Commissioner Of Income Tax vs Eicher Tractors Ltd.
2007 Latest Caselaw 1019 Del

JUDGMENT

Madan B. Lokur, J.

1. The question of law that has been referred for our opinion under Section 256(1) of the Income Tax Act, 1961 is as follows:

Whether on the facts and in the circumstances of the case, the Appellate Tribunal erred in law in holding that the Central Subsidy received by the assessed under 10% Central Outright Grant Scheme 1971 in respect of the backward area of Parwanoo in Himachal Pradesh could not go to reduce the cost of the plant & machinery for the purposes of calculating the allowable amount of investment allowance?

2. In Commissioner of Income Tax v. P.J. Chemicals Ltd. , the question that was considered by the Supreme Court was whether the Tribunal was justified in holding that Central Subsidy should not be deducted from the actual cost of assets for the purposes of allowing depreciation

3. The Supreme Court considered the case law in detail and concluded that the expression "actual cost" needs to be interpreted liberally. The subsidy does not partake of the incidents which attract the conditions for their deductibility from "actual cost". It was, therefore, held that it would not be unreasonable to say that Government subsidy is an incentive, not for the specific purpose of meeting a portion of the cost of the assets, though quantified as or geared to the percentage of such cost. It does not partake the character of a payment intended either directly or indirectly to meet the "actual cost". In this view of this, the Supreme Court decided the question in favor of the assessed.

4. Following the decision of the Supreme Court, we answer the question referred to us in the affirmative, in favor of the assessed and against the Revenue.