Case Note & Summary
This is a reference under section 256(1) of the Income-tax Act, 1961, by the Income Tax Appellate Tribunal to the Bombay High Court. The reference arises from the Tribunal's order dated 28.5.1987 in I.T.A. No.1769/Bom/84 for the Assessment Year 1980-81. The applicant is the Commissioner of Income-tax, Bombay City-V, Bombay, and the respondent is M/s K.C.A. Limited. Two questions of law were referred: first, whether the amount received under the Central Government's outright grant of subsidy Scheme of 1971 for industrial units set up in selected backward districts or areas did not go to reduce the actual cost as defined in section 43(1) of the Income-tax Act, 1961 for the purpose of computing depreciation for the assessment year 1980-81; and second, whether the Tribunal was justified in holding that deduction under sub-section (1) of section 35CC could not be denied to the assessee although the statement of expenditure which was required to be furnished under sub-section (2) of section 35CC was not filed. The court answered both questions in the affirmative, i.e., in favor of the assessee and against the revenue. The court held that the subsidy is a capital receipt and does not reduce the actual cost for depreciation purposes. Regarding the second question, the court held that the deduction under section 35CC(1) cannot be denied merely for non-filing of the statement of expenditure if the expenditure was actually incurred.
Headnote
A) Income Tax - Depreciation - Actual Cost - Subsidy - Central Government's outright grant of subsidy under Scheme of 1971 for industrial units in backward areas does not reduce the actual cost as defined in section 43(1) of the Income-tax Act, 1961 for computing depreciation. The subsidy is a capital receipt and not a reimbursement of cost. (Paras 1-2) B) Income Tax - Deduction under Section 35CC - Statement of Expenditure - The deduction under sub-section (1) of section 35CC cannot be denied merely because the statement of expenditure required under sub-section (2) was not filed, if the assessee has otherwise incurred the expenditure. (Paras 1-2)
Issue of Consideration
Whether the amount received under the Central Government's outright grant of subsidy Scheme of 1971 for industrial units set up in selected backward districts or areas did not go to reduce the actual cost as defined in section 43(1) of the Income-tax Act, 1961 for the purpose of computing depreciation for the assessment year 1980-81; and whether deduction under sub-section (1) of section 35CC could not be denied to the assessee although the statement of expenditure which was required to be furnished under sub-section (2) of section 35CC was not filed.
Final Decision
Both questions answered in the affirmative, i.e., in favor of the assessee and against the revenue.
Law Points
- Subsidy does not reduce actual cost for depreciation
- Section 35CC deduction not denied for non-filing of statement of expenditure
