K.B. Lal, J. - (1.) THE Income-tax Appellate Tribunal, Allahabad, has referred the following questions under Section 256(2) of the I.T. Act, 1961 : " 1. Whether, on the facts and in the circumstances of the case, the assessee is entitled to depreciation on the entire cost of assets constructed or purchased out of grant of money received from the Government ?
(2.) WHETHER, on the facts and in the circumstances of the case, a grant given by the Government is to be considered as a contribution by any other person or authority, or the assets acquired by the grant money, is a property of the assessee ? " 2. M/s. Lucknow Producers' Co-operative Milk Union, Lucknow (briefly the assessee), is a co-operative society. The Government of Uttar Pradesh made a grant of Rs. 75,000 to the assessee by deed of grant dated December 17, 1963, for purchase of specific capital items such as vehicles, milk storage, tanks, etc. The assessee acquired such capital assets with the help of this grant. While making assessment for the assessment year 1965-66, the ITO, inter alia, treated the grant of Rs. 75,000 as the assessee's income and subjected it to income-tax. The assessee preferred an appeal in regard to this sum of Rs. 75,000. The AAC held that it was a capital receipt and not the assessee's income. He, however, directed that for the purpose of working out depreciation on the capital assets of the assessee, this amount of Rs. 75,000 should be deducted from the cost of the assets purchased with the help of this amount. The assessee did not feel satisfied with this direction and preferred an appeal to the Income-tax Appellate Tribunal. The assessee argued that the Govt. of Uttar Pradesh was not "any other person or authority" within the meaning of Section 43(1) of the I.T. Act, 1961 (briefly "the Act"), and, therefore, the direction given by the AAC was against law. The Tribunal did not accept this submission. At the request of the assessee this court directed the Income-tax Appellate Tribunal to refer the aforesaid two questions to this court for opinion. The learned counsel for the assessee has made two submissions. Firstly, that the grant of Rs. 75,000 made by the Govt. of Uttar Pradesh was a gift and was covered under Expln. 2 to Sub-section (1) of Section 43 of the Act, and, therefore, depreciation could be claimed in respect of the assets acquired with the aid of this amount. Secondly, that the Govt. of Uttar Pradesh is not " any other person or authority " within the meaning of Section 43(1) of the Act and, therefore, the provisions of this sub-section could not be relied upon to deduct the amount of the grant while computing the actual cost of the assets purchased with the aid of this grant. Explanation 2 to Section 43(1) of the Act reads thus : "Where an asset is "acquired by the assessee by way of gift or inheritance, the actual cost of the asset to the assessee shall be the written down value thereof as in the case of the previous owner for the previous year in which the asset is so acquired or the market value thereof on the date of such acquisition, whichever is less."
(3.) WE have carefully considered this Explanation and, in our opinion, it can have no application to the case of a grant or gift of money to the assessee. The term "asset" has not been defined in the Act. The Explanation concerns itself with gift of an asset which had a written down value in the hands of the previous owner, i.e., the donor. The written down value of an asset is subject to change due to depreciation. Sub-section (6) of Section 43 provides how the written down value of an asset is to be determined at any particular point of time. Thus, the term "asset" used in Expln. 2 is to be understood as meaning an asset, the written down value of which may be determined at any particular point of time in accordance with the provisions of the Act. It is obvious that there can be no question of "written down value" of cash either in the hands of the donor or of the donee, because it is not subject to depreciation in the sense envisaged in the Act. Explanation 2 cannot, therefore, be taken to cover the gift or grant of money. It should be confined to gift of asset only as is clear from the language. The first contention of the learned counsel is, therefore, legally not well founded and now we turn to the second submission. The opening words of Sub-section (1) of Section 43, which are relevant, read thus : "(1) '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." The learned counsel for the assessee has not cited any decision in support of his contention that the term " authority " used in Sub-section (1) of Section 43, does not include the Govt. of a State within its ambit. The learned counsel for the Revenue has relied on a decision of this court in CIT v. Saharanpur Electric Supply Co. Ltd, [1977] 109 ITR 545, in support of his contention that the term " authority " includes Government. In that decision it was observed (p. 549): "While under the old Act only the amounts received by the assessee from the Government or by any public or local authority could be deducted, under the present Act, the amounts paid to the assessee not only by the Government or by any public or local authority, but also by any other person should be deducted in computing the actual cost." ;