Case: Commissioner Of Income Tax, Hyd Vs. M/S. P.J. Chemicals Ltd

3. We may refer to the facts of one case on either side to place the controversy in perspective. In Civil Appeal No. 2474 of 1991, the Commissioner of Income Tax, Andhra, Hyderabad has questioned the correctness of the order dated0 of the Division Bench of the Andhra Pradesh High Court in Income Tax Case No. 267 of 1989. The, M/s P. J. Chemicals Ltd., filed its return of income for the assessment year4 declaring a net loss of Rs. 6, 90, 643. In the course of its return, the assessee had capitalised the entiree expenditure amounting to Rs. 25, 64, 395 and claimed depreciation thereon. There were, however, some disallowances of the items in this capitalisation and a ratio of 80 : 20 was accepted as the formula for ascertaining the capital. That, however, is not the controversy in this appeal. The point is as to the deductibility of a Central subsidy of Rs. 9, 97, 085 which the assessee had received from the "actual cost" for purposes of calculation of depreciation etc. The Income Tax Officer was of the opinion that the statutory concept of "actual cost" in Section 43(1) compelled the deduction of this sum of Rs. 9, 97, 085. He did so accordingly. In the appeal preferred by the assessee before the Commissioner of Income Tax, Hyderabad, the appellate authority following the Boards Circular No. 190 dated6 upheld the order of the Income Tax Officer and affirmed the deduction. Before the Appellate Commissioner, the assessee had placed reliance on the decision of the Andhra Pradesh High Court in CIT v. Godavari Plywoods Ltd. but the appellate authority was not persuaded4. In the second appeal before the Income Tax Appellate Tribunal, Hyderabad Bench in ITA No. 1507/Hyd/87, the Tribunal reversed the authorities below and allowed the assessees appeal. The Tribunal said"In this short appeal preferred by the assessee for assessment year, the only substantial ground taken pertains to the deduction of the sum of Rs. 9, 97, 085 being the Central subsidy from the cost of the relevant asset resulting in the slashing of allowance admissible under the Income Tax Act7. Civil Appeal No. 3699 of 1990 is a case typical of the opposite point of view where the assessee has come up in appeal. The appellant, M/s Janak Steel Tubes Pvt. Ltd., filed returns of income for the assessment year9 declaring a loss. Some time thereafter the appellant revised its returns. It claimed that the subsidy of Rs. 7, 58, 000 received by it should not be deducted while computing depreciation on the "actual cost". The Income Tax Officer by his order dated0 rejected the claim of the appellant and reduced the "actual cost" by the amount of the subsidy. The appeal preferred by the appellant before the Commissioner of Income Tax (Appeals) was dismissed on. The appellant filed a second appeal in ITA No. 4810 (Del.) /80 before the Income Tax Appellate Tribunal, Jabalpur Bench, Camp at New Delhi. The Tribunal has discussed this point in para 4 of the appellate order. It allowed the8. On the motion of the Revenue under Section 256(1) of the Income Tax Act, 1961 the Tribunal referred the following question of law for the opinion of the High Court (along with another question not relevant for this case)" (2) Whether, on the facts and in the circumstances of the case, the capital subsidy of Rs. 7, 58, 000 received by the assessee should be deducted from the value of the plant and machinery and building and sheds while working out the written down value for allowing depreciation to the assessee under Section 32 of the Act for the accounting period relevant to the assessment yearThe High Court answered this question in the affirmative and in favour of the Revenue observing

Reasoning: 11. Such rebate as obtains on the point turns on the definition of "actual cost" in Section 43(1) of the Income Tax Act, 1961. Section 43(1) provides definitions of certain terms and inter alia stipulates that for purposes of Sections 28 to 41 and 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". Thus, if a portion of the cost is met directly or indirectly by any person or authority, the "actual cost" would, for the purposes of the aforesaid sections, be cost minus the subsidies. The "actual cost" of an asset which should be given meaning in a commercial sense, logically includes whatever even any other person or authority has met; but the legislative intent is that the assessee should not have the benefit of a depreciation on a cost which he did not himself payThe contention is that it is not a payment, directly or indirectly, to meet any portion of the "actual cost" but intended as an incentive to entrepreneurs, its quantification determined at a percentage of the fixed capital cost19. On a consideration of the matter the view that commends itself as acceptable is the one which has commended itself to the majority of the High Courts. It is, of course, not the numerical strength that prevailsthough the fact that a particular view has commended itself to a majority of the High Courts in the country is a matter for considerationbut the tensile strength of the acceptable logic in those decisions. It is aptly said that a Judge who announces a decision must be able to demonstrate that he began from recognized legal principles and reasoned in an intellectually coherent and politically neutral way to his result". In the present case the reasoning underlying, and implicit in, the conclusion reached by the majority of the High Courts cannot be said to be an unreasonable view and on a preponderance of preferability that view commends itself particularly in the context of a taxing statute. The expression "actual cost" needs to be interpreted liberally. The subsidy of the nature, we are concerned with, does not partake of the incidents which attract the conditions for their deductibility from "actual cost"20. Government subsidy, it is not unreasonable to say, is an incentive not for the specific purpose of meeting a portion of the cost of the assets though quantified as or geared to a percentage of such cost. If that be so, it does not partake of the character of a payment intended either directly or indirectly to meet the "actual cost". We should prefer the reasoning of the majority of the High Courts to the one found acceptable by the High Court of Punjab and Haryana