Allahabad High Court
Commissioner Of Income-Tax vs Jayana Cold Storage And Ice Factory on 16 January, 2003
Equivalent citations: [2003]260ITR430(ALL)
Bench: M. Katju, Prakash Krishna
JUDGMENT
1. This is a reference under Section 256(2) of the Income-tax Act, 1961. At the instance of the Revenue, the following two questions have been referred for the opinion of this court :
"(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the depreciation allowed at the rate of 15 per cent. on generator in the original assessment could not be said to have been wrongly allowed ?
(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was correct in law in holding that the subsidy amounting to Rs. 37,670 receivable by the assessee from the U. P. Finance Corporation was not deductible from the cost of the generator amounting to Rs. 1,72,770 for working out the depreciation admissible on the generator ?"
2. The assessee is a registered firm. It ran a cold storage and also manufactured ice. The assessment years 1975-76 and 1976-77 are involved. The Income-tax Officer in the original assessment proceedings allowed depreciation at the rate of 15 per cent. on generator. The said order was subsequently rectified by the Income-tax Officer under Section 154 of the Income-tax Act and the depreciation was corrected from 15 per cent. to 10 per cent.
3. The assessment was also reopened under Section 147(b) of the Income-tax Act. The assessee objected to the exclusion of the subsidy amount of Rs. 37,670 received from the U. P. Finance Corporation, a Government body, from out of the cost of Rs. 1,72,770 of the generator. The Income-tax Officer was of the view that the depreciation should be allowed at the reduced amount after adjustment of the said subsidy amount against the cost of the generators. Hence, he reduced the cost of the generator for the purposes of the depreciation.
4. The Appellate Assistant Commissioner dismissed the appeal filed by the assessee against the reassessment order passed under Section 143(3) and Section 147(b) of the Income-tax Act. He took the view that the depreciation is allowed on the actual cost of the assets to the assessee as defined under Section 43(1) of the Income-tax Act. Therefore, subsidy for the purposes of generator given by the U. P. Finance Corporation was deductible from the cost of the generator for working out the actual cost of the generator. On the question of rate of the depreciation on the generator as rectified by the Income-tax Officer the said order was also confirmed by the Appellate Assistant Commissioner.
5. On further appeal the Income-tax Appellate Tribunal by its order dated May 21, 1980, held that the subsidy amount of Rs. 37,670 received from the U. P. Finance Corporation, a Government body, is not deductible from the cost of the generator for the purposes of allowing depreciation on the actual cost to the assessee. It was further held that the generators are electric machinery, and they cannot be treated as original machinery and plant. Thus, the depreciation allowed at 15 per cent. could not be said to have been wrongly allowed. Viewed from this angle the order passed under Section 154 of the Income-tax Act was liable to be cancelled.
6. We have considered the respective submissions of learned counsel for the parties. The original assessment order granting depreciation at the rate of 15 per cent. did not suffer from any error apparent on the face of the record and as such the same could not have been rectified under Section 154 of the Income-tax Act. Moreover, the mere fact that the generators are not specifically shown as electric machinery along with batteries does not by itself establish that these should be treated as original machinery and plant. Viewed from this angle the order passed by the Tribunal allowing depreciation at the rate of 15 per cent. on the generator is correct. Whether depreciation should be allowed at 15 per cent. or at 10 per cent. is a debatable question and it cannot be said that there was an error apparent on the face of the record on this issue, in the original assessment order. Hence, question No. 1 is answered in the affirmative, i.e., against the Department and in favour of the assessee.
7. So far as question No. 2 is concerned the same is covered by a decision of the Supreme Court reported in CIT v. P. J. Chemicals Ltd. [1994] 210 ITR 830. The Supreme Court has held that the expression "actual cost" in Section 43(1) of the Income-tax Act, 1961, needs to be interpreted liberally. Such a subsidy does not partake of the incidents which attract the conditions for its deductibility from "actual cost". The amount of subsidy is not to be deducted from the "actual cost" under Section 43(1) for the purposes of calculation of depreciation.
8. In view of the authoritative pronouncement by the Supreme Court question No. 2 is answered in the affirmative, that is, against the Department and in favour of the assessee.
9. In view of the above the reference is decided accordingly.