Judgment

VENKATACHALIAH, C.J.I.:- The first batch of cases consists of both civil appeals and petitions for grant of special leave preferred by the Revenue assailing the correctness of the opinion pronounced by several High Courts on a question of law referred to them for opinion on cases stated under Section 256 of the Income-tax Act, 1961. In some of the cases, there are some delays in filing them. We condone the delays. In the special leave petitions, we grant special leave. These are cases in which the High Courts have held that subsidies granted to industries on a percentage of the capital cost are not deductible from the "actual cost" under Section 43(1) of the Act for purpose of calculation of depreciation etc.

2. The second batch consists of matters in which the High Court has taken a contrary view against the assessee and where the assessee has come up in appeal. There is thus a divergence of judicial opinion on this question.

3. We may refer to the facts of one case on either side to place the controversy in perspective.

In Civil Appeal No. 2474 of 1991, the Commissioner of Income-tax, Andhra Pradesh 1, Hyderabad has questioned the correctness of the order dated 28-11-90 of the Division Bench of the Andhra Pradesh High Court in Income Tax Case No. 267 of 1989.The respondent-assessee, M/s. P. J. Chemicals Ltd., filed its return of income for the assessment year 1983-84 declaring a net loss of Rs. 6,90,643 /- In the course of its return, the assessee had capitalised the entire pre-operative expenditure amounting to Rs. 25,64,395/- and claimed depreciation thereon. There were, however, some dis-allowances of the items in this capitalisation and a ratio of 80:20 was accepted as the formula for ascertaining the capital. That, however, is not the controversy in this appeal. The point is as to the deductibility of a central subsidy of Rs. 9,97,085/ - which the assessee had received from the "actual cost" for purposes of calculation of depreciation etc. The Income Tax Officer was of the opinion that the statutory concept of "actual cost" in Section 43(1) compelled the deduction of this sum of Rupees 9,97,085/-. He did so accordingly. In the appeal preferred by the assessee before the Commissioner of Income Tax (Appeals) II, Hyderabad, the appellate authority following the Boards Circular No. 190 dated 1-3-76 upheld the order of the Income Tax Officer and affirmed the deduction. Before the Appellate Commissioner, the assessee had placed reliance on the decision of the Andhra Pradesh High Court in Commr. of Income-tax v. Godavari Plywoods Ltd., 168 ITR 632; but the appellate authority was not persuaded.

In the second appeal before the Income Tax Appellate Tribunal, Hyderabad Bench in I.T.A. No. 1507/Hyd/87, the Tribunal. reversed the authorities below and allowed the assessees appeal. The Tribunal said :

"In this short appeal preferred by the assessee for assessment year 1983-84, the only substantial ground taken pertains to the deduction of the sum of Rs. 9,97,085/- being the Central Subsidy from the cost of the relevant asset resulting in the slashing of allowance admissible under the Income-tax Act.

2. We have heard the learned representative on both sides. On behalf of the assessee reliance has been placed on a decision of the A. P. High Court in Commr. of Income-tax v. Godavari Plywoods Ltd., 168 ITR 632 wherein it has been held that a subsidy like the case in made (hand) cannot be deducted in computing the actual cost and the depreciation will have to be calculated on the cost without deducting therefrom the subsidy amount."

4. At the instance of the Revenue, the Income Tax Appellate Tribunal stated a case and referred the following question of law for the opinion of the High Court

"Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in holding that Central Subsidy should not be deducted from the actual cost of assets for purpose of allowing depreciation?"

5. On a consideration