COMMISSIONER OF INCOME TAX Vs. MEGHALAYA PLYWOOD LIMITED

JUDGEMENT

(1.) IN this reference under S. 256(1) of the INCOME TAX ACT, 1961, at the instance of the Revenue, the Tribunal referred the following question to the High Court :

(2.) THE respondent is a public limited company with its registered office at Meghalaya. The dispute relates to the asst. year 1977 -78. The respondent -assessee has plant and machinery, a part of which was purchased in the previous year relevant to the assessment year and the remaining part was purchased during prior years. It appears that, under the Central Subsidy Scheme, 1971, the respondent received a sum of Rs. 11,72,000 as central subsidy against the investment of about Rs. 62,00,000 for purchase of plant and machinery. The respondent is entitled to deduction of depreciation from the profits and gains of the business under S. 32 of the Act. The IAC (Asst.), for the purpose of determining the depreciation as a percentage of the capital cost, deducted the subsidy amount from the capital cost and calculated depreciation only on the balance amount. An order of assessment was passed accordingly. The respondent filed an appeal before the CIT in regard to this and certain other aspects which were decided against it. The CIT held that the subsidy amount is not to be deducted for the purpose of calculation of depreciation and directed the IAC (Asst.) to calculate the deductible depreciation afresh. The CIT recorded his finding in regard to the other contentions raised by the assessee. The Revenue and the assessee preferred appeals before the Tribunal. The Tribunal upheld the findings of the CIT regarding the non - deductibility of the subsidy amount from the capital cost for the purpose of calculating depreciation to allow deduction under S. 32 of the Act. This has led to the present reference.

(3.) WE will consider the relevant provisions of the Act as they stood in the assessment year. Sec. 2 (45) of the Act defines "total income" as the total amount of income referred to in S. 5 of the Act. Sec. 5 explains the scope of total income. Sec. 28 states, inter alia, that profits and gains of any business or profession carried on by the assessee at any time during the previous year is chargeable to income -tax under the head "Profits and gains of business or profession". Sec. 29 states that income referred to in S. 28 shall be computed in accordance with the provisions contained in ss. 30 to 43A. Under S. 32(1)(ii), in respect of buildings, machinery, plant or furniture, etc., owned by the assessee and used for the purposes of the business or profession, depreciation at such percentage on the written down value thereof as may in any case or class of cases be prescribed is allowable as deduction. Sec. 43 of the Act defines certain terms relevant to income from profits and gains of business or profession. Sub -s. (1) of S. 43 states, inter alia, that, for the purpose of ss. 28 to 41 and S. 43, "actual cost" means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by any other person or authority. Sub -s. (6) defines "written down value". In the case of assets acquired in the previous year, the actual cost to the assessee is the written down value and in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under the Act, or under the predecessor Acts, is the written down value.