COMMISSIONER OF INCOME TAX Vs. EICHER TRACTORS LTD

JUDGEMENT

(1.) The question of law that has been referred for our opinion under Section 256(1) of the Income Tax Act, 1961 is as follows:-

(2.) In Commissioner of Income Tax v. P.J. Chemicals Ltd., [1994] 210 ITR 830, the question that was considered by the Supreme Court was whether the Tribunal was justified in holding that Central Subsidy should not be deducted from the actual cost of assets for the purposes of allowing depreciation.

(3.) The Supreme Court considered the case law in detail and concluded that the expression "actual cost" needs to be interpreted liberally. The subsidy does not partake of the incidents which attract the conditions for their deductibility from "actual cost". It was, therefore, held that it would not be unreasonable to say that Government subsidy is an incentive, not for the specific purpose of meeting a portion of the cost of the assets, though quantified as or geared to the percentage of such cost. It does not partake the character of a payment intended either directly or indirectly to meet the "actual cost". In this view of this, the Supreme Court decided the question in favour of the Assessee. Following the decision of the Supreme Court, we answer the question referred to us in the affirmative, in favour of the Assessee and against the Revenue.