SECTION 43(1) – ACTUAL COST
392. Subsidy received under “10 per cent Central Outright Grant of Subsidy Scheme, 1971” – Whether liable to be deducted from cost of asset for the purposes of allowing depreciation, etc., on such assets
1. Reference is invited to the Board’s Circular No. 142 [F. No. 204/25/74-IT-(A-II)], dated 1-8-1974, whereby the Board had issued clarification that the amount of subsidy received under “10 per cent Central Outright Grant of Subsidy Scheme, 1971” for industrial units to be set up in certain selected backward districts/areas would constitute capital receipt in the hands of the recipient.
2. A question has arisen for consideration whether the amount of subsidy is to be deducted from the actual cost of the assets for purposes of allowing development rebate and depreciation on such assets. Under section 43(1), “actual cost” means the actual cost of the assets to the assessee reduced by that portion of cost thereof, if any, as has been met directly or indirectly by any other person or authority. The Board has, therefore, been advised that since the subsidy is related to various assets, provisions of section 43(1) are attracted. The amount of subsidy will accordingly, be deducted from the cost of assets for purposes of allowing development rebate and depreciation on such assets.
Circular : No. 190 [F. No. 204/52/75-IT(A-II)], dated 1-3-1976.
JUDICIAL ANALYSIS
REFERRED TO IN – The abovesaid circular was referred to in Srinivas Industries v. CIT [1991] 188 ITR 22 (Mad.) with the following observations :
“. . . Regarding Circular No. 190, dated March 1, 1976, we may point out that it proceeds on the footing that the subsidy is related to various capital assets, thus attracting section 43(1) of the Act and the amount of subsidy, accordingly, will have to be deducted from the cost of the asset for purposes of allowing development rebate and depreciation on such asset. We have already referred to the provisions in the subsidy scheme and we have pointed out that the quantum of subsidy is worked out with reference to a certain percentage on the value of the fixed capital investment as detailed in clause 4(f) of the scheme and that this is only a method and is not in any manner related to the component parts constituting fixed capital investment for purposes of clause 4(f) of the scheme. We are, therefore, of the view that the circular relied on by learned counsel for the Revenue is of no assistance.” (pp. 31-32)
