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income-tax Officer Vs. Embee Textiles (P.) Ltd. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Madras
Decided On
Judge
Reported in(1984)10ITD775(Mad.)
Appellantincome-tax Officer
RespondentEmbee Textiles (P.) Ltd.
Excerpt:
1. the department has made this appeal against the order dated 27-7-1983 of shri a.b. menon, the commissioner (appeals), who allowed the appeal against the order dated 30-4-1983 of shri n. venkataraman, the ito.2. the relevant facts in brief are that the previous year relevant for the assessment year 1981-82 ended on 30-6-1980. the business of the assessee is manufacture of yarn and marketing of yarn. the system of accounting is mercantile and the assessee is a company in which public are not substantially interested.the assessee filed the return of income and thereby made claims, inter alia, that the subsidy amounting to rs. 15 lakhs was not to be reduced from the actual cost to the company of its fixed assets for the purpose of qualifying its deduction admissible under sections 32, 32a.....
Judgment:
1. The department has made this appeal against the Order dated 27-7-1983 of Shri A.B. Menon, the Commissioner (Appeals), who allowed the appeal against the Order dated 30-4-1983 of Shri N. Venkataraman, the ITO.2. The relevant facts in brief are that the previous year relevant for the assessment year 1981-82 ended on 30-6-1980. The business of the assessee is manufacture of yarn and marketing of yarn. The system of accounting is mercantile and the assessee is a company in which public are not substantially interested.

The assessee filed the return of income and thereby made claims, inter alia, that the subsidy amounting to Rs. 15 lakhs was not to be reduced from the actual cost to the company of its fixed assets for the purpose of qualifying its deduction admissible under Sections 32, 32A and 80J(1) of the Income-tax Act, 1961 ('the Act'). The ITO was of the opinion that by virtue of definition of 'actual cost' in Section 43(2) of the Act, the amount of subsidy had to be reduced from the actual cost to the company of its fixed assets for the purpose of qualifying the deductions admissible under Sections 32, 32A and 80J(1) and, accordingly, he allowed deductions referred to above.

3. On appeal, the action of the ITO was challenged before the Commissioner (Appeals), who accepted the claim of the assessee referred to above on following the decision of the Madras Bench of the Tribunal in IT Appeal Nos. 2899 and 2971 (Mad.) of 1977-78 in Pioneer Match Works v. ITO [1982] 1 SOT 331 (SB). He further observed that since the company started production only on 21-1-1980 and the previous year under consideration was the period of twelve months ended on 30-6-1980, the full amount of deduction admissible under Section 80J, viz. 7 1/2 per cent of the capital employed in the undertaking, was reduced in proportion to the period during which the undertaking was in productive operation, which is in accordance with the decision of the Madras High Court in the case of CIT v. Simpson & Co. [1980] 122 ITR 283.

Accordingly, he directed the ITO that he should, therefore, carry forward for setting off in accordance with the provisions of Section 80J(3), the entire amount allowable under Section 80J(1), that is 7 1/2 per cent of the capital employed in the undertaking in question as computed in the manner prescribed by Section 80J(1A).

4. The department, being aggrieved with the order of the Commissioner (Appeals), has preferred this appeal. Shri K. Venkataraman, the learned departmental representative, relying on the decision in the case of Lucknow Producers' Co-operative Milk Union Ltd. v. CIT [1983] 143 ITR 60 (All.), contends that the impugned order is erroneous in law and facts. He further contends that the disbursement of the subsidy is directly linked to meet the cost of capital asset, plant and machinery installed and, therefore, the amount of subsidy of Rs. 15 lakhs goes to reduce the cost of price. Reliance is placed on the paper book (8 pages), which is the sanction of subsidy amounting to Rs. 15 lakhs made on 4-7-1979 vide No. 1/SY/ 253 of 1979 on the subject '15 per cent Central Investment Subsidy Scheme'. Relying on para 3 of it, which is reproduced hereinafter, the learned departmental representative, contends that the subsidy given to the assessee proves beyond doubt that this amount of subsidy was given on satisfaction of the condition that it is towards the cost of asset created and fixed for the unit at Kulathur Village, Vedasandur Taluk, Madurai District : 3. The above sanctioned subsidy can be disbursed in instalments as and when fixed assets are created for your proposed unit at Kulathur Village, Vedasandur Taluk, Madurai District. For claiming the disbursement as and when fixed assets are created, you shall have to furnish to us engineer's certificate from chartered accountant certifying the extent of value of plant and machinery acquired on the site as well as expenditure incurred towards construction of buildings along with the list of machinery. These certificates should be in the prescribed proforma, enclosed herewith. A certificate (in the form enclosed) from the bank from whom loan has been obtained for financing the project should also please be furnished.

Relying further on this sanction, the learned departmental representative vehemently contends that the subsidy referred to above is paid on the basis of agreement and certificate of engineers, certificates from chartered accountants certifying the extent of value of plant and machinery acquired on site as well as expenditure incurred towards construction of building along with list of machinery and as such the assessee has no truth to bite the truth that the subsidy is given to meet the cost of plant and machinery (asset) installed and created on the satisfaction of the condition that the amount of Rs. 15 lakhs would be given to the assessee if the assessee furnished the certificate of an engineer mentioned above, which the assessee produced, then and then only subsidy is given to the assessee. Merely contending therein that the department has failed to prove the nexus between the subsidy amount in dispute and the cost of plant and machinery installed and created, so much so that the amount of Rs. 15 lakhs also is there towards the price of land and building. He, therefore, contends that the decision of the Special Bench in Pioneer Match Works' case (supra) is not good law in view of the decisions in Lucknow Producers' Co-operative Milk Union Ltd.'s case (supra) and Bombay Burmah Trading Corpn. Ltd. v. CIT [1983] 145 ITR 793 (Bom.). He contends that when there is a decision of one of the High Courts of the land contrary to the decision of the Special Bench of the Tribunal and other Benches, then the decision of the High Court is to be followed.

On the other hand, Shri N. Devanathan, the learned counsel for the assessee, contends that the facts of this case are not identical with that of the decision of the Allahabad High Court in Lucknow Producers' Co-operative Milk Union Ltd.'s case (supra). He further contends that the practice in the Madras Benches is to follow the decisions of the Madras Benches and, therefore, the decisions are rightly followed by the Commissioner (Appeals) in allowing the claim of the assessee. He further contends that para 13 of the abovesaid letter is there to prove that the purpose of the subsidy is to uplift the backward area and, therefore, in this particular case it cannot be taken that the subsidy is there to meet the cost of the asset. Reliance is placed on the decision in CIT v. L.G. Ramamurthi [1977] 110 ITR 453 (Mad.) in substantiating the argument that subsidy is also there towards the cost of land and building and, therefore, the subsidy amount should not be taken to be there to meet the cost of the asset.

5. In availing the right of rebuttal, the learned departmental representative contends that land was not entitled to depreciation and the ITO has excluded it. He further contends that the certificate of an engineer has been produced by the assessee and, therefore, the conduct of the assessee shows that he accepted the conditions laid down in the above letter and also satisfy to have the subsidy (sic) that the plant and machinery has been created and installed and, therefore, this subsidy is to meet the cost of assets. The departmental representative, further relying on the decision in CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 589 (Bom.) contends that the direct case on the issue is that of the Allahabad High Court in Lucknow Producers' Co-operative Milk Union Ltd.'s case (supra) and, therefore, it is to be followed.

6. We have heard the rival contentions and gone through the records before us. The letter dated 4-7-1979 from State Industries Promotion Corporation of Tamil Nadu Ltd. (SIPCOT), Ref. No. l/Sy/253 of 1979 addressed to the assessee in reference to the application for Central subsidy and on the subject '15 per cent Central Investment Subsidy Scheme' contains the conditions for sanctioning and release of subsidy amounting to Rs. 15 lakhs for the proposed unit at Kulathur Village, Vedasandur Taluk, Madurai District, for the manufacture of cotton yarn.

Relying on it and in particular on Clauses 3 and 11, the learned departmental representative contends that the nexus between the subsidy of Rs. 15 lakhs and fixed assets installed and created, machinery and plant has been established in view of the fact that the subsidy is paid to the assessee on furnishing by the assessee the documentary evidence, that is the engineer's certificate and certificate from chartered accountants certifying the extent of value of plant and machinery acquired on site as well as expenditure incurred towards construction of building along with list of machinery and also clearance from all the regulatory authorities in connection with the setting up of the project/expansion scheme before disbursement of any part of the subsidy. Clause 11 is as under : 11. The unit should get the necessary clearance from all the regulatory authorities in connection with the setting up of the project/expansion scheme before disbursement of any part of the subsidy.

It is substantiated from another documentary evidence, which is none else than an agreement of 1979 between the assessee and the SIPCOT (A Government of Tamil Nadu Undertaking) and the subsidy is the result of fulfilment of the terms and conditions of the agreement in pursuance of the aforesaid letter. Relying on these two documents, the learned departmental representative's contention is substantiated when he says that in view of these documents and conduct of the assessee in receiving the subsidy on satisfying the conditions and terms of these two documents referred to above, the ITO is justified in his action as his action is in accordance with the decision of the Hon'ble Allahabad High Court in Lucknow Producers' Co-operative Milk Union Ltd.'s case (supra).

7. Their Lordships of the Allahabad High Court in the case of Lucknow Producers' Co-operative Milk Union Ltd. (supra) held as under : The term 'asset' has not been defined in the Income-tax Act, 1961.

The term 'asset' used in Explanation 2 to Section 43(7) is to understand as meaning an asset, the written down value of which may be determined at any particular point of time in accordance with the provisions of the Act. It is obvious that there can be no question of 'written down value' of cash either in the hands of the donor or of the donee, because it is not subject to depreciation in the sense envisaged in the Act. Explanation 2 cannot, therefore, be taken to cover the gift or grant of money. It should be confined to gift of an asset only as is clear from the language.

The term 'authority' has not been defined in the Act. The term 'authority' has been used in Section 43(7) in its wider sense and would take within its ambit all constitutional, governmental or statutory authorities, which exercise power, whether original, delegated or derivative. Merely because the term 'Government' has not been used in Section 43(7), while this term was used in the Explanation to Section 10(5) of the Indian Income-tax Act of 1922, it would not be reasonable to conclude that Parliament intended to exclude Government from the purview of Section 43(7). In the Explanation to Section 10(5) of the old Act, the words used were 'by Government or by any public or local authority'. The word 'authority' was qualified by the words 'public or local' which were restrictive in nature. In Section 43(1) of the 1961 Act, the restrictive words have been omitted and only the word 'authority' has been used. Parliament has omitted the word 'Government' from Section 43(1) because it felt that the wide connotation of the word 'authority' would take within its purview 'Government' as well, besides other kinds of authorities. A State Government would, therefore, be an 'authority' for the purposes of Section 43(1).

Where an assessee purchased capital assets with the help of a grant from the State Government : Held, that for purposes of working out depreciation, the amount of grant should be deducted from the cost of the assets.

Therefore, from the aforesaid decision of their Lordships of the Allahabad High Court and documentary evidence letter dated 4-7-1979, agreement and engineer's certificate and the conduct of the assessee in receiving the subsidy in satisfying the conditions of agreement and in furnishing engineer's certificate and thereby receiving the subsidy proves beyond doubt that the subsidy is there by the SIPCOT to meet the cost of assets. When this is so, then the nexus between the subsidy of Rs. 15 lakhs and the cost of assets has been proved and established by the department. Accordingly, we reject the contention of the learned counsel for the assessee that the subsidy is there for installing plant and machinery in the backward area and not to meet the cost of the assets. We further reject the contention of the learned counsel for the assessee that in the computation of 15 per cent the value of land and building is also there. Therefore, the subsidy is not there to meet the cost of plant and machinery or the assets created or installed. It is there as para 3 of the letter dated 4-7-1979 says so and para 2 of it further shows that the assessee has admitted it accordingly in showing total value of the assets at Rs. 137.09 lakhs which includes the value of land, building and electrical installations amounting to Rs. 0.09 lakh and Rs. 18.91 lakhs respectively. Hence, we reject the contention of the learned counsel when he says that the subsidy is there on the total value of the assets at the rate of 15 percent including land and building. Thus, on account of the documentary evidence, the letter dated 4-7-1979, agreement of 1979 and engineer's certificate and conduct of the assessee as well as totality of the facts and circumstances of the case, the subsidy amount is there to meet the cost of asset ; hence, for the purpose of deduction under Sections 32, 32A and 80J, cost of asset is to be reduced by this amount of subsidy of Rs. 15 lakhs. The ITO has calculated these reliefs accordingly and, therefore, we hold that his action is justified in law and facts of the case, while the Commissioner (Appeals) has acted otherwise, as such his decision is erroneous in law and facts.

8. The decision of the Commissioner (Appeals) cannot be held otherwise on the ground that the decision of Special Bench relied upon by the assessee cannot be followed in view of the fact that the Tribunal is to follow the decision either of the High Court of the land to that of the Tribunal, Reliance can be placed on the decision of the Hon'ble Bombay High Court in the case of Smt. Godavaridevi Saraf (supra), where their Lordships observed that the authority like the Tribunal acting anywhere in the country is to respect the law laid down by the High Court though of a different State, so long as there is no contrary decision of any other High Court on that question. Further, their Lordships of the Bombay High Court in Bombay Burmah Trading Corpn. Ltd.'s case (supra), following the decision of the Madras High Court in Addl. CIT v. Brakes India Ltd. [1979] 118 ITR 820, held that where two views are possible with regard to the interpretation of provision, in the interests of uniformity, it is better to follow the interpretation adopted by another High Court.

9. In this view of the matter, the contention of the learned counsel for the assessee cannot be accepted when he says that the practice in the Benches of the Tribunal at Madras is to follow its own order or that of the Special Bench and, therefore, the order of the Tribunal is to be followed in deciding the issue and not that of the Allahabad High Court. Their Lordships of the Madras High Court has nowhere held in the case of L.G. Ramamurthi (supra) that the decision of the Tribunal is to be followed by its Benches in preference to the decision of the High Court of the land and it cannot be there in view of the settled law and the decisions of the Hon'ble Madras High Court and in particular that of the Bombay High Court in Smt. Godavaridevi Saraf s case (supra) where it is held that the decision of the High Court is to be followed to that of the Tribunal. Therefore, following it with respect, we hold that the decision of the Allahabad High Court in Lucknow Producers' Co-operative Milk Union Ltd.'s case (supra) is to be followed and not that of the Special Bench of the Tribunal in Pioneer Match Works' case (supra) and in particular wherein the Tribunal held on facts that the impugned subsidy is not deductible in determining the actual cost of an asset within the meaning of Section 43(1) as on the facts of this case in view of the documentary evidence mentioned above it is there. Apart from it, the Tribunal in deciding this case was not benefited by the decision of their Lordships of the Allahabad High Court as the Tribunal had not considered it as is evident from its order.

10. In the case of Simpson & Co. (supra), their Lordships of the Madras High Court held that the Tribunal's interpretation of Section 84 of the Act was justified, that it is a well settled principle of construction that in construing a provision for exemption or relief, it should be liberally construed and the reason behind this Rule of interpretation is that the administrative authorities or the Courts should not whittle down the plenitude of the exemption or relief granted by Parliament by laying stress on any ambiguity here or there and that ordinarily, any statute would have to be construed on the language it employs, but in the case of a fiscal statute, the Rule is that if there are two ways in which a provision could be construed, the construction most beneficial to the Subject should be adopted. Further, in this case the relief sought for was under Section 84 and the machinery and plant used was for 9 months and, therefore, the issue was that whether in granting the relief under Section 84 the period of 9 months held to be taken as an annum or not, which is clear from the following observations of their Lordships : The words 'six per cent per annum' are ordinarily applied to calculation of interest and in similar contexts but the words 'per annum' could be inappropriate in a taxing statute levying tax on the income earned during the previous year which is not necessarily a period of twelve months though it would ordinarily be a period of twelve months. The words 'per annum' in Section 84 of the Income-tax Act, 1961, have been added only to ensure that the assessee would' get for each of the five years during which the relief under Section 84 is available, six per cent on the capital employed. These words cannot be understood as indicating any broken period during which the assets were used.

Where during the relevant two years, the assessee had worked its machinery only for a period of nine months and the department sought to reduce the deduction of six per cent of the capital further in proportion to the period during which it worked the machinery, but the Tribunal held that the assessee was entitled to relief of six per cent of the capital employed for each of the two years without any limitation on any proportionate time basis : (p. 283) 11. When this is so, then we accept the contention of the learned departmental representative when he says that the case relied upon by the Commissioner (Appeals) in Simpson & Co. (supra) is not applicable to the facts of this case as in this case the issue involved is that the cost of assets is to be reduced by the amount of subsidy in computing the relief under Sections 32, 32A and 80J.12. In view of our above discussions and reasons thereto, we hold that on the facts and in the circumstances of the case and the decision of the Allahabad High Court in Lucknow Producers' Co-operative Milk Union Ltd. 's case (supra), the cost of assets is to be reduced by the amount of subsidy for computing the relief under Sections 32, 32A and 80J in view of the fact that nexus between the amount of subsidy of Rs. 15 lakhs and cost of assets have been proved and established by the department on account of material on record, the letter dated 4-7-1979, agreement and engineer's certificate furnished by the assessee which caused the payment of the subsidy to the assessee. The ITO has computed the relief accordingly and we restore his order and set aside that of the Commissioner (Appeals) as he in acting otherwise committed an error in law and facts of the case.

I have perused the learned Judicial Member's order. With respect, I do not agree with his finding that the SIPCOT subsidy received by the assessee should be deducted from the cost of the assets for the purpose of computing the deduction under Sections 32, 32A and 80J. The assessee-company, which manufactures yarn, started production from January 1980, the previous year for the assessment year 1981-82 under present appeal being the year ended on 30-6-1980. The issue involved in the present appeal has been fully considered in the decision of the Special Bench of the Madras Tribunal dated 12-2-1981 in IT Appeal Nos.

2899 and 2971 (Mad.) of 1977-78, etc., in the case of Pioneer Match Works (supra). The Tribunal held therein, after elaborate discussion that the object of the subsidy in question is to develop industries in backward areas and not to meet the cost of any particular asset within the meaning of Section 43(1) ; the amount provided under the scheme though a percentage of the fixed capital investment is only taken as a measure ; that the subsidy granted as a lump sum cannot be taken to reduce the actual cost to the assessee, directly or indirectly, that the asses see had incurred in acquiring the assets. The Allahabad High Court decision in Lucknow Producers' Co-operative Milk Union Ltd.'s case (supra), relied on by the learned Judicial Member is, totally distinguishable, in my view, on facts and has no application to the present case. In that case the facts were that the Government of Uttar Pradesh made a grant of Rs. 75,000 to the assessee by deed of grant dated 17-12-1963 for purchase of specific capital items such as vehicles, milk storage tanks, etc. and the assessee acquired such capital assets with the help of this grant. However, in the present case there was no such grant. This factual aspect of the case will be clear from a perusal of the Special Bench's order aforesaid. I may also refer to Clause (vi) of the Deed of Agreement for Central Subsidy Amount, which reads as under : The beneficiary shall refund the Subsidy together with interest at the rate applicable to term loans sanctioned by SIPCOT if it is found that the beneficiary has violated any of the terms and conditions mentioned herein or that the Subsidy has been obtained by fraud or by mis-representation as to an essential fact or furnishing of false information or if the industrial unit goes out of production within five years from the date of commencement of production. The beneficiary solemnly assures and undertakes to refund the Subsidy with interest as mentioned above.

Thus, in the given circumstances the Subsidy was fully refundable by the assessee to the Government. The assessee's case before us, in my view, is squarely covered by the Special Bench decision, with which I entirely agree. I would, hence, hold that the amount of Subsidy received by the assessee cannot reduce the cost of the fixed assets to the assessee for the purpose of allowing the deduction under Sections 32, 32A and 80J.ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 - Whereas we are unable to agree on the point set out below for the assessment year 1981-82, we refer the following point of difference of opinion, to the President for reference to Third Member, under Section 255(4) of the Act : Whether, on the facts and in the circumstances of the case, the amount of SIPCOT Subsidy received by the assessee should be deducted from the cost of the assets for the purpose of computing the deduction under Sections 32, 32A and 80J 1. The assessee is a company running a textile mill. It would appear that in pursuance of a Subsidy scheme for starting business in backward areas, the assessee received a 'Subsidy' of Rs. 15 lakhs from the Central Government. This amount worked out to 15 per cent of the fixed capital investment of a proposed industrial unit. In the assessee's case the investment was distributed among land, buildings and electrical installations and plant and machinery. For the purpose of computing the deduction under Sections 32, 32A and 80J, the ITO deducted the Subsidy received by the assessee from the SIPCOT from the cost of the assets. The matter coming on appeal before the Tribunal, the learned Accountant and Judicial Members differed on the question of reducing the cost of the assets for purposes of Sections 32, 32A and 80J. The following question has, therefore, been referred to me as a Third Member for resolution : Whether, on the facts and in the circumstances of the case, the amount of SIPCOT Subsidy received by the assessee should be deducted from the cost of the assets for the purpose of computing the deduction under Sections 32, 32A and 80J 2. The learned counsel for the department has pointed out that the assessee obtained a definite advantage from the SIPCOT. Under the scheme the assessee was to be paid certain amounts based on the capital investment in the new business. The very basis of the payment was the investment in the specified assets. If the assets were not purchased, the assessee was not entitled to the Subsidy. On the contrary, as per the provisions of the agreement, if there was any fraud, inaccuracy, etc., about the alleged investment, even the Subsidy granted was to be taken back by the Government. The Subsidy, therefore, according to the learned counsel, was clearly an assistance given to the assessee for the purchase of the specified assets. It is automatic that the Subsidy goes to reduce the cost to the assessee of these assets. The provisions of Section 43(1) leave no doubt about the fact that depreciation is to be granted on the actual cost as defined therein. In effect the cost for the purpose of depreciation is the expenditure incurred by the assessee on the assets. When the assessee received a Subsidy based on the investment on the assets, factually his investment has gone down to the extent of the Subsidy. The ITO has, therefore, correctly reduced the cost for the purpose of depreciation, etc., by the Subsidy amount.

3. It is alternatively contended by the learned counsel that the receipt itself of Rs. 15 lakhs is connected with the business of the assessee. It is straightaway taxable as the income of the assessee received in the course of his business. In fact, the ITO made a mistake in not bringing to tax the entire receipt which went to swell the resources of the assessee, instead of only reducing the cost of assets by the Subsidy. Reliance is placed in this connection on the decision of the Allahabad High Court in Lucknow Producers' Co-operative Milk Union Ltd.'s case (supra). Referring to a Special Bench decision of the Tribunal in Pioneer Match Works' case (supra), to which reference is made in the orders of the differing members, it is pointed out that after the decision of the Special Bench, the Allahabad High Court's decision in Lucknow Producers' Co-operative Milk Union Ltd.'s case (supra) is available. In the light of the decisions in Smt.

Godavaridevi Saraf's case (supra) and Bombay Burmah Trading Corpn.

Ltd.'s case (supra), the decision of the High Court acquires precedence over that of the Special Bench. There is a direct nexus between the Subsidy and the acquisition of the assets. This particular aspect has not been considered in the Special Bench decision.

4. For the assessee, it is pointed out that the Allahabad High Court decision dealt with a situation where specific assistance was obtained in the purchase of the assets. The Special Bench decision clarifies the purposes for which the Subsidy is granted. It has nothing to do with the investment in the assets. The percentage stipulated is only meant as a measure of the Subsidy to be granted. Under the circumstances perhaps this was possibly the best way of doing so. The Subsidy as such, as the details of the scheme indicates, does not deal with the investment in specific assets. Neither the purpose nor the terms of the grant govern the allowance relatable to specific assets.

5. Before the ITO the question for decision was about the receipt of the sum of Rs. 15 lakhs by way of Subsidy from the SIPCOT under the Subsidy scheme. Several approaches were made by the ITO to the problem of taxing this amount, such as treating the entire receipt as connected with the business and going to increase the trading receipts, going to reduce the assessee's share of investment in depreciable assets, etc.

The ITO, noting that the assessee had received a specific advantage from the Subsidy particularly relevant to the fixed assets, reduced the value of the Subsidy from their cost for the purpose of reliefs under Sections 32, 32A and 80J. The reference made to me is confined only to the deduction from the cost of the assets. The question of taxing the entire receipts by way of Subsidy has never been considered by the learned members who passed the original order, nor raised in the department's grounds of appeal. The learned counsel for the assessee, therefore, pointed out that the alternative argument raised for the department should not be entertained at all.

6. On this latter question it would not be proper to accept the assessee's claim. The real dispute between the ITO and the assessee is the manner of treatment to be accorded to a receipt of Rs. 15 lakhs from the SIPCOT. That it is a Subsidy and has been received by the assessee is not in dispute, nor is the purpose of the Subsidy in doubt.

Since the receipt is entirely connected with the business of the assessee, whether paid before starting such business, that is during the gestation period or Subsequently, the question of its being the assessee's income does arise for consideration. The mere fact that instead of considering the tax liability of this amount as a revenue receipt, the ITO treated it as reducing the price of fixed assets would not preclude the Tribunal in appreciating the correct facts about this matter or coming to the correct legal conclusion. Even though, therefore, the ITO dealt with the problem only from the point of view of reducing the cost of assets, insofar ' as the receipt itself might attract tax, this aspect cannot be ignored by the appellate authorities. It is not a separate point of dispute, but relates to the same question of the assessability of the Subsidy amount received and the year of assessability. It may not, therefore, be incorrect for the Tribunal before whom the question of assessability of certain receipts is in question to consider it from an overall point of view. Whether it is assessable under one or other section of the Act is a decision relating to the same dispute and would not be beyond the jurisdiction of the Tribunal. Be that as it may, the reference made to the Third Member as the question would indicate is limited in scope and confined only to the deduction from the cost of the assets.

7. On this last question the Special Bench decision would directly govern the case. The decision of the Allahabad High Court in Lucknow Producers' Co-operative Milk Union Ltd.'s case (supra) relates to a case where financial assistance was given for the purchase of specific items of capital. There could be no ambiguity about the purpose of the assistance or its reducing the financial outlay on the assets of the assessee. In the present case, though the quantum of Subsidy is calculated with reference to the investment in the assets, the Subsidy itself has no relation to these assets. The claim of the departmental counsel about the existence of a direct nexus between the grant of the Subsidy and acquisition of assets cannot be accepted even taking into account the provisions of Clauses (2) and (3) of the sanctioning order conveyed in the Government's letter dated 4-7-1979. This point can be best appreciated if we take note of the actual requirements of the scheme. The Subsidy is granted by the SIPCOT. The extent of Subsidy is calculated on the fixed capital investment, namely 15 per cent of the same. The scheme does not deal with grant of allowances like depreciation under Sections 32, 32A and 80J, etc. It deals with the grant of the Subsidy only on certain conditions being satisfied. If, for instance, the entire Subsidy is relatable to an item like land in respect of which no depreciation is allowable, would it be proper to say that the Subsidy relates to the actual cost of the land and would affect its cost of acquisition Certainly not. This itself would show that the fixation of a percentage on the value of the investment is only a mode of fixing the Subsidy in each assessee's case. It is not a contribution to any specific asset, much less a factor going to reduce the written down value or cost of the asset itself. The decision of the Special Bench would, therefore, completely cover the case. As far as the grant of allowances under Sections 32, 32A and 80J, are concerned the cost of the assets cannot be reduced by the Subsidy granted. The limited question, therefore, before me is decided as above. I would, therefore, agree with the learned Accountant Member that the departmental appeal be dismissed. The matter will now go back to the Bench which originally heard the case for proper disposal.


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