Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “B’’BENCH: BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI B.R. BASKARAN
PER B.R. BASKARAN, ACCOUNTANT MEMBER:
The assessee has filed this appeal challenging the order dated 28.2.2018 passed by Ld. CIT(A), Mysore and it relates to the assessment year 2014-15. The grounds urged by the assessee give rise to the following two issues:- a) Disallowance of additional depreciation claimed u/s 32(1)(iia) of the Income-tax Act,1961 ['the Act' for short]. b) Disallowance of deduction claimed u/s 80P(2)(e) of the Act.
The facts relating to the case are stated in brief. The assessee is a co-operative society engaged in processing of milk and
ITA No.1509/Bang/2018 Hassan Co-operative Milk Producers Societies Union Ltd., Hassan
Page 2 of 8 manufacturing of dairy products such as butter, ghee, pedha, etc. The assessment in the hands of the assessee for the year under consideration was completed by disallowing part of claim of additional depreciation and also deduction claimed u/s 80P(2)(e) of the Act. The Ld. CIT(A) confirmed both the disallowances and hence the assessee has filed this appeal before us.
The first issue relates to disallowance of claim of additional depreciation. During the year under consideration, the assessee made addition to plant and machinery to the extent of Rs.8,80,55,883/-. The assessee claimed additional depreciation on the above said amount u/s 32(1)(iia) of the Act. The above said machinery consisted of machineries which were used for processing of milk to the tune of Rs.6,85,87,417/-. Remaining machineries were used in the process of manufacture of other items. Relying upon the decision rendered by special bench of ITAT Pune in the case of B.G. Chitale Vs. Deputy Commissioner of Income-tax (116 TTJ 658) (Pune), the A.O. took the view that the processing of milk does not fall under the definition of “manufacture” and hence the machinery purchased for processing of milk is not entitled for additional depreciation. Accordingly, he allowed additional depreciation on other machineries amounting to Rs.1,94,68,466/- and disallowed the additional depreciation claimed on the machineries purchased for processing of milk. The Ld. CIT(A) also confirmed the same.
The Ld. A.R. submitted that the term “manufacture” has been defined now u/s 2(29BA) of the Act and it is wide enough to cover processing of milk also. He submitted that the milk is processed and different kinds of milk having different chemical compositions are being produced by the assessee and hence “raw milk” and
ITA No.1509/Bang/2018 Hassan Co-operative Milk Producers Societies Union Ltd., Hassan
Page 3 of 8 “processed milk” should be considered as different products. Accordingly, he contended that processing of milk would fall under the category of “manufacture”. With regard to the decision rendered by special bench in the case of B.G. Chitale (supra), he submitted that the above said decision was rendered in the context of section 80HHC of the Act and further the definition of the term “manufacture” was not available in the Act at that point of time. He further submitted that the Visakhapatnam bench of ITAT has held in the case of Tirumala Dairy Pvt. Ltd. Vs. ACIT (ITA No.153/Vizag/2009 dated 11.8.2021) that the processing for pasteurized and standardized milk was eligible for deduction u/s 80IB of the Act.
In the alternative, the Ld. A.R. submitted that the assessee is also engaged in the business of manufacture of ghee, pedha, butter, etc. The A.O. himself has allowed additional depreciation on the machineries used for manufacture of the above said item. The Ld. A.R. submitted that once, the assessee is engaged in manufacture or production of articles or thing, it is eligible for additional depreciation u/s 32(1)(iia) of the Act, even if the concerned machinery is not used in the business of manufacture of any article or thing. In support of this proposition, he relied on the decision rendered by the coordinate bench in the case of Texas Instruments India Pvt. Ltd. Vs. Additional CIT (2020) 115 Taxmann.com 154.
On the contrary, the Ld. D.R. submitted that the special bench in the case of B.G. Chitale (supra) has held that the pasteurization and standardization of milk does not amount to manufacture. He submitted that newly inserted definition of term “manufacture” does not change the above said position, since “milk” remain the same as “milk” even after processing. Mere change in
ITA No.1509/Bang/2018 Hassan Co-operative Milk Producers Societies Union Ltd., Hassan
Page 4 of 8 chemical composition will not change its character as “milk”. Accordingly, he submitted that the Ld. CIT(A) was justified in confirming the disallowance of depreciation claimed on machinery used for processing of milk. With regard to the alternative contention of the assessee, the Ld. D.R. submitted that the intention of the legislature is to allow additional depreciation on machineries used for the purpose of manufacture or production of articles or thing.
We heard the rival contentions on this issue and perused the record. The provisions of section 32(1)(iia) reads as under:
“(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing or in the business of generation or generation and distribution of power, a further sum equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii)” :
A careful perusal of the above said provision would show that the above said provision only states that the assessee claiming additional depreciation u/s 32(1)(iia) of the Act ‘should be engaged in the business of manufacture or production of any article or thing etc.’ It does not state that the new machinery or plant should itself be used in manufacture of any article or thing. The question whether the machinery itself is required to be used in the business of manufacture or production for allowing additional depreciation u/s 32(1)(iia) of the Act was examined by the coordinate bench in the case of Texas Instrument (supra) and it has been held as under:
ITA No.1509/Bang/2018 Hassan Co-operative Milk Producers Societies Union Ltd., Hassan
Page 5 of 8 “18. We have heard the submissions of the learned counsel for the Assessee and the learned DR. The provisions of Sec.32(1)(iia) of the Act based on which the additional depreciation was claimed by the Assessee reads thus: "Sec.32 Depreciation. (1) In respect of depreciation of— (i) buildings, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed— (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed:
"(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to twenty per cent. of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii):" 19. A bare reading of the aforesaid provisions shows that the new machinery or plant should be used by an assessee engaged in the business of manufacture or production of any article or thing and the new machinery or plant need not be used in manufacture or production of any article or thing. The learned counsel has before us relied on the decision of the Hon'ble Madras High Court High Court in the case of CIT v. VTM Ltd. [2010] 187 Taxman 319/[2009] 319 ITR 336 (Mad.) wherein the assessee-company was engaged in the business of manufacture of textile goods. During the relevant assessment year, it had set up a wind mill for generation of power and claimed additional depreciation thereon under section 32(1)(iia). The Assessing Officer disallowed the claim on the ground that the assessee was engaged only in the manufacture of textile goods and the setting up of a wind mill had absolutely no connection with the manufacture of textile goods. However, the Commissioner (Appeals) as well as the Tribunal allowed the assessee's claim of additional depreciation. On appeal to the High Court, the Hon'ble High Court held that for application of section 32(1)(iia ) what is required to be satisfied in order to claim the additional depreciation is that a new machinery or plant, which has been set up, should have been acquired and installed after 31-3- 2002 by an assessee, who was already engaged in the business of
ITA No.1509/Bang/2018 Hassan Co-operative Milk Producers Societies Union Ltd., Hassan
Page 6 of 8 manufacture or production of any article or thing. The said provision does not state that the setting up of a new machinery or plant, which was acquired and installed after 31-3-2002 should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore, the contention that the setting up of a windmill had nothing to do with the manufacture of textile goods was totally not germane to the specific provision contained in section 32(1)(iia ). In the light of the aforesaid decision, we are of the view that one of the basis on which the revenue authorities disallowed the claim of the Assessee for disallowance of additional depreciation cannot be sustained.”
Hence, we are convinced with the alternative contention of the assessee. We have earlier noticed that the A.O. has allowed additional depreciation on machineries used for manufacture of butter, ghee, pedha, etc., which clarifies that the assessee is engaged in the business of manufacture or production of any article or thing. Hence, as per the ratio laid down by coordinate bench in the case of Texas Instruments Ltd. (supra), the assessee would be eligible for additional depreciation on other machineries also, even if those machineries are not used in the manufacture or production of article or thing.
With regard to the claim of the assessee that the processing of milk would amount to manufacture, we notice that the decision rendered by the special bench in the case of B.G. Chitale (supra) goes against the assessee. Even under the definition of the term “manufacture”, processing of milk will not result in manufacture of article or thing, since the product “milk” remains as “milk” even after processing. Accordingly, we reject the above said contentions of the assessee.
Since we have accepted the alternative contentions of the assessee, we hold that the assessee is eligible for additional depreciation on the plant and machinery used for processing of
ITA No.1509/Bang/2018 Hassan Co-operative Milk Producers Societies Union Ltd., Hassan
Page 7 of 8 milk also and accordingly direct the A.O. to grant the same to the assessee.
The next issue urged by the assessee relates to deduction claimed u/s 80P(2)(e) of the Act. The assessee had received rental income from letting out of milk parlours, which are selling products of the assessee. The assessee claimed deduction u/s 80P(2)(e) of the Act in respect of the above said rental income. Section 80P(2)(e) of the Act reads as under:- “In respect of any income derived by the co-operative society from the letting of godowns or warehouses for storage, processing or facilitating the marketing of commodities, the whole of such income”.
The A.O. took the view that the rental income received from letting of “godowns or warehouses” alone are eligible for deduction u/s 80P(2)(e) of the Act. Accordingly, he held that the milk parlours shall not fall under the category of godowns or warehouses and hence, the rental income derived from letting of milk parlours will not be eligible for deduction u/s 80P(2)(e) of the Act. Accordingly, he rejected the claim and the Ld. CIT(A) also confirmed the same.
We heard the parties on this issue and perused the record. The Ld. A.R. submitted that the milk parlours facilitate selling of milk and as per the object of deduction granted u/s 80P(2)(e) of the Act, facilitating the marketing of the commodities would also be covered.
On the contrary, the Ld. D.R. submitted that the facilitating of marketing of the commodities should relate to godowns or warehouses. Since the milk parlours cannot be considered as godowns or warehouses, the Ld. D.R. submitted that the Ld. CIT(A)
ITA No.1509/Bang/2018 Hassan Co-operative Milk Producers Societies Union Ltd., Hassan
Page 8 of 8 was justified in confirming the rejection of deduction u/s 80P(2)(e) of the Act.
Having heard the rival submissions, we are of the view that the decision rendered by Ld. CIT(A) on this issue does not call for any interference as the ‘milk parlours’ cannot be considered as godowns or warehouses contemplated u/s 80P(2)(e) of the Act. Accordingly, we confirm the order passed by Ld. CIT(A) on this issue.
In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on 2nd Feb, 2022.
Sd/- Sd/- (N.V. Vasudevan) (B.R. Baskaran) Vice President Accountant Member
Bangalore, Dated 2nd Feb, 2022. VG/SPS
Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order
Asst. Registrar, ITAT, Bangalore.