the incidents which attract the conditions for their deductibility from "actual cost".

In view of the said authoritative pronouncement, the question referred is answered in the affirmative, i.e., in favor of the assessed and against the revenue. However, there will be no order as to costs.