The Tax Publishers2020 TaxPub(DT) 5176 (Jab-Trib)


Section 43(1) Section 32

Where Government of India grants certain amount for capital infusion to maintain capital adequacy then no portion of the cost of the computer hardware (i.e., Rs. 1779.09 lakhs) can be said to be, in law or on facts, met by such capital contribution of Rs. 20 crores to any extent.

Depreciation - Actual cost - Application of section 43(1), Expln. - Acquisition of computers hardware--Grant received from Govt. of India

Assessee, a Regional Rural Bank (RRB), established under the Regional Rural Bank Act, 1976, promoted by Government of India, Government of Madhya Pradesh, and Central Bank of India, (with shareholding of 50%, 15% and 35% respectively), received a capital support of Rs. 20 crores during the relevant previous year, being financial year 2011-12, from Govt. of India, to maintain capital adequacy. The assessee purchased computer hardware for Rs. 1779.09 lakhs during the relevant year, claiming depreciation thereon in the impugned sum, at 50% of the eligible rate of 60%, having been put to use for a period of less than 180 days during the year. In view of the AO, section 43(1) read with Explanation 10 thereto, which was applicable in the facts and circumstances of the case. He, accordingly, disallowed the same relying on the decision by the Karnataka High Court in CIT v. Shree Renuka Sugars Ltd. (in ITA Nos. 5006 and 5007 of 2011, dated 31-8-2012). On appeal, the Commissioner (Appeals) held that disallowance of depreciation was, under the circumstances, not justified, and directed its deletion. Held: The funds have been provided by the Central and State Governments and Central Bank of India, in the ratio of their respective shareholdings, and not by Govt. of India alone, as had been stated in the assessment and the impugned order. The bank had rightly characterized it as part of the equity (risk) capital, reflecting it as share capital deposit, even as no shares stand allotted against the same. Therefore, it is not correct to say that the funds were not meant for computers, being an eligible asset of the business. The raising of money to finance the acquisition of an asset, as by way of borrowing, is a transaction separate and distinct from the transaction of acquiring an asset. The two signify separate transactions, the raising and application of funds. Thus, even if envisaged to be acquired out of the said contribution, it would only fructify after a time lag between the receipt of funds and the purchase of an asset. The occasion to examine the scope of word 'indirectly', appearing both in section 43(1) as well as in Explanation 10 thereto, therefore, does not arise for consideration in the facts of the case. 'Cost', it attributes, as well as whether the same has been met directly or indirectly, in the facts of the case, by any person or authority, are essentially questions of fact. Qua the law in the matter, Explanation 10 read with proviso thereto clarifies that even where the grant, etc., is not specifically provided for that purpose, if it results in or leads to the cost of the asset being met by another, the same has to be given effect to. Surely, the same is not applicable in the facts and circumstances of the case. No portion of the cost of the computer hardware (i.e., Rs. 1779.09 lakhs) can be said to be, in law or on facts, met by the capital contribution of Rs. 20 crores to any exent, for its 'actual cost to the assessee-bank being reduced with reference to it.

Relied:CIT v. Tata Iron & Steel Co. Ltd. (1998) 231 ITR 285 (SC) : 1998 TAxPub(DT) 1068 (SC) and Challapali Sugars Ltd. v. CIT (1975) 98 ITR 167 (SC) : 1975 TaxPub(DT) 275 (SC).

REFERRED : CIT v. P.J. Chemicals (1994) 210 ITR 830 (SC) : 1994 TaxPub(DT) 1271 (SC).

FAVOUR : In assessee's favour.

A.Y. : 2012-13



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