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ADDITIONAL DEPRECIATION UNDER SECTION 32(1) (iia) OF INCOME TAX ACT 1961

Income Tax - Direct Tax Code - DTC - By: - Mr. M. GOVINDARAJAN - Dated:- 24-8-2016 - Additional depreciation Section 32 of Income Tax Act, 1961 ( Act for short) deals with the method of calculating depreciation for the purpose of income tax. Section 32(1) (iia) was originally inserted by Finance Act, 1980 which came into effect from 01.04.1981, for giving additional depreciation. The said section was omitted by Taxation Laws (Amendment and Miscellaneous Provisions), Act, 1986 with effect from 01 .....

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cle or a thing or in the business of generation or generation and distribution of power (inserted vide Finance Act, 2013 with effect from 01.04.2013) to avail such depreciation. The depreciation is eligible for a further sum equal to 20% of the actual cost of such machinery or plant. Enhanced depreciation in backward area The first proviso to Section 32(1) (iia) which has been inserted vide Finance Act, 2015 with effect from 01.04.2016 provides for enhanced depreciation to the backward areas. Th .....

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g or enterprise for the period from 01.04.2015 to 31.03.2020 @ 35%.instead of 20%. Non eligibility The second proviso to Section 32(1) (iia) provides that no deduction under additional depreciation shall be allowed in respect of- any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a gu .....

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on of electricity The main requirement to take additional depreciation under Section 32(1)(iia) of the Act is that the new machines purchased and installed are to be utilized for business of manufacture. Whether generation of the electricity amounts to manufacture? In Deputy Commissioner of Income Tax V. J.K. Cement - 2016 (1) TMI 351 - ITAT LUCKNOW the assessee installed and put to use power generating units at two places which were captive use and power so generated was mainly in manufacturing .....

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ection 32(1)(iia) of the Act attributable to the power generating units not be withdrawn on the ground that since the electricity being not an item which has to be termed as manufacturing of production of any article or thing additional depreciation granted on plant and machinery used for generation or distribution of power is not allowable. Further the Revenue indicated that the expression in the business of generation or generation and distribution of power has been inserted by the Finance Act .....

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nufacturing of a product. The electricity is intangible and its effect can be seen and felt, transferred, delivered, stored, processed etc., The Commissioner (Appeals) held that the assessee is entitled for additional depreciation and deleted the addition. The Commissioner (Appeals) relied on the judgment of Supreme Court in CST V. M.P. Electricity Board - 1968 (11) TMI 85 - SUPREME COURT OF INDIA which held that the electric energy has all trapping of an article or thing. The process of its gen .....

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e or production of any article or thing. The Revenue filed appeal before the Tribunal against the order of Commissioner (Appeals). The Tribunal has taken a view that the additional depreciation cannot be denied to the assessee merely on the ground that electricity is not an article or thing. The Tribunal found no jurisdiction to interfere with the order of Commissioner (Appeals). In the above case law it has been settled that the generation of electricity is akin to manufacture. With effect from .....

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tion, in this case, could not be claimed for full year. In such a case the question would arise as to whether the balance depreciation may be carry forwarded to the subsequent financial year In Brakes India Limited V. Deputy Commissioner of Income Tax - 2016 (8) TMI 745 - ITAT CHENNAI the assessee had claimed additional depreciation to the tune of ₹ 6.08 crores under Section 32(1)(iia) of the Act @ 10% (50% of 20%) in respect of second half addition made to plant and machinery during the p .....

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ould be on a new machinery or plant. Once it is used, it is no longer new machinery. In this case the machinery, on which carried forward depreciation has been claimed, was already used in the preceding financial year though for a period of less than 180 days. Therefore for the impugned assessment year, it is no more a new machinery or plant. Once it is not a new machinery or plant, allowance under Section 32(1)(iia) cannot be allowed to it. Hence carry forward of any deficit additional deprecia .....

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e subsequent years. But the following two cases laws are in favor of carry forward the depreciation to the subsequent financial years. In Commissioner of Income Tax and another V. Rittal India Private Limited - 2016 (1) TMI 81 - KARNATAKA HIGH COURT the assessee was an existing industrial undertaking when it had acquired and installed new plant and machinery in the financial year 2006-07 and claimed 50% of addition 20% depreciation under Section 32(1)(iia) of the Act in the corresponding assessm .....

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depreciation in the next assessment year so that the benefit of the total 20% allowable depreciation under Section 32(1)(iia) of the Act was given. The High Court held that 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. B .....

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ovision meaningful while granting the additional allowance. The High Court dismissed the appeal of the revenue. In Commissioner of Income Tax (LTU) and another V. Rittal India Private Limited (No.2) - 2015 (1) TMI 1248 - KARNATAKA HIGH COURT the assessee is a private limited company being a member of the Rittal group of Germany. It is engaged in the manufacture and sale of enclosures, heat exchanges and other electrical appliances. The assessee filed a return declaring a total income of ₹ .....

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provides that where an asset referred to in clause (iia) or the first proviso to clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business for a period of less than one hundred and eighty days in that previous year, and the deduction under this sub-section in respect of such asset is restricted to fifty per cent. of the amount calculated at the percentage prescribed for an asset under clause (iia) for that previous year .....

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. In Commissioner of Income Tax V. Radio Today Broadcasting Limited - 2015 (12) TMI 633 - DELHI HIGH COURT the assessee is engaged in the business of FM radio broadcasting. The respondent was granted permission for operating FM radio broadcasting channels on 08.12.2006 at seven stations against payment of prescribed one time entry fees. The assessee went on air for the year 2008 - 09 from three radio stations at Delhi, Kolkata and Mumbai. The three stations at Jodhpur, Patiala and Amritsar were .....

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channels. The Revenue picked up the return for scrutiny. Notices were issued to the assessee indicating why the additional depreciation should not be disallowed. The assessee filed its reply to the Authority on 02.12.2010 indicating that as per Section 32(1)(iia) for the purpose of additional depreciation the following conditions need to be fulfilled: The assessee is engaged in manufacture/production of article or thing; New plant and machinery is acquired and installed after 31.03.2005; It shou .....

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contentions of the assessee. According to him production of radio programs cannot be considered as production of article or thing. He disallowed the claim of additional depreciation and added back to the total income of the assessee The assessee filed appeal before the Commissioner of Income Tax (Appeals) who upheld the order of the Assessing Officer. The Commissioner (Appeals) held that airing of radio programs cannot be said to be manufacturing or producing of article or thing as defined under .....

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the Tribunal, the Tribunal held that the assessee was very much eligible for claiming the additional depreciation under Section 32(1)(iia) of the Act. The Tribunal relied on the decision of the Supreme Court in Commissioner of Income Tax V. Oracle Software India Limited - 2010 (1) TMI 9 - SUPREME COURT OF INDIA in which the Supreme Court held that the radio programs consist of editorial and specific stanza of the songs and the same is first recorded and then edited and broadcasted. Further the g .....

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nufacture or production of any article or thing and broadcasting was not processing; The definition of manufacture under Section 2(29BA) would not apply in the ;resent case as it was introduced only with effect from 01.04.2009; The manufacture implies a change but every change is not manufacture and yet change in an article is result of treatment, labor and manipulation; The assessee contended that the assessee acquired new and eligible plant and machinery after 31.03.2005 for producing or manuf .....

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