U.L. Bhat, CJ-In this reference under section 256 (1) of the Income-tax Act, 1961, for short the Act, at the instance of the Revenue, the appellate Tribunal referred the following question to the High Court. "Whether on the facts and in the circumstances of the case, the Tribunal was justified in deciding that the subsidy received by the assessee from the Government was not deductible from the cost of the plant and machinery for the purpose of calculating depreciation thereon. '' 2. The respondent is a public limited company with registered office at Meghalaya. The dispute relates to assessment year 1977-78. The respondent-assessee has plant and machinery, a part of which was purchased in previous year relevant to the assessment year and the remaining part was purchased during prior years. It appears that under the Central Subsidy Scheme 1971 the respondent received a sum of Rs. 11,72,000/- as Central Subsidy against the investment of about Rs. 62,00,000/- for purchase of plant and machinery. The respondent is entitled to deduction of depreciation from the profits and gains of the business under section 32 of the Act. The Inspecting Assistant Commissioner (Assessment), for the purpose of determining the depreciation as a percentage of capital cost, deducted the subsidy amount from the capital cost and calculated depreciation only on the balance amount. An order of assessment was passed accordingly. The respondent filed appeal before the Commissioner of Income-tax in regard to this and certain other aspects which were decided against it. The Commissioner of Income-tax held that subsidy amount is not to be deducted for the purpose of calculation of depreciation and directed the Inspecting Assistant Commissioner (Assessment) to calculate the deductible depreciation afresh. The Commissioner of Income-tax recorded his findings in regard to other contentions raised by the assessee. The Revenue and assessee preferred appeals before the Tribunal. The Tribunal upheld the findings of the Commissioner of Income-tax regarding the non-deductibility of subsidy amount from the capital cost for the purpose of calculating deprecia­tion to allow deduction under section 32 of the Act. This has led to the present reference. 3. Subsidy was granted to the respondent under Central Subsidy Scheme 1971. The subsidy scheme is intended to promote industries in backward areas by affording incentives to entrepreneurs to start industries in such back­ward areas. The subsidy is refundable if industry is not operated for five years. This has led to the present reference. 3. Subsidy was granted to the respondent under Central Subsidy Scheme 1971. The subsidy scheme is intended to promote industries in backward areas by affording incentives to entrepreneurs to start industries in such back­ward areas. The subsidy is refundable if industry is not operated for five years. The Scheme does not prescribe the particular manner in which the beneficiary is to spend subsidy amount. It is apparent that the beneficiary may use subsidy amount for any purpose connected with industry as it desires. The quantification of the subsidy amount undoubtedly is based on the cost of land, rent of building, or plant and machinery, as the case may be, and as a perc­entage of such cost. 4. We will consider the relevant provisions of the Act as they stood in the assessment year. Section 2(45) of the Act defines total income as total amount of income referred to in section 5 of the Act. Section 5 explains the scope of total income. Section 28 states, inter alia, that profits and gains of any business or profession carried on by the assessee at any time during the previous year is chargeable to income-tax under the head "Profits and gains of business or profession". Section 29 states that income referred to in section 28 shall be computed in accordance with the provisions contained in section 30 to 43A. Under section 32 (1) (ii) in respect of buildings, machinery, plant or furniture etc owned by the assessee and used for the purpose of the business or profession, depreciation of such percentage on the written down value thereof as may be in any case or class of cases be prescribed, is allowable as deduction. 5. Section 43 of the Act defines certain terms relevant to income from profits and gains of business or profession. Sub-section (1) of section 43 states inter alia, that for the purpose of sections 28 to 41 and section 43 actual cost' means the actual cost of the assets to the assessee, reduced by that portion of the cost thereof, if any as has been met directly or indirectly by any other person or authority. Sub-section (6) defines "written down value". Sub-section (6) defines "written down value". In the case of assets acquired in the previous year, the actual cost to the assessee is the written down value and in the case of assets acquired before the previous year, the actual cost to the assessee less all depreciation actually allowed to him under the Act, or under the predecessor Acts is the written down value. 6. Whether the asset was acquired in the previous year or before the previous year, the computation must start with the actual cost of asset at the time of acquisition. In the case of an asset acquired in the previous year, the actual cost is the written down value. In other cases actual cost less' depreciation actually allowed is the written down value. As indicated under section 43, such actual cost of asset to the assessee shall be reduced by any portion of the cost as has been met directly or indirectly by any other person or authority. According to Revenue, subsidy represents a part of the cost met by the Central Government and therefore, it must be reduced from the actual cost to the assessee in order to determine the actual cost and written down value for the purpose of computing depreciation. According to assessee, subsidy given has nothing to do with the cost and therefore, is not deductible.' 7. We have indicated the nature of the scheme under which the respondent obtained subsidy. Subsidy granted under the scheme is intended to encourage entrepreneurs to establish industries in backward areas. But the scheme must necessarily provide guideline or method of computing quantum of subsidy. Quantification may be related to the capital outlay or cost of the plant and machinery, o; the cost of tiie land and buildings, etc. Of various methods available for quantifying subsidy, the method based on percentage of the actual cost of plant and machinery was adopted in the statute. The purpose of the scheme is not to subsidies cost of any particular asset such a plant and machinery. The purpose is to offer reasonable and sufficiently attributive incentive to the entrepreneurs. It cannot, therefore, be said that subsidy offered or granted is to subsidies the cost of plant and machinery. So far as assessee is concerned, he has .paid the full cost of plant and machinery; that cost was not reduced on account of subsidy. The purpose is to offer reasonable and sufficiently attributive incentive to the entrepreneurs. It cannot, therefore, be said that subsidy offered or granted is to subsidies the cost of plant and machinery. So far as assessee is concerned, he has .paid the full cost of plant and machinery; that cost was not reduced on account of subsidy. Subsidy granted is only monetary incentive which he can spend as he desires in connection with the particular industry he established. 8. We are in respectful agreement with the view taken by the Gujrat High Court in CIT vs. Grace Paper Industries Pvt. Ltd., (1990) 183 ITR 591; Andhra Pradesh High Court in CIT vs. Godavari Plywood Ltd, (1987) 168 ITR 632 ; Karnataka High Court in CIT vs. Diamand Dies Mfg. Corpora­tion Ltd, (1988) 172 ITR 655 ; Madhya Pradesh High Court in CIT vs. Bhandari Capacitors P. Ltd, (1987) 168 ITR 647; Kerala High Court in CIT vs. Relish Foods, (1989; 180 ITR 454. We respectfully different from the view by the Punjab and Haryana Hign Court in Ludhiana Central Co-operative Consumers' Stores Ltd. vs. CIT, (1980) 122 ITR 942 . 9. We, therefore, answer the question in affirmative, that is, in favour of the assessee and against the Revenue. A copy of the judgment under the signature of the Registrar and the seal of the High Court shall be transmitted to the appellate Tribunal. There is no direction as to cost. 10. Reference is answered accordingly.