Madras H.C : The assessee is not entitled to additional depreciation under section 32(1)(iia)

High Court Of Madras

M.M. Forgings Ltd. vs. ACIT, Company Range-IV, Chennai

Assessment Year : 2005-06

Section : 32

F.M. Ibrahim Kalifulla And N. Kirubakaran, JJ.

Tax Case (Appeal) No. 1130 Of 2010

January 11, 2011

JUDGMENT

F.M. Ibrahim Kalifulla, J. – The assessee is aggrieved by the order of the Tribunal dated 4-12-2009 passed in ITA No. 2151/2008. The assessee seeks to raise the following questions as substantial questions of law :

“1. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the assessee is not entitled to additional depreciation under section 32(1)(iia) of the Income-tax Act, 1961 on assets acquired after 30-9-2004? and

2. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the assessee is not entitled to deduction under section 80-IA on export incentives being profits arising from DEPB Scheme?”

2. As far as the first question of law is concerned, the only issue to be considered is as to whether the assessee is entitled for the whole of the deduction permissible as provided under section 32(1)(iia) of the Income-tax Act, as it stood then. The assessment year is 2005-06. The provision as originally stood was as under :

“Provided…

(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, 2002, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to fifteen per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii).”

3. The Assessing Authority by applying the second proviso to section 32(1) of the Act, restricted the allowability of the depreciation to 50 per cent of the amount permissible under section 32(1 (iia) of the Act. According to the appellant, when it satisfied all the conditions stipulated under the provisos to section 32(1)(iia) of the Act, the Assessing Authority ought not to have restricted the depreciation permissible under the said section by resorting to the second proviso to section 32(1) of the Act. The learned counsel however fairly pointed out before us that in the second proviso to section 32(1) of the Act, that very clause (iia) itself was inserted by Finance Act, 2002 with effect from 1-4-2003. Therefore, it was imperative that on and after 1-4-2003, the claim of the appellant made under section 32(1)(iia) of the Act, had to be necessarily assessed by applying the second proviso to section 32(1) of the Act. Therefore, when there was statutory stipulation providing for restriction to 50 per cent of the amount allowable under section 32(1)(iia) of the Act, no fault can be found with the conclusion of the Assessing Authority as well as that of the Appellate Authority and the Tribunal in having affirmed the action of the Assessing Authority. We, therefore, do not find any scope to entertain the said question of law.

4. As far as the second question of law, which the appellant seeks to raise, is concerned, the question for consideration is as to whether the export incentives earned by the appellant under the DEPB Scheme was allowable as deduction under section 80-IA of the Act. Here again, the learned counsel placed before us the recent decision of the Hon’ble Supreme Court in Liberty India v. CIT[2009] 317 ITR 218/183 Taxman 349. The Hon’ble Supreme Court while dealing with another identical claim of deduction under section 80-IB of the Act, has held as under in paragraphs 15 and 18 :

“15. … Therefore, the devices adopted to reduce or inflate the profits of eligible business has got to be rejected in view of the overriding provisions of sub-section (5) of section 80-IA, which are also required to be read into section 80-IB. [See section 80-IB(13)]. We may reiterate that sections 80-I, 80-IA and 80-IB have a common scheme and if so read it is clear that the said sections provide for incentives in the form of deduction(s) which are linked to profits and not to investment. On analysis of sections 80-IA and 80-IB, it becomes clear that any industrial undertaking, which becomes eligible on satisfying sub-section (2), would be entitled to deduction under sub-section (1) only to the extent of profits derived from such industrial undertaking after specified date(s). Hence, apart from eligibility, sub-section (1) purports to restrict the quantum of deduction to a specified percentage of profits. This is the importance of the words “derived from industrial undertaking” as against “profits attributable to industrial undertaking.

18. Analysing the concept of remission of duty drawback and DEPB, we are satisfied that the remission of duty is on account of the statutory/policy provisions in the Customs Act/Schemes(s) framed by the Government of India. In the circumstances, we hold that profits derived by way of such incentives do not fall within the expression “profits derived from industrial undertaking” in section 80-IB.”

5. Thus, the said question of law having been set at rest by the Hon’ble Supreme Court, the conclusion of the Tribunal in affirming the Assessing Officer’s order cannot be found fault with. We are, therefore, not inclined to entertain the said question for consideration. As there are no substantial questions of law involved, the appeal stands dismissed. No costs.

[Citation : 349 ITR 673]

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