|CORAM:||P. K. Bansal (AM), Pawan Singh (JM)|
|SECTION(S):||43(1), Explanation 10 to s. 43(1)|
|CATCH WORDS:||actual cost, Person, subsidy|
|DATE:||August 3, 2017 (Date of pronouncement)|
|DATE:||August 17, 2017 (Date of publication)|
|AY:||2000-01 to 2008-09|
|FILE:||Click here to download the file in pdf format|
|S. 43(1) Explanation 10: The law laid down in PJ Chemicals 210 ITR 830 (SC) that only a subsidy or grant given to offset the cost of an asset can be reduced from the "actual cost" of the asset and not a general subsidy continues to hold good even after the insertion of Explanation 10 to s. 43(1). A subsidy/ grant from a foreign sovereign Country does not fall within Expl 10 because the foreign Country is not a "person" as defined in s. 2(31)|
(i) From this it is apparent that the grant is to create an institutional environment for technological innovations in the energy sector and disbursement of the grant is to be made by ICICI. This agreement, even if we take the contention of the learned DR, that it is not a financial arrangement but a subsidy, it is not for a specific plant & machinery.
(ii) We have also gone through the provisions of Section 43(1) as well as Explanation 10 thereof. We noted that Section 43(1) defines the actual cost to mean the actual cost of the assets of the assessee reduced by that portion of the cost thereof, if any, as has been met directly or indirectly by other person or authority. In the impugned case, we noted that what the ICICI has financed by way of conditional grant to the assessee is the amount received from USA under the project grant agreement for the Program for Acceleration of Commercial Energy Research. Now the question arises whether USA can be regarded to be a person or authority. In our view, this provision cannot be read without Explanation 10.
(iii) Explanation 10 there to reads as under:
“Explanation 10 : Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee.”
From the reading of the said explanation, it is explicitly clear that if a portion of a cost of an asset acquired by the assessee has been met directly or indirectly by Central Government or State Government or any authority established under any law or by any other person in the form of a subsidy or a grant or reimbursement, said subsidy grant or reimbursement as is relatable to the asset shall be reduced out of the actual cost of the assessee to the assessee. USA is a sovereign and cannot be Central Government or State Government or any authority established by any law in India.
(iv) Now the question arises, whether USA can be regarded to be a person. A person has been defined u/s. 2(31) as under:
“person includes –
(i) an individual,
(ii) a Hindu undivided family,
(iii) a company,
(iv) a firm,
(v) an association of person or a body of individuals, whether incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding sub-clauses.
(Explanation – For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains”
From the said definition, we are of the view that USA cannot be regarded to be a person under the IT Act. Even on this basis also financial assistance given by ICICI cannot be regarded to be a cost met directly or indirectly by any other person.
(v) We have also gone through the decision of Visakhapatnam Bench of this Tribunal in the case of Sasisri Extractions Limited v. ACIT122 ITD 428. We noted that in this case, the Tribunal has categorically held under para 11 of its order that even after insertion of Explanation 10 to Section 43(1) of the I.T Act, the basic principle underlying the decision of the Apex Court in the case of CIT vs. P J Chemicals 210 ITR 830, still holds good. In this decision, their Lordships analyzed the expression “met directly or indirectly” to come to the conclusion that only in a case where a subsidy or other grant is given to offset the cost of an asset, such payment/grant would fall within the expression ‘met’ whereas the subsidy received merely to accelerate the industrial development of the State cannot be considered as payment made specifically to meet a portion of the cost of assets. This decision in our view is equally applicable in the case of the assessee as the conditional grant was given under the Program for Acceleration of Commercial Energy Research. As per the agreement entered into between ICICI and USA, we noted that the same view has been taken by Kolkata Bench of this Tribunal in the case of Universal Cables Limited vs. DCIT 57 taxmann.com 95. While holding so, the Tribunal under para 18 of its order relied on the order of the order of the Visakhapatnam Bench in the case of Sasisri Extractions Limited (supra). In view of this fact, respectfully, following the decisions and legal position explained by the Hon’ble Supreme Court in the case of P J Chemicals (supra), we are of the view that the condition of financial grant received by the assessee could not be reduced from the actual cost of fixed assets for computing the depreciation under the Income tax Act.
(iv) Now coming to the last bit of the submission made by the learned AR, we noted the fact that during the assessment years 2003-04, 2008-09 and 2009-10, the Assessing Officer, under the same set of facts, after examining the issue in detail, allowed depreciation to the assessee. The learned DR even though vehemently relied on the order of the CIT(A) could not distinguish that the facts involved in assessment years 2003-04, 2008-09 and 2009-10 were different from the impugned assessment years. We, therefore, on the basis of the principle of consistency, respectfully, following the decision of the Hon’ble Jurisdictional High Court in the case of CIT vs. Gopal Purohit 336 ITR 287 (Bom) and that of Hon’ble Delhi High Court in the case of CIT vs. Neo Poly Pack (P) Ltd. 245 ITR 492 (Del) hold that the conditional grant received by the assessee cannot be reduced out of the WDV of the assets for the purpose of computing the depreciation. In our view, the contention of the learned DR that the assessee has credited the said amount to the assets in the books of account will not make any difference. As to claiming of the depreciation by the assessee in the income tax return, in view of the decision of the Hon’ble Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. vs. CIT 82 ITR 363 (SC), wherein it has been held that whether the assessee is entitled to a part deduction or not will depend on the provision of the law relating thereto and not on the view which the assessee may take of his rights; nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter.