Judgment :- Ramachandran Nair, J The question raised in the appeal filed by the revenue is whether the Tribunal was justified in holding that subsidy of Rs.6,23,704/- received by the assessee being reimbursement of cost of capital equipments purchased for the research purpose is not assessable as income from business under section 41(1) of the Income Tax Act, 1961. (hereinafter referred for short as “the Act”). 2. We have heard the Standing Counsel appearing for the appellant and the Senior Counsel Sri Joseph Kodianthara appearing for the respondent-assessee. 3. The assessee admittedly was granted 100% deduction under section 35(1)(iv) of the Act towards capital expenditure incurred on scientific research which was in the form of purchase of scientific equipments, in the assessment completed for the assessment year relevant for the previous year in which the investment was made. However, during the previous year relevant for the assessment year 2001-02, the assessee received from the State Government an amount of Rs.6,23,704/- towards subsidy for the capital expenditure incurred for the purchase of scientific equipments. The Assessing Officer was of the view that since capital expenditure incurred for scientific research was fully allowed under Section 35 of the Act in the assessment completed for the relevant previous year in which investment was made, the receipt for the subsequent year which is in the form of part reimbursement of the expenditure by way of subsidy attracts tax as business income by virtue of the operation of section 41(1) of the I.T.Act. He therefore, treated the subsidy received as business income along with the income returned by the assessee. In first appeal, appellate authority after verifying the facts found that the assessment is tenable. However, on second appeal by the assessee, the Tribunal following the decision of the Supreme court in Commissioner of Income-Tax v. P.J.Chemicals Ltd.(210 ITR 830), allowed the appeal by reversing the assessment confirmed in first appeal. It is against this order of the Tribunal, the Revenue has filed this appeal. 4. The Standing Counsel argued that the decision of the Supreme Court was on ‘actual cost’ for the purpose of granting depreciation on plant and machinery, wherein the Supreme Court referred to the definition of that tem contained in Section 43(1) of the Act prior to the amendment introduced to it by the Finance (No.2) Act, 1998 with effect from 1.4.1999. The Standing Counsel argued that the decision of the Supreme Court was on ‘actual cost’ for the purpose of granting depreciation on plant and machinery, wherein the Supreme Court referred to the definition of that tem contained in Section 43(1) of the Act prior to the amendment introduced to it by the Finance (No.2) Act, 1998 with effect from 1.4.1999. It is specifically pointed out that the Supreme Court had no occasion to consider the scope of Section 41(1) under which assessment is made in this case. Even though the Senior counsel appearing for the respondent-assessee referred to the observation of the Supreme Court that the purpose of subsidy is an incentive not liable to be assessed, we do not think the contention is tenable because decision of the Supreme Court is got over by introducing explanation to Section 43(1) by the Finance (No.2) Act, with effect from 1-4-1999. In fact, after the above amendment, for the purpose of depreciation and other benefits on machinery, plant etc., the actual cost will stand reduced by subsidy granted. If subsidy was also simultaneously granted in the previous year towards part reimbursement of actual cost of equipments purchased for scientific research, deduction of claim under section 35(1) (iv) would have been allowed on actual cost reduced by the subsidy amount. However, when subsidy was granted in a later year, the question to be considered is whether S.41(1) would apply to bring to tax subsidy amount. For easy reference, we extract herein the relevant section: “41. However, when subsidy was granted in a later year, the question to be considered is whether S.41(1) would apply to bring to tax subsidy amount. For easy reference, we extract herein the relevant section: “41. Profits chargeable to tax (1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,- (a) the first mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or ……..” What is clear from the above is that if any assessment is completed for any year and any allowance is granted in respect of loss, expenditure or trading liability incurred by the assessee and subsequently during any previous year the assessee gets directly or indirectly reimbursement or recoupment of such loss, expenditure or trading liability, either in cash or otherwise, then such amount received or its cash equivalent shall be deemed to be profits and gains of business or profession. Therefore, the condition to be satisfied for assessment under Section 41(1) is that the reimbursement received whether in cash or in any other form, is towards loss, expenditure or trading liability incurred by the assessee and allowed in any assessment. Admittedly, subsidy received and assessed in this case is towards capital cost incurred by the assessee for the purpose of scientific research, 100% of which was allowed as deduction in the assessment under section 35(1)(iv) of the Act. So much so, the main condition stands satisfied in this case. The next condition is that subsidy in the form of reimbursement or recoupment of loss, expenditure or trading liability is received in any of the years subsequent to the year in which assessee was granted deduction which is also satisfied in this case. So much so, the main condition stands satisfied in this case. The next condition is that subsidy in the form of reimbursement or recoupment of loss, expenditure or trading liability is received in any of the years subsequent to the year in which assessee was granted deduction which is also satisfied in this case. We are therefore of the view that subsidy received by the assessee in the form of cost of the scientific equipments purchased in an earlier year in which 100% deduction was allowed in the assessment is profit arising from the business under section 41(1) of the Act. Even though the assessee has placed reliance on the decision on the decision of the Supreme court in Sahnoy Steel and Press Works Ltd and Others v. Commissioner of Income Tax {(1997) 228 ITR 253}, we find that the Supreme Court has considered the distinction between subsidy received in the form of capital and as revenue. Even though the Supreme Court held that subsidy is capital expenditure and cannot be assessed for tax, there was no occasion to consider the scope of application of Section 41(1) of the I.T.Act with reference to which only assessment is made in this case. Therefore, in our view, the principles laid down by the Supreme Court that capital expenditure cannot be assessed as income of the assessee are not applicable in this case. In our view, the introduction of Explanation 10 of Section 43(1) has far reaching consequence because, the Act provides a complete code for assessment of income and deemed income. Further, the entire expenditure incurred in business is allowed either as revenue or as capital expenditure in the form of depreciation and other allowances. Therefore what is intended under Explanation 10 to Section 43(1) read with section 41 (1) is that any supplement in the nature of revenue or reimbursement of any expenditure capital or otherwise already allowed as a deduction in the computation of business income, such receipts in cash or other form will be treated as income of the later year in which it is received. Therefore in our view, decision of the Supreme Court will apply for period prior to the amendment. In view of the amendment discussed above, we allow the appeal by reversing the order of the Tribunal and by restoring the assessment confirmed in first appeal.