Judgment:
This is an appeal by the assessee against the order of the Commissioner (Appeals), Visakhapatnam, dated 18-5-1995, for assessment year 1991-92.
The assessee is an association of persons engaged in the business of production of Shrimp Seeds. The assessee claimed depreciation of Rs. 23,68,961 for its research centre and Rs. 8,68,774 for Nellore Farm.
From the detailed statement furnished by the assessee, the assessing officer found that all the assets were acquired by the assessee out of grants received from Government of India through MPDA, Cochin. Under the provisions of sub-section (1) of section 43 of the Income Tax Act, 1961, "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. On the ground that the assessee had not met the cost as the entire cost of the assets was met out of funds granted by Government of India, the assessing officer rejected the assessee's claim for depreciation. This was upheld by the Commissioner (Appeals) on appeal by the assessee.
Hence, the present appeal.
The learned counsel for the assessee contended that the departmental authorities are not justified in disallowing the assessee's claim for depreciation. He submitted that the grant provided by the Central Government to the assessee was for acquisition of fixed assets besides for other things like revenue expenditure, know-how, etc. and this being a contribution towards corpus fund, the same cannot be considered as meeting part of the cost of fixed assets. The learned counsel for the assessee relied upon the decision of the Hon'ble Supreme Court of India in CIT v. P.J Chemicals Ltd. (1994) 210 ITR 830 (SC) and submitted that the assessee is entitled for the depreciation claimed.
On the other hand, the learned Departmental Representative submitted that in view of Explanation 10 to section 43(1) of the Income Tax Act, the assessee's claim for depreciation has been rightly rejected and he supported the orders of the departmental authorities.
We have considered rival submissions and perused the relevant record available with us. We have also perused the decision of the Hon'ble Supreme Court cited by the learned counsel for the assessee. In our opinion, the case of the assessee is squarely covered by the cited authority wherein it has been held, as per headnotes, as follows : 'Where, Government subsidy is intended as on incentive to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital cost, which is the basis for determining the subsidy, being only a measure adopted under the scheme to quantify the financial aid, is not a payment, directly or indirectly, to meet any portion of the 'actual cost'. The expression 'actual cost' in section 43(1) of the Income Tax Act, 1961, needs to be interpreted liberally. Such a subsidy does not partake of the incidents which attract the conditions for its deductibility from 'actual cost'.
The amount of subsidy is not to be deducted from the 'actual cost' under section 43(1) for the purpose of calculation of depreciation, etc." Explanation 10 to section 43(1) has been introduced with effect from 1-4-1999, and is, therefore, not applicable for the assessment year involved in the present case viz., 1991-92. Therefore, respectfully following the decision of the Hon'ble Supreme Court referred to above, we hold that the assessee is entitled for the depreciation claimed by it. We accordingly set aside the impugned order of the Commissioner (Appeals) and direct the assessing officer to allow the claim of the assessee for depreciation.