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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the revenue is directed against the order of CIT (A)-1, Chennai dated 05.10.2015 and pertains to Assessment Year 2011-12. The first issue arises for consideration is additional depreciation claimed by the assessee under Section 32 (1)(ii) of the Act.
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Shri Sahadevan, the ld.DR submitted that the assessee acquired the
asset in the second half of the Financial Year 2006-07 for which the
additional depreciation was already allowed at the rate of 10%. There is
no provision in the Act for carry forward of the additional depreciation in
the succeeding year. Therefore, the CIT (A) is not justified in claiming
the depreciation.
On the contrary, Shri R.Vijayaraghavan, the ld. Counsel for the
assessee submitted that admittedly, the assessee acquired the asset in
the second half of the financial year and claimed additional
depreciation. The Assessing Officer in fact allowed additional
depreciation at the rate of 10%. The assessee claimed the balance 10%
additional depreciation in the year under consideration. Placing reliance
on the decision of this bench of the Tribunal in ITA No.1789/Mds/2014
dated 12.02.2016 submitted that on identical set of facts, this Tribunal
by placing reliance on the decision of the Cochin Bench in Apollo Tyres
Ltd. Vs. ACIT (2014) 64 SOT 203 and the judgement of the Karnataka
High Court in CIT Vs. Rittal India Pvt. Ltd. In ITA No.268/2014 dated
24.11.2015, allowed the claim of the assessee.
We have considered the rival submissions on either side and
perused the material on record. It is not in dispute that the assessee
claimed additional depreciation and the Assessing Officer also allowed
10% additional depreciation in the earlier Assessment Year. The
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assessee now claims that the remaining 10% depreciation has to be
allowed in the year under consideration. The only objection of the
department is that there is no provision in the Income Tax Act for carry
forward of the additional depreciation to the subsequent assessment
year. . This contention of the revenue was examined by this bench of
the Tribunal in M/s.Automotive Coaches & Components Ltd. and
observed as follows:
“5. We have considered the rival submissions on either side
and perused the relevant material available on record. Section
32(1)(iia) provides for additional depreciation at the rate of 20%.
The Assessing Officer allowed 10% of additional depreciation in
respect of the plant and machinery purchased during the year
under consideration. The Assessing Officer found that the
additions to fixed assets were made in the second half of the
financial year, therefore, 50% of additional depreciation has been
claimed. The balance 50% was carried forward in the next year.
The Assessing Officer found that the additional depreciation is
allowable only during the year in which the machinery was
installed and used for business of the assessee. There is no
provision in the Income-tax Act for carry forward of the additional
depreciation to the subsequent assessment year. This issue was
examined by the Cochin Bench of this Tribunal in Apollo Tyres
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Ltd. v. ACIT (supra). The Cochin Bench found that if additional depreciation could not be allowed at the rate of 20% during the year in which the machinery was installed, the balance 50% has to be allowed in the subsequent year. In fact, the Cochin Bench of this Tribunal has observed as follows:-
“9. We have considered the rival submissions on either side and also perused the material available on record. Section 32(1)(iia) reads as follows: "32(1)(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): Provided that no deduction shall be allowed in respect of
Any machinery or plant which, before its installation (A) by the assessee, was used either within or outside India by any other person; or
Any machinery or plant installed in any office (B) premises or any residential accommodation, including accommodation in the nature of a guest-house; or
(C) Any office appliances or road transport vehicles; or
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Any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of (D) depreciation or otherwise) in computing the income chargeable under the head "Profits and gains of business or profession" of any one previous year."
We have also carefully gone through the Second Proviso to section 32(1)(ii) of the Act, which reads as follows: "Provided further that where an asset referred to clause (i) or clause (ii) or clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purpose of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this sub-section in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (i) or clause (ii) or clause (iia) as the case may be." 11. A bare reading of this section 32(1)(iia) clearly says that in case a new machinery or plant was acquired and installed after 31-03-2005 by an assessee, who is engaged in the business of manufacture or produce of article or thing, then, a sum equal to 20% of the actual cost of the machinery and plant shall be allowed as a deduction. It is not in dispute that the assessee has acquired and installed the machinery after 31-03- 2005. It is also not in dispute that the assessee is engaged in the manufacture of article or thing. Therefore, the assessee is eligible for additional depreciation which is equivalent to 20% of the actual cost of such machinery. The dispute is the year in which the depreciation has to be allowed. The assessee has already claimed 10% of the depreciation in the earlier assessment year since the machinery was used for less than 180 days and claiming the balance 10% in the year under consideration. Section 32(1)(iia) does not say that the year in
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which the additional depreciation has to be allowed. It simply says that the assessee is eligible for additional depreciation equal to 20% of the cost of the machinery provided the machinery or plant is acquired and installed after 31-03-2005. Proviso to section 32(1)(iia) says that if the machinery was acquired by the assessing during the previous year and has put to use for the purpose of business less than 180 days, the deduction shall be restricted to 50% of the amount calculated at the prescribed rate. Therefore, if the machinery is put to use in any particular year, the assessee is entitled for 50% of the prescribed rate of additional depreciation. The Income- tax Act is silent about the allowance of the balance 10% additional depreciation in the subsequent year. Taking advantage of this position, the assessee now claims that the year in which the machinery was put to use the assessee is entitled for 50% additional depreciation since the machinery was put to use for less than 180 days and the balance 50% shall be allowed in the next year since the eligibility of the assessee for claiming 20% of the additional depreciation cannot be denied by invoking Second Proviso to section 32(1)(ii) of the Act. 12. This issue was considered by the Delhi Bench of this Tribunal in the case of Cosmo Films Ltd (supra). The revenue has taken a similar ground as taken before this Tribunal that the assessee cannot carry forward the additional depreciation to be allowed in the subsequent assessment year. The Delhi Bench of this Tribunal after considering the provisions of section 32(1)(iia) and proviso to section 321)(ii) of the Act found that when there is no restriction in the Act to deny the benefit of balance 50%, the assessee is entitled for the balance additional depreciation in the subsequent assessment year. In fact, the Delhi Bench of this Tribunal has observed as follows at pages 641 and 642 of the ITD: " Thus, the intention was not to deny the benefit to the assessees who have acquired or installed new machinery or
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plant. The second proviso to section 32(1)(ii) restricts the allowances only to 50% where the assets have been acquired and put to use for a period less than 180 days in the year of acquisition. This restriction is only on the basis of period of use. There I no restriction that balance of one time incentive in the form of additional sum of depreciation shall not be available in the subsequent year. Section 32(2) provides for a carry forward set up of unabsorbed depreciation. This additional benefit in the form of additional allowance u/s 32(1)(iia) is one time benefit to encourage the industrialization and in view of the decision of Hon'ble Supreme Court in the case of Bajaj Tempo Ltd. v. CIT [1992] 196 ITR 188, the provisions related to it have to be construed reasonably, liberally and purposive to make the provision meaningful while granting the additional allowance. This additional benefit is to give impetus to industrialization and the basic intention and purpose of these provisions can be reasonably and liberally held that the assessee deserves to get the benefit in full when there is no restriction in the statute to deny the benefit of balance of 50% when the new machinery and plant were acquired and used for less than 180 days. One time benefit extended to assessee has been earned in the year of acquisition of new machinery and plant . It has been calculated @15% but restricted to 50% only on account of usage of these plant & machinery in the year of acquisition. In section 32(1)(iia), the expression used I "shall be allowed". Thus, the assessee had earned the benefit as soon as he had purchased the new machinery and plant in full but it is restricted to 50% in that particular year on account of period usages. Such restrictions cannot divest the statutory right. Law does not prohibit that balance 50% will not be allowed in succeeding year. The extra depreciation allowable u/s 32(1)(iia) in an extra incentive which has been earned and calculated in the year of acquisition but restricted for that year to 50% on account
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of usage. The so earned incentive must be made available in the subsequent year. The overall deduction of depreciation u/s 32 shall definitely not exceed the total cost of machinery and plant . In view of this matter, we set aside the orders of the authorities below and direct to extend the benefit. We allow ground no.2 of the assessee's appeal. Since we have decided ground no.2 in favour of assessee, there is no need to decide the alternate claim raised in ground no.3. The same is dismissed." 13. This issue was also considered by another bench of this Tribunal at Delhi in SIL Investment Ltd (supra). At page 233 of the TTJ, the Tribunal has observed as follows: "40. There is nothing on record to show that the directions given by the learned CIT(A) are not proper. The eligibility for deduction of additional depreciation stands admitted, since 50 per cent thereof had already been allowed by the AO in the asst.yr.2005-06, i.e. the immediately preceding assessment year. Therefore, obviously, the balance 50 per cent of the deduction is to be allowed in the current year, i.e. asst. yr. 2006-07. The learned CIT(A) has merely directed the verification of the contentions of the assessee and to allow the balance additional depreciation after such factual verification. Accordingly, finding no merit therein, ground No.3 raised by the Department is rejected." 14. A similar view was taken by Mumbai Bench of this Tribunal in MITC Rolling Mills (P.) Ltd. (supra). In view of the above decisions of the co-ordinate benches of this Tribunal on identical set of facts this Tribunal is of the considered opinion that the balance 50% of the depreciation has to be allowed in the subsequent year, therefore, the orders of the lower authorities on this issue are set side and the assessing officer is directed to allow the claim of balance 50% additional depreciation in the year under consideration.”
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We have also carefully gone through the judgment of Karnataka High Court in Rittal India Pvt. Ltd. (supra). The Karnataka High Court, after extracting the provisions of Section 32(1)(iia) of the Act, found that beneficial legislation has to be interpreted liberally so as to benefit the assessee. Karnataka High Court has also found that the intention of the legislation is to allow additional benefit. The Karnataka High Court opined that the proviso would not restrain the assessee from claiming the balance of the benefit of additional depreciation in the subsequent assessment year. Accordingly, confirmed the order of the Bangalore Bench of this Tribunal. In fact, the Karnataka High Court has observed as follows:-
“7. Clause (iia) of Section 32(1) of the Act, as it now stands, was substituted by the Finance Act, 2005, applicable with effect from 0l.04.2006. Prior to that, a proviso to the said Clause was there, which provided for the benefit to be given only to a new industrial undertaking, or only where a new industrial undertaking begins to manufacture or produce during any year previous to the relevant assessment year.
The aforesaid two conditions, i.e., the undertaking acquiring new plant and machinery should be a new industrial undertaking, OF that it should be claimed in one year, have been done away by substituting clause (iia) with effect
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from 01.0.2006. The grant of additional depreciation, under the aforesaid provision, is for the benefit of the assessee and with the purpose of encouraging industrialization, by either setting up a new industrial unit or by expanding the existing unit by purchase of new plant and machinery, and putting it to use for the purpose of business. The proviso to Clause [ii] of the said Section makes it clear that only 50% of the 20% would be allowable, if the new plant and machinery so acquired is put to use for less than 180 days in a financial year. However, it nowhere restricts that the balance 10% would not be allowed to be claimed by the assessee in the next assessement year.
The language used in Clause (iia) of the said Section clearly provides that "a further sum equal to 20% of the actual cost of such machinery or plant shall be allowed as deduction under Clause (ii)". The word "shall" used in the said Clause is very significant. The benefit which is to be granted is 20% additional depreciation. By virtue of the proviso referred to above, only 10% can. be claimed in one year, if plant and machinery is put to use for less than 180 days said financial year. ………very purpose of insertion of Clause (iia) would be defeated because it provides for 20% deduction which shall be allowed.
It has been consistently held by this Court, as well as the Apex Court, that beneficial legislation, as in the present case, should be given liberal interpretation so as to benefit the assessee. In this case, the intention of the
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legislation is absolutely clear, that the assessee shall be allowed certain additional benefit, which was restricted by the proviso to only half of the same being granted in one assessment year, if certain condition was not fulfilled. But, that, in our considered view, would not restrain the assessee from claiming the balance of the benefit in the subsequent assessment year. The Tribunal, in our view, has rightly held, that additional depreciation allowed under Section 32(1)(iia) of the Act is a onetime benefit to encourage industrialization, and provisions related to it have to be construed reasonably, liberally and purposively, to make the provision meaningful while granting additional allowance. We are in full agreement with such observations made by the Tribunal.”
In view of the above, this Tribunal is of the considered opinion that the assessee is entitled for remaining 10% of the depreciation during the year under consideration. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to allow balance 50% of depreciation, namely, 10% of additional depreciation during the year under consideration.”
In view of the above, this Tribunal is of the considered opinion that the assessee is eligible for additional depreciation of 10% of the year under consideration. Therefore, this Tribunal do not find any
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reason to interfere with the order of the CIT (A) and accordingly, the
same is confirmed.
The next ground of appeal is with regard to depreciation of UPS
and ICD Monitors at the rate of 60%. Shri Sahadevan, the ld.DR
submitted that the UPS and ICD monitors cannot be considered as part
of the computer system and therefore, not eligible for higher
depreciation at the rate of 60%.
However, Shri R.Vijayaraghavan, the ld. Counsel for the
assessee submitted that Ups and ICD Monitors are parts of the system
and they cannot perform any independent function. Therefore, UPS and
ICD Monitors are necessarily to be treated as part of the computer
system.
We have considered the rival submissions on either side and
perused the relevant material available on record. This Tribunal is of the
considered opinion that the UPS and ICD Monitors cannot perform any
independent function without the aid of computer. Therefore, UPS and
ICD Monitors have to be necessarily treated as a part of the computer
system. Therefore, this Tribunal do not find any reason to interfere with
the order of the CIT (A) and accordingly, the same is confirmed.
The next issue arises for consideration is disallowance of
development charges on leased land to the extent of Rs.9,81,191/. Shri
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Sahadevan, the ld.DR submitted that the assessee is paying Rs.1/- as
lease charges. Therefore, at the best, the revenue expenditure would
be only Rs.1/-. The subject land was on a long lease for a period of 99
years. According to the ld. Representative, the transaction of lease is in
the nature of transfer of property. Therefore, the expenditure has to be
necessarily treated as capital. The period of 99 years clearly indicates
that the assessee using the land as a capital asset. Therefore, any
expenditure on the capital asset has to be treated as capital in nature,
hence, the CIT (A) is not justified in allowing the assessee.
On the contrary, Shri R.Vijayaraghavan, the ld. Counsel for the
assessee submitted that the assessee entered into an agreement with
SIPCOT for taking on lease the property at Irungattukottai for the period
of 99 years. In respect of lease rent for the entire period were charged
at Rs.1,93,23,800/-, the assessee claimed 5% of the said amount to the
extent of Rs.9,81,191/- as development charges during the year under
consideration. The ld. Representative further submitted that the
development charges are only to develop the land. Therefore, it has to
be allowed as it is revenue in nature.
We have considered the rival submissions on either side and
perused the relevant material available on record. Admittedly, the
assessee took the land on lease for the period of 99 years from
SIPCOT. The assessee has also paid the development charges. This
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development charges was paid o SIPCOT. The CIT (A) found that the assessee claimed only 5% of the development charges paid as revenue expenditure. The development charges were not connected with establishment of any capital asset. It is only for the purpose of developing the common amenities. The agreement between the assessee and SIPCOT clearly shows that the development charges are towards amenities that may be established by SIPCOT. Since these amenities are to be commonly enjoyed by the assessee with others, this Tribunal is of the considered opinion that the payment of development charges has to be treated as revenue expenditure. Therefore, this Tribunal do not find any reason to interfere with the order of the CIT (A) and accordingly, the same is confirmed.
In the result, the appeal of the revenue stands dismissed.
Order pronounced on 05th August, 2016 at Chennai.
Sd/- Sd/- (ए. मोहन अलंकामणी) (एन.आर.एस. गणेशन) (A. Mohan Alankamony) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member
चे�नई/Chennai, �दनांक/Dated, the 05th August, 2016.
sp.
15 I.T.A. No.862/Mds/2016
आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. आयकर आयु�त (अपील)/CIT(A) 4. आयकर आयु�त/CIT, 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.