A.K. Mathur, J. - (1.) ALL these references mentioned in the schedule appended to this order involve a common question of law, and, therefore, they are disposed of by this common judgment. Arguments were heard at the principal seat at Jodhpur as well as at the Bench at Jaipur.
(2.) IN order to appreciate the controversy involved in all these references, the facts of D. B. INcome-tax Reference No. 20 of .1984 : CIT v. Ambica Electrolytic Capacitors Pvt. Ltd., Jodhpur, are taken into consideration for the convenient disposal of all these references : The facts giving rise to this reference are that the assessee received subsidy from the Central Government twice in different amounts. The INcome-tax Officer allowed depreciation on building, plant and machinery after excluding these two amounts of subsidy. The contention of the assessee was that the subsidy was not given by the Central Government to meet the cost of assets directly or indirectly within the meaning of Section 43(1) of the INcome-tax Act, 1961 (referred to hereinafter as "the Act"), and, therefore, for allowing the depreciation, these two amounts of subsidy should not be deducted from the cost of the assets. It was urged that the subsidy was given by the Government just as an incentive to the assessee with a view to promote industrial growth in backward areas. On appeal, the Appellate Assistant Commissioner, relying on the orders of the Appellate Tribunal, accepted the contention of the assessee and directed the INcome-tax Officer to allow depreciation on building, plant and machinery on the full cost without deducting the amounts of subsidy. On appeal by the Revenue, the Tribunal, relying on a decision of the Jaipur Bench in the case of Laxmi Udyog and a decision of a special Bench of the Tribunal in the case of Pioneer Match Works [1983] 15 TTJ 88 (Mad) in which the former decision was relied on and approved, upheld the order of the Appellate Assistant Commissioner, because he also relied on the same decisions. Before the Tribunal, the Revenue relied on a decision of the Calcutta High Court in the case of Jeewanlal (1929) Ltd. v. CIT [1983] 142 ITR 448. This was distinguished. On these facts and circumstances of the case, the Tribunal referred the following question for opinion to this court under Section 256 of the INcome-tax Act, 1961 : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the Central Government subsidy is not deductible from the money cost to the assessee of its plant and machinery while computing the actual cost thereof under Section 43(1) of the INcome-tax Act, 1961, for purposes of allowing depreciation ?" The case of the Revenue is that the subsidy/investment subsidy does not become part of the assessee's total assets and, therefore, it would not come within the definition of actual cost and this amount can be deducted for the purpose of granting the benefit of depreciation thereby reducing the quantum of deduction by way of depreciation allowance from the gross profit for the purpose of arriving at the net taxable income. As against this, the contention of the assessee was that since this grant has been made as an encouragement to the assessee in selected areas, it will form part of the actual cost of the unit and as such it will come within the definition of actual cost so as to entitle the assessee to the benefit of depreciation allowance. We have considered the rival contentions of learned counsel for the parties. In order to answer this question, it is necessary to refer first to Section 43(1) of the Act as well as the provisions under which subsidy is granted by the Central Government. Section 43(1) of the Act, which is relevant for our purposes, reads as under : "43(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 subsidy is granted by the Government of India through the Ministry of Industrial Development by its notification dated August 26, 1971. The broad features of the Scheme which are necessary for our purpose is reproduced as under : "The Government of India are pleased to make the following scheme of 10 per cent. Central grant or subsidy for industrial units to be set up in certain selected backward districts/areas with a view to promoting the growth of industries there. 1. Short title.--This scheme may be called the 10 per cent. Central Outright Grant or Subsidy Scheme, 1971, for industrial units to be set up in selected backward districts/areas. 2. Commencement and duration.--It will come into effect from the 26th August, 1971, and remain in force for the remaining period of the Fourth Five Year Plan and for such further period as may be decided by the Government of India. 3. Applicability.--It is applicable to industrial units in selected districts/areas as defined in the scheme, other than those whose total fixed capital investment would exceed Rs. 50 lakhs. In the case of units involving total fixed capital investment exceeding Rs. 50 lakhs, the scheme might be made applicable on consideration of merits at the discretion of the Government of India or the State/Union Territory. 4. Definition.-- 'Industrial unit' means any industrial undertaking and suitable servicing unit, other than that run departmentally by Government. (b) 'new industrial unit' means an industrial unit for the setting up of which effective steps were not taken prior to 1 st October, 1970. (c) 'existing industrial unit' means an industrial unit for the setting up of which effective steps were taken prior to 1st October, 1970. (d) 'substantial expansion' means increase in the value of fixed capital investment of an industrial unit by not less than 25 per cent. for the purpose of expansion of capacity, modernisation, etc. (e) 'effective steps' means one or more of the following steps : (i) that 60 per cent. or more of the capital issued for the industrial unit has been paid. (ii) that a substantial part of the factory building has been constructed. (iii) that a firm order has been placed for a substantial part of the plant and machinery required for the industrial unit. (f) 'fixed capital investment' means investment in land, building and plant and machinery.
(3.) TOTAL fixed capital investment will be assessed as follows : (1) Land : The actual price paid for the land to the extent needed for the purposes of the plant. Charges for the leased land will not be taken into account. (2) Building : Same as in the case of land. Rent of a hired building will not be taken into account. (3) Plant and machinery : (i) In calculating the value of plant and machinery the cost of plant and machinery as erected at site will be taken into account, which will include the cost of productive equipment, such as tools, jigs, dies, moulds, transport charges, demurrage, insurance premium, etc., will also be taken into account. (ii) The amount invested on goods carriers to the extent they are actually utilised for transport of raw materials and marketing of the finished products will be taken into account. (iii) Working capital including raw materials and other consumable stores will be excluded for computing the value of plant and machinery." It is further laid down as to how the total fixed capital investment will be assessed and for which detailed guidelines have also been provided, as reproduced above. After this, the Government also came forward with another scheme of 15 per cent. Central Investment Subsidy Scheme which reads as under : "MANUAL FOR 10-15% CENTRAL INVESTMENT subSIDY SCHEME 1. Introduction 1.1. Government of India had announced in 1971 a scheme for Central outright grant/subsidy for the industrial units to be set up in selected backward districts/areas. A copy of the scheme published, vide Notification No. F. 7(15)/71-IC in Part I, Section I, of the Gazette of India Extraordinary dated 26-8-1971, as amended, vide notification of 30th September, 1972, and 19th June, 1973, is attached at Annexure I. During the course of implementation of the scheme over the past few years, some liberalisation had been introduced in the scheme. Some further changes have also been incorporated herein with a view to ensuring quicker disbursement and reimbursement of Central Investment Subsidy to the industrial units. Eligibility and procedures for claiming disbursement and reimbursement, etc., of the Central Investment Subsidy are dealt with in the succeeding sections. Detailed procedure has been given for such Central Investment Subsidy Scheme also. This Central Investment Subsidy Scheme is almost on the same lines as was the Central Subsidy Scheme floated by the Government of India for backward areas by the notification dated August 26, 1971. Therefore, it is not necessary to reproduce the Scheme. The same governing principles have been adopted. ;