COMMISSIONER OF INCOME TAX, HYDERABAD versus M/S. P.J. CHEMICALS LTD. ETC.

Citation: [1994] SUPP. 3 S.C.R. 561 · Decided: 14-09-1994 · Supreme Court of India · Bench: M.N. VENKATACHALIAH · Disposal: Disposed off
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Judgment (excerpt)

COMMISSIONER OF INCOME TAX, HYDERABAD 
A 
v. 
M/s. P.J. CHEMICALS LTD. ETC. 
SEPTEMBER 14, 1994 
[M.N. VENKATACHALIAH, C.J. AND S.C. AGRAWAL, J.] 
B 
Income Tax Act 196J-Sections 43(1) and 32-''ActuaZ.cost'~ature 
of subsidy granted to industrie~Whether constitutes part of actual cos~ or 
intended as incentive-Held, government subsidy is an incentive, not for the 
specific purpose of meeting a portion of the cost of the asse~Subsidy of the C 
nature under consideration not deductible from actual cost while computing 
depreciation etc.-Expression "actual cost" to be interpreted libeal-
ly-Depreciatiort-lnterpretation of taxing statutes-Income Tax Act 1922. 
On the question whether subsidies granted to industries on a per-
centage of the capital cost are to be deducted while computing the "actual D 
cost" under Section 43(1) of the Income Tax Act 1961 for purposes of 
depreciation etc., there was a divergence of judicial opinion. The High 
Court of Punjab and Haryana held for the Revenue, that the subsidy is 
deductible while computing "actual cost", but the other High Courts held 
to the contrary, in favour of the assessee. 
E 
Disposing of the appeals, this Court 
HELD : 1. The expression "actual cost" needs to be interpreted 
liberally. The subsidy of the nature in these cases does not partake of the 
incidents which attract the conditions for their deductibility from "actual F 
cost". [571-G] 
2. Government subsidy, it is not unreasonable to say, is an incentive 
not for the specific purpose of meeting a portion of the cost of the assets, 
though quantified as or geared to a percentage of such c~t. If that be so, G 
it does not partake of the character of a payment intended either directly 
or indirectly to meet the "actual cost". [571-H, 572-A] 
3. The view that commends itself as acceptable is the one which has 
commended itself to the majority of the High Courts, not because numeri-
cal strength prevails, but because of the tensile strength of the acceptable H 
561 
562 
SUPREME COURT REPORTS (1994) SUPP. 3 S.C.R. 
A 
logic in those decisions. The fact that a particular view has commended 
itself to a majority of the High Courts in the country is, however, a matter 
for e:onsideration. (571-E] 
C.l. T. v. Godavari Plywoods Ltd., (168) ITR 632, Lucknow Producers 
Co-operative Milk Union Ltd. v. C.l. T., (143) ITR 60; C./. T. v. Elys Plastics 
._. 
B 
Pvt. Ltd., (188) ITR 11; C.l.T. v. Dewas Synthetics (P) Ltd., (188) ITR 16; 
C.l. T. v. Meghalaya Plywood Ltd., (202) ITR 343; C.l. T. v. Grace Paper 
Industries Pvt. Ltd., (183) ITR 591; C.J. T. v. Diamond Dies Mfg. Corpm., 
Ltd., (172) ITR 655; C.l.T. v. Kera/a State Drugs and Phannaceuticals Ltd., 
(184) ITR 424; Srimvas Industries v. C.l. T., (188) ITR 22; C.l. T. v. Steel 
C 
Tubes of India Ltd., (181) ITR 90; C.l. T. v. Kalinga Jute Products Pvt. Ltd., 
(196) ITR 633 and C.l. T. v. Ambica Electrolytic Capacitors Pvt. Ltd., (191) 
ITR 494, affirmed. 
C.l. T. v. Jindal Brothers Rice Mills, (179) ITR 470, overruled. 
D 
C01poration of Binningham v. Barnes, 19 Tax Cases 195; C.1. T. v. 
Poona Electric Supply Co. Ltd., (14) ITR 622; C.l. T. v. Bombay Suburban 
Electric Supply Co. Pvt. Ltd., (106) ITR 752 and Calcutta Electric Supply Co. 
Ltd. v. C.l. T., (194) ITR 296 at 302, referred to. 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2474 of. 
E 
1991 etc. etc. 
F 
G 
From the Judgment and Order dated 28.11.90 of the Andhra Pradesh 
High Court in l.T.C. No. 267 of 1989. 
V. Gauri Shankar, B.:S. Ahuja, G.B. Pai, M.B. Rao, Manoj Arora, S. 
Rajoppa, D.S. Mehra, Ranbir Chandra, Ms. A Subhashini and Mrs. A.K. 
Verma for the Appellants. 
G. Sarangan, Mukul Mudgal and A. Subba Rao for the Respondents 
in C.A. No. 3420/91. 
K.T. Anantharaman and R. Vasudevan for Lawyers Inn in C.A. No. 
1660/92. 
The Judgment of the Court was delivered by 
' 
H 
VENKATACHALIAH, CJI. The first batch of cases consists of both 
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cOMMR. OF INCOME TAX v. P J. CHEMICALS LID. (VENKATACHALIAH, CJ.]563 
civil appeals and petitions for grant of special leave preferred by the A 
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 B 
Courts have held that subsidies granted to industr
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