COMMISSIONER OF INCOME TAX Vs. INDIA LINOLEUMS LTD

JUDGEMENT

(1.) IN this reference under S. 256(1) of the IT Act, 1961 for the asst. yrs. 1980-81, 1981-82, 1982-83 and 1983-84 the following common question of law has been referred to this Court:

(2.) THE facts relating to this reference are that the assessee carried on mainly the business of manufacture and sale of Linoleum and textile yarn in the two divisions, viz. (i) Linoleum division and (ii) Victoria division. The ITO in the course of assessment found that the assessee received capital subsidy of Rs. 1,94,000 from West Bengal Industrial Development Corporation for the installation of captive power generator during the period relevant to the asst. yr. 1980-81 in its Victoria division. The assessee claimed depreciation and extra shift allowance on the cost of generator including the capital subsidy of Rs. 1,94,000. The ITO viewed that since the assessee received the capital subsidy for the installation of the generator, the cost of the generator will be reduced by Rs. 1,94,000 for the purpose of computation of depreciation. The ITO disallowed the assessee's claim to the tune of Rs. 38,980 being the proportionate depreciation and extra-shift allowance on the generator to the extent of its value of Rs. 1,94.000. Similarly on the same ground the ITO disallowed the assessee's claim of investment allowance to the extent of Rs. 48,720 being the 25% of capital subsidy of Rs. 1,94,000. The assessee being aggrieved by the order of the Assessing Officer went in appeal before the CIT (A) on the issue and argued that the object or purpose of the grant of that subsidy was to help in maintaining and increasing industrial production and it cannot be taken as an amount intended to meet the part of the cost of depreciable asset. The CIT(A) considering the matter and relying on the decision in the case of Pioneer Match Works & Ors. vs. ITO (1983) 15 TTJ (Mad) 88 (SB) deleted the disallowance on Rs. 38,980 being depreciation and extra-shift allowance on the value of generator to the extent of the capital subsidy of Rs. 1,94,000. He further held that the assessee was also entitled to investment allowance of the actual cost of the generator without being reduced the same by the amount of capital subsidy received by the assessee.

(3.) A similar question came up for consideration before this Court in the case of CIT vs. Woodcraft Products Ltd. in I.T.Ref. No. 281 of 1987 where the judgment was delivered on 28th Feb., 1992. There we have held that unless a capital subsidy is relatable to any particular asset such subsidy cannot be deducted from the written down value of the capital asset for the purpose of allowing depreciation allowance or investment allowance as the case may be. In this case as we have noted that this subsidy was allowed specifically for the purpose of installation of captive power generator during the relevant asst. yr. 1980-81. It was not a subsidy which was generally granted for the development of industries. Having regard to the facts and circumstances of this and having regard to the principles laid down in the aforesaid judgment, the question in this reference is answered in the negative and in favour of the Revenue. There will be no order as to costs.