Prakash Krishna, J. - (1.) THIS is a reference under S. 256(2) of the IT Act. The following question has been referred to this Court for its opinion : "Whether the Tribunal was correct in law in ignoring definition of actual cost as given in S. 43(1) of the IT Act, 1961 and in holding that the subsidy of Rs. 41,277 was not to be deducted from the value of the generator in the matter of grant of depreciation under S. 32 of the IT Act, 1961 ?"
(2.) DURING the course of the assessment proceedings the assessee claimed full depreciation on generator. The cost of the generator was Rs. 2,13,277. However, the assessment order was reopened as the assessee had received Rs. 41,277 as subsidy on generator from U.P. Financial Corporation, Kanpur. In the re-assessment proceedings the ITO relied on the definition of "Actual Cost" as mentioned in S. 43 of the Act and reduced the cost of generator by the cost of subsidy received by the assessee on generator. Consequently, the amount of depreciation was also reduced. The matter travelled to Tribunal and the Tribunal held that the assessee was entitled for the depreciation on Rs. 2,13,277. At the instance of the Revenue the aforesaid question was referred to this Court for our opinion. The controversy has been set at rest by the Hon'ble Supreme Court in the case of CIT vs. P.J. Chemicals Ltd. (1994) 121 CTR (SC) 201 : (1994) 210 ITR 830 (SC). It has been held that the subsidy does not partake of the incidence which attract the conditions for their deductibility from "actual cost". Following the aforesaid judgment of the Supreme Court, we hold that the subsidy of Rs. 41,277 was not to be deducted from the value of the generator in the matter of grant of depreciation under S. 32 of the Act. We, therefore, answer the question in the affirmative, that is in favour of the assessee and against the Department.;