Case Law Details
RELEVANT PARAGRAPH
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:
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