Madras High Court
Dharmapuri District Co-Operative ... vs Commissioner Of Income-Tax on 12 August, 2002
Equivalent citations: [2003]259ITR598(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT R. Jayasimha Babu, J.
1. The assessee is a co-operative sugar mill which had received subsidy from the State Government for putting up tenements for its workers, during the assessment year 1979-80. In computing the income for that year, the assessee claimed depreciation in respect of the total cost of the asset. That claim was allowed by the Assessing Officer. The assessment so made was later revised by the Commissioner by exercising revisional jurisdiction under Section 263 of the Income-tax Act. The Commissioner was of the view having regard to the definition of "actual cost" in Section 43(1) of the Income-tax Act, 1961, that depreciation on the cost of the asset to the assessee was required to be refused to the extent of the amount of subsidy as the subsidy, was given for meeting the cost of the construction.
2. The assessee being aggrieved, appealed to the Tribunal unsuccessfully. The Tribunal rejected the assessee's contention that the assessment order had merged in the order in an appeal therefrom which also has been the subject-matter of further appeal, as this issue was not one of the issues raised in those appeals.
3. At the instance of the assessee, the following two questions have been referred to us :
"(i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the order of the Commissioner of Income-tax under Section 263 was with jurisdiction when the assessment order had merged with the appellate order dated May 24, 1984, as well as the second appellate order of the Tribunal dated May 15, 1985 ?
(ii) Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the subsidy received by the petitioner from the State Government under the Subsidised Industrial Housing Scheme is to be deducted from the cost of machinery and plant and building under Section 43(1) of the Income-tax Act, 1961, for determining the actual cost for the purposes of depreciation allowance under Section 32 of the Act ?"
4. The Supreme Court in the case of CIT v. Shri Arbuda Mills Ltd. [1998] 231 ITR 50 dealt with the scope of the powers of the Commissioner under Section 263 of the Income-tax Act. The court after considering the Explanation to Section 263(1) of the Act which was substituted by the Finance Act, 1988, which was again amended by the Finance Act, 1989, with retrospective effect from June 1, 1988, held that as a consequence of the amendment made with retrospective effect, the power of the Commissioner under Section 263 of the Act shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal.
5. In the light of that judgment, the first question referred to us is required to be and is answered in favour of the Revenue and against the assessee.
6. We have already referred to Section 43(1) of the Act. Clause (1) thereof defines "actual cost", inter alia, thus :
" '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."
7. In this case, it is an admitted fact that a part of the construction of the tenements was made by the grant from the State by way of subsidy. The amount spent by the assessee on the construction was only total cost minus the subsidy received. The definition of "actual cost" given in Section 43(1) is applicable to Sections 28 to 41 of the Act. This includes Section 32 which deals with depreciation. The assessee's claim for depreciation for the tenements could therefore only be with reference to the "actual cost" as computed in accordance with Section 43(1) of the Act. The Commissioner was, therefore, right in holding that the amount of subsidy should be deducted from the total cost of the construction of the tenements.
8. We, therefore, answer the second question also in favour of the Revenue and against the assessee.