7. We have considered the rival submissions of the parties and perused the materials on record. The undisputed facts are that the assessee had plant and machinery already existing prior to the receipt of finance from Wipro Finance Ltd. It is apparent from the chart of payment referred to by the learned AR of the assessee. This clearly indicates that the loan was not given directly or indirectly for the purpose of purchasing plant and machinery. The argument of the Assessing Officer, CIT(A) and the learned DR that the loan from Wipro Finance Ltd., was used to repay the suppliers of Plant and machineries is not acceptable because no such nexus is established by the Revenue. The agreement of the assessee with Wipro Finance Ltd., to which the learned AR of the assessee has referred it speaks of hire purchases. The actual cost of the machinery is shown atRs.5,31,62, 364 and loan is approved at Rs.3 Crores. A reading of this agreement suggests that the assessee has actually hypothecated GI Plant to Wipro Finance Ltd., for obtaining the loan. The assessee would be paying rentals to Wipro Finance Ltd., as per schedule to the agreement. The learned DR referring to this presumed that it is the Wipro Finance Ltd., which has advanced money for purchasing plant and machinery and not for working capital requirement. The hire purchase agreement as per the learned DR refers to rentals to be paid by the assessee meaning thereby assets for the time being are owned by Wipro Finance Ltd and therefore, if a part of the loan is waived then that part will be reduced from the actual cost. We, however, do not agree with this proposition. For affecting the actual cost there should be either grant, or subsidy, or reimbursement against such cost. The word “waiver”is not used in Explanation 10 to Section 43(1). For the sake of convenience, the same is reproduced 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 :”
In the main sub-section the words “made directly or indirectly by directly by any other person or authority ” mean that there has to be a voluntary act on the part of the “any other person or authorities ” to meet the cost of the assets. In the present case Wipro Finance Ltd had not met the cost of assets. We have already observed that a whole reading of the agreement does not indicate that Wipro Finance Ltd was in any way intending to meet the cost of the assets.
Hypothecation of plant and machineries for obtaining of loan is not equivalent to the meeting the cost of the assets. Explanation 10 of Section 43(1) only refers to prorata deferment of any cost met by any ” authorities ” or “person ” by way of grant, subsidy or reimbursement. It does not refer to any waiver of any loan. Subsidy has been defined as financial aid granted by the Government to a business enterprises in order to encourage it in production, quantity or quality-wise, and to help to sale of commodities produced at a lower rate. In Advance Law Lexicon, 3Rd addition (2005)page 4524,the word “subsidy “has been defined as under:
“Subsidy ” defined.545 V.c.31,S.9.( Subsidum. ) An aid, tax, or tribute granted to the King for the urgent occasions of the kingdom, to be levied on every subject of ability, according to the value of his lands or goods. (Tomlin). Money contributed by a state government, institution, or person, in behalf of any special object.
SUBSIDY generally means money granted by the State or a public body to keep down the prices of commodities. Subsidy may be in the nature of direct or indirect Government grants on production or exportation of goods including any special subsidy on transportation of any particular product. (Anti- Dumping Law)
Agreed sum paid, over and above market charges, to assure supply or service that would otherwise be unavailable because of lack of profit. (Business Term)
The financial aid granted by the Government to a business enterprise in order to encourage rise in production, quantity and quality wise, and also to help sell the commodity produced, at a lower price. (Banking)
Sum paid (by government) to companies in certain industries to enable them to sell their goods or services at a price close to the prevailing market price. A subsidy is also used to provide financial support to a commercial or quasi-commercial activity that would otherwise not be viable in narrow profit-and-loss terms, usually in order to sustain broader economic and social benefits (Business; Insurance; International Accounting). “
The word “Grant” used in Explanation 10 means any sum or money paid as an aid out of the State funds or funds of any institution. The word “reimbursement “is defined as payment of what has been spent. On page 4029 of Advance Law Lexicon, it is defined as under :
“Reimbursement. In ordinary parlance reimbursement means repayment of what has been spent. To reimburse is to repay what is expended (Deepak Fertilizer & Petroleum Chemicals Corpn.Ltd. v. Union of India, (1996) 381 DRJ 209), The word „reimbursement . means and implies restoration of an equivalent for something paid or expended. It presupposes previous payment. Tata Iron & Steel Co. Ltd. v. Union of India (2001) 2 SCC 41, Para 16,
The act of paying back somebody for his or her out-of-pocket expense (Investment) .”
It may be seen that the word “waiver “has not been used either in the main section or in the Explanation. From a combined reading of the concept of the three terms “subsidy”, “grant” and “reimbursement “,it appears that they have the following common characteristics.
(1) “Government authority” or “any other person ” is giving money as an aid to the assessee to purchase an asset.
(2) This aid, termed as “grant ” or “subsidy “is given to a business entrepreneur either to augment its capital or to provide financial support for sustaining production and maintaining price, or setting up an industry, or for purchase of asset for industries.
(3) To compensate certain expenses incurred by the assessee by reimbursing the expenditure either on capital assets or on other business expenses.
(4) There is general intention of the “authority ” or “other person ” to forego the sum at the time of grant thereof.
When we apply the above principles to the facts of the present case, we notice that Wipro Finance Ltd is of the intention to recover the loan from the assessee.
It was not given as to meet out the cost of any plant and machinery partly, fully directly or indirectly. As per page 4922 of Adv. Law Lexicon, “waiver “would mean voluntary relinquishment of a legal right or advantage benefit, claim or privilege. Thus, act of waiver would come posterior whereas grant and subsidy are interior of the transaction, i.e., purchases of plant and machinery in the present case. The reimbursement is always posterior to the transaction (of purchase of Plant and machinery). Therefore, the waiver of loan is also not equivalent to reimbursement and therefore will not fall under the category of reimbursement. Waiver is also not equivalent to “grant “or subsidy. Thus, the waiver does not fall into either of the three terms used in Explanation 10 or proviso thereof. Further there has to be direct nexus of loan with purchase of plant and machinery. In the present case, plant and machinery are already existing prior to taking the loan. Therefore, grant of loan by Wipro Finance Ltd., cannot be related to the purchase of plant and machinery. Therefore, it cannot be inferred that it was given to meet the cost of plant and machinery. Once, the sum ofRs.86,02,061 waived by Wipro Finance Ltd as OTS , cannot be related to purchase of plant and machinery, it cannot be reduced from the cost for the purposes of reducing allowable depreciation.