Following the Apex Court ruling in the case of CIT v, P. J. Chemicals Ltd. (210ITR830) the Bombay High Court in the case of CIT v. Govind Poy Oxygen Ltd. (108TAX580) held that the central subsidy could not be deducted from the total cost of the assets for computing the investment allowance. The High Court further distinguished the latter decision of the Supreme Court in Sahney Steel & Pipes Works Ltd. v. CIT (228ITR253) and held that the only issue in that case was whether the subsidy received in the hands of the recipient was a revenue or a capital receipt. The Court further held that in the case of a government subsidy which is intended to encourage entrepreneurs to move to backward areas and establish industries, the specified percentage of the fixed capital costs, which is the basis of determining the subsidy being only a measure adopted under the scheme to quantify the financial aid is not a payment, directly or indirectly, to meet any portion of the actual cost. As regard the character of the subsidy in the hands of the recipient, whether revenue or capital, will have to be determined by having regard to the purpose for which the subsidy is given. In this case there was a finding that the scheme does not require the subsidy to be utilized towards meeting the cost of the plant and machinery. Further the Bombay High court in the case of CIT v. Menzes Farmaco (236ITR780) held that the Supreme Court in CIT v. P. J. Chemicals Ltd.  210 ITR 830
examined the character and nature of the subsidy to decide whether it was
for the specific purpose of meeting a portion of the cost of the asset. After analyzing the Supreme court ruling the High court held that
it is clear that in the case
of Government subsidy which is intended to encourage entrepreneurs to
move to backward areas and establish industries, the specified percentage
of the fixed capital cost, which is the basis for determining the subsidy,
being only a measure adopted under the scheme to quantify the financial
aid, is not a payment, directly or indirectly, to meet any portion of the
“actual cost”. The insertion of the new explanation 10 under section 43(1) is though an attempt by the Government to dilute the ruling of the Supreme Court yet the Bombay High court view would come to the rescue of the assessee here for it would then be difficult for the revenue to relate every possible grant or subsidy or reimbursement to the actual cost of the asset to the assessee. Further the Bombay High court also held that the two Supreme Court rulings are not incompatible to each other as they deal with different subjects.
In the legal jumble subsidy to construct multiplex theatre is held capital in nature no matter it was granted after commencement vide 400ITR279. Even Power subsidy is held capital in nature vide Calcutta High Court in case of Pr. CIT-I, Kolkata Versus Shyam Steel Industries Limited.