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income-tax Officer Vs. Metal Decorators (P.) Ltd. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Allahabad
Decided On
Judge
Reported in(1983)4ITD595(All.)
Appellantincome-tax Officer
RespondentMetal Decorators (P.) Ltd.
Excerpt:
.....financial corporation towards the cost of the generator. he was of the view that for determining 'actual cost' for the purpose of allowing depreciation and development rebate in terms of section 43(1) of the income-tax act, 1961 ('the act') subsidy had to be deducted. this section lays down that '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. the ito, therefore, held that the assessee was entitled to depreciation and development rebate only on the balance of rs. 67,637.3. the assessee came in appeal to the commissioner (appeals). it was contended before him that the assessee had not received any subsidy in the year under appeal in which the.....
Judgment:
1. Since the above appeals relate to the same assessee and also involve common contentions, they are disposed of by this consolidated order for the sake of convenience.

2. The assessee had installed a generator at its factory for which it had to incur an expenditure of Rs. 1,05,542. The ITO found that the assessee had received a subsidy of Rs. 37,905 from U.P. Financial Corporation towards the cost of the generator. He was of the view that for determining 'actual cost' for the purpose of allowing depreciation and development rebate in terms of Section 43(1) of the Income-tax Act, 1961 ('the Act') subsidy had to be deducted. This section lays down that '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. The ITO, therefore, held that the assessee was entitled to depreciation and development rebate only on the balance of Rs. 67,637.

3. The assessee came in appeal to the Commissioner (Appeals). It was contended before him that the assessee had not received any subsidy in the year under appeal in which the generator had been installed and that it had been received only later on and, therefore, it could not be deducted in arriving at 'actual cost' of the asset. According to the assessee, its actual cost to the assessee in the year under appeal was Rs. 1,05,542, which alone could be taken into account for allowing depreciation and development rebate. The Commissioner (Appeals) agreed with this view and directed the ITO to determine the actual cost of the generator at Rs. 1,05,542.

4. The department is now in appeal before us against the above finding of the Commissioner (Appeals). After hearing the parties, we agree with the stand of the learned departmental representative. As already stated above, under Section 43(1) '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. It cannot be denied that the assessee had received subsidy of Rs. 37,905 which had been met directly by the U.P. Financial Corporation. It is also not denied that the subsidy had been paid towards installation of the generator. Obviously, therefore, its actual cost to the assessee was less by the amount of Rs. 37,905. It is immaterial that the subsidy had been received subsequently. There is no dispute about this fact. It appears that the assessee had applied for subsidy on 30-5-1976. After meeting various formalities, it was actually granted to the assessee only on 26-5-1977. In fact, some other formalities had also been carried out, the last being on 26-5-1980.

However, as stated by us above, it cannot be denied that subsidy related back to the date of the installation of generator. This view is supported by a decision of the Allahabad High Court itself in the case of CIT v. Saharanpur Electric Supply Co. Ltd. [1977] 109 ITR 545, which itself had relied on a decision of the Supreme Court in Maharana Mills (P.) Ltd. v. ITO [1959] 36 ITR 350. It was held in this case that the actual cost of an asset has. to be determined in accordance with its definition in Section 43(1) and that it has to be found out for the each assessment year. As already stated above, it cannot be denied that the assessee had received subsidy though subsequently towards the cost of the generator installed by it. Its actual cost to the assessee, therefore, was less by that amount. The ITO was, therefore, correct in allowing depreciation and development rebate in respect of Rs. 67,637 only.

5. We will now deal with the assessee's appeal. The ITO found that the assessee had created development rebate reserve only to the extent of Rs. 12,548 in the assessment year under appeal. He, therefore, allowed development rebate only to the extent of Rs. 16,731, 75 per cent of this amount was Rs. 12,548. He rejected the assessee's claim that development rebate of Rs. 6,195 created by it in accounting year 1969 relating to the assessment year 1970-71 which had remained unutilised could also be taken into account. His view was upheld by the Commissioner (Appeals).

6. We have heard the parties on this issue also. In our opinion, the assessee is entitled to take into account the carried forward development rebate reserve for allowing the development rebate in the year under appeal. This view is supported by the decision of the Allahabad High Court in the case of Addl. CIT v. Vishnu Industrial Enterprises [1980] 122 ITR 919. Although this case relates to a reverse situation, where development rebate reserve was created in subsequent years, though it related to the development rebate claimed in an earlier year. However, the observations of the Court at different places certainly go to help the assessee. It was observed at page 923 of the report, that the full reserve may not be created in a single year, depending on the available income it may take more than one year to create the reserve to the full extent of the development rebate, which is allowable. Respectfully following these observations of the Court, which are binding on us, we direct the ITO to allow the development rebate not only with reference to development reserve of Rs. 12,548 created in the year under appeal but also with reference to the carried forward reserve of Rs. 16,195 created in 1969.


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