Gokal Chand Mital, J.

1. Here, we are called upon to decide an interesting and important question of law, namely, whether in calculating the actual cost of building, machinery and plant, the amount received by way of subsidy has to be deducted from the actual cost for the purposes of allowing depreciation under Section 32 of the Income-tax Act, 1961 (for short "the Act").

2. In order to give an incentive for setting up new industries, the Central Government and State Governments have been notifying policies from time to time. Here, we are concerned with such a policy notified by the Government of Punjab, vide Notification No. 28/35/78/51 B1-79/1464, dated March 21, 1979, under the Rules made by the Governor of Punjab known as "The Punjab Industrial Incentives Code under the Industrial Policy Statement, 1978". Rule 2 defines certain words and phrases. Rule 3 provides for registration of a unit with a District Officer for seeking benefit of the industrial incentives. "Unit" is defined in Rule 2.7 to mean a new industrial unit or manufacturing undertaking which has taken effective steps to set up industry on or after April 1, 1978, with new plant and machinery or part thereof.