2025 (6) TMI 1933 - AT - Income Tax

Depreciation on the plant and machinery for moulds - @ 30% OR 15% - rate applicable to moulds used in plastic/rubber manufacturing - As per the AO it does not meet the criteria prescribed u/s 32 r/w Rule 5A of the IT Rules 1962 thus restricted depreciation @ 15% available for general Plant and Machinery - AO is of the opinion that depreciation @ 30% is only for rubber and plastic good factories and the appellant does not own these factories - HELD THAT - As decided in Honda Motorcycle Scooter India (P) Ltd 2016 (10) TMI 634 - ITAT DELHI Prime requirement is that moulds should be owned by the assessee the same should be part of block assets shown by the assessee and these were put io use for the purpose of business of the assessee and the three requisite conditions have been fulfilled by the assessee in the present case and thus it is entitled to claim depredation @ 30%. Respectfully following the order of the Coordinate Bench of the Tribunal in 2023 (10) TMI 446 - ITAT KOLKATA relying on Honda Motorcycle Scooter India (P) Ltd supra it is held that the assessee is eligible for depreciation @ 30% and there is no need to interfere in the order of the Ld. CIT(A) which is confirmed and the appeal of the Revenue is hereby dismissed for A.Y. 2012-13. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in these appeals filed by the Revenue against the orders of the Commissioner of Income Tax (Appeals) for assessment years 2012-13, 2013-14, and 2015-16 were:

• Whether the assessee is entitled to claim depreciation at the enhanced rate of 30% on moulds under the Income Tax Act, 1961, despite not being directly engaged in the manufacturing of plastic and/or rubber products?
• Whether the use of moulds by third-party vendors for manufacturing electronic and electrical products, including electronic medical equipment, and for development of embedded software and services, disqualifies the assessee from claiming enhanced depreciation on such moulds?
• Whether the depreciation rate applicable under section 32 of the Income Tax Act read with Rule 5A of the Income Tax Rules, 1962, should be restricted to 15% (general plant and machinery rate) or allowed at 30% (rate applicable to moulds used in plastic/rubber manufacturing) in the facts and circumstances of the case?

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Entitlement to 30% Depreciation on Moulds Despite Non-Manufacturing Status

Relevant Legal Framework and Precedents: The primary legal provisions involved were section 32 of the Income Tax Act, 1961, which governs depreciation on assets, and Rule 5A of the Income Tax Rules, 1962, which specifies rates of depreciation on various assets including moulds. The enhanced depreciation rate of 30% is prescribed for moulds used in the manufacturing of plastic and rubber products. The question was whether the assessee, who owned moulds but did not directly manufacture plastic or rubber products, qualifies for this enhanced rate.

Precedent decisions by coordinate benches of the Tribunal, including the assessee's own case for AY 2009-10, were relied upon. In that decision, the Tribunal held that ownership of moulds used by third-party vendors exclusively for manufacturing plastic and rubber goods for the assessee's business satisfies the conditions for claiming 30% depreciation. The Tribunal emphasized that it is immaterial whether the moulds are used on the assessee's premises or at vendors' premises, so long as the moulds are owned by the assessee, form part of the block of assets, and are used for business purposes.

Court's Interpretation and Reasoning: The Tribunal noted that the Assessing Officer (AO) restricted depreciation to 15% on the ground that the assessee was not engaged in plastic or rubber manufacturing and did not own the factories where moulds were used. However, the CIT(A) allowed 30% depreciation following the earlier Tribunal decision for AY 2009-10. The Tribunal in the present appeals concurred with the CIT(A)'s approach and the earlier decision, holding that the prime requirement is ownership and use of moulds for business purposes, not the location or direct manufacturing status of the assessee.

Key Evidence and Findings: It was undisputed that the moulds were owned by the assessee and were used by vendors exclusively manufacturing plastic and rubber goods for the assessee. The moulds were part of the block of assets shown in the books and were used for the assessee's business. The Tribunal found no valid reason to interfere with the CIT(A)'s order allowing 30% depreciation.

Application of Law to Facts: Applying the legal provisions and the precedent, the Tribunal held that the assessee met the conditions under section 32 and Rule 5A for claiming enhanced depreciation. The use of moulds by third-party vendors did not disqualify the assessee from the enhanced rate since the moulds were owned and used for the assessee's business.

Treatment of Competing Arguments: The Revenue's argument that enhanced depreciation is only available to manufacturers directly engaged in plastic or rubber product manufacturing was rejected. The Tribunal found the Revenue's interpretation too restrictive and inconsistent with the earlier coordinate bench decision. The Tribunal also rejected the Revenue's contention that the moulds' use in manufacturing electronic and electrical products or embedded software development disqualified the assessee.

Conclusions: The Tribunal upheld the CIT(A)'s order allowing 30% depreciation on moulds for AY 2012-13. Following the principle of consistency and the identical facts in AYs 2013-14 and 2015-16, the Tribunal dismissed the Revenue's appeals for those years as well.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpt from the earlier decision relied upon:

"The prime requirement is that moulds should be owned by the assessee, the same should be part of block assets shown by the assessee and these were put to use for the purpose of business of the assessee and the three requisite conditions have been fulfilled by the assessee in the present case and thus it is entitled to claim depreciation @ 30% which was rightly allowed by the Id. CIT(A). Hence ground No. 1 of the Revenue being devoid of merits is dismissed."

Core principles established include:

• Ownership of moulds by the assessee is a key criterion for claiming enhanced depreciation under section 32 read with Rule 5A.
• It is immaterial whether moulds are used on the assessee's premises or by third-party vendors, provided they are used for the assessee's business.
• Depreciation at the enhanced rate of 30% applies to moulds used in manufacturing plastic and rubber goods, regardless of the assessee's direct manufacturing status.

Final determinations on each issue were:

• The Revenue's appeals against the CIT(A)'s orders allowing 30% depreciation on moulds were dismissed for AYs 2012-13, 2013-14, and 2015-16.
• The Tribunal confirmed that the assessee is entitled to claim enhanced depreciation on moulds owned and used for business purposes, even if the manufacturing is carried out by third-party vendors.