COMMISSIONER OF INCOME TAX Vs. ORISSA INDUSTRIES LIMITED

JUDGEMENT

(1.) AT the instance of the Revenue, the following question has been referred to this court by the Income-tax Appellate Tribunal, Cuttack Bench (in short " the Tribunal "), under Section 256(1) of the Income-tax Act, 1961 (in short " the Act ") :

(2.) THE background facts are that Messrs. Orissa Industries Limited (in short " the assessee ") is a public limited company carrying on the business of manufacture and sale of refractories, fire bricks, ceramics, etc., at Barang and Latikata. During the assessment year 1982-83, the petitioner claimed depreciation including extra shift allowance at Rs. 24,61,011. THE Assessing Officer found that the assessee had received State investment subsidy amounting to Rs. 3,97,500 from the Government of Orissa. He was of the view that, while computing the allowable depreciation, the amount of subsidy was to be reduced from the cost of fixed assets. Accordingly, he completed the assessment. In appeal, the Commissioner of Income-tax (Appeals), Orissa, following the decision of the Madras Bench of the Tribunal, in the case of Pioneer Match Works v. ITO, 3 ITD 714, accepted the contention of the assessee that the amount of subsidy received under the State Investment Subsidy Scheme was not available to be deducted while computing the actual cost of plant and machinery and directed the Assessing Officer to allow depreciation without making the deduction. THE Revenue carried the matter in appeal before the Tribunal and submitted that the subsidy received ought to have been considered as contribution towards the actual cost of the plant and machinery and, therefore, the direction of the Commissioner of Income-tax (Appeals) to allow depreciation without deducting the amount of subsidy is not sustainable. THE Tribunal referred to one of its earlier decisions in I. T. A. No. 47/(CTK) of 1985 in the case of Kalinga Engineers Ltd., and held that the subsidy which was quantified at ten per cent. of the cost of fixed assets was not granted for the specific purpose of meeting a portion of the cost of the assets and, accordingly, upheld the decision of the Commissioner of Income-tax (Appeals). THE Revenue sought for a reference to this court and, as stated above, the question has been referred to this court for adjudication.