Case Note & Summary
The appeal was filed by the Revenue under Section 260A of the Income Tax Act, 1961, challenging the order of the Income Tax Appellate Tribunal (ITAT) which had granted full benefit of additional depreciation under Section 32(1)(iia) to the respondent-assessee, M/s. Rittal India Pvt. Ltd. The assessee, an existing industrial undertaking, acquired and installed new plant and machinery in the financial year 2006-07. Since the machinery was put to use for less than 180 days (acquired after 01.10.2006 and before 31.03.2007), the assessee claimed 50% of the additional 20% depreciation (i.e., 10%) in the assessment year 2007-08. However, the Assessing Officer allowed only 50% of the additional depreciation (10%) in that year, and the balance was to be allowed in the subsequent year. The Commissioner of Income Tax (Appeals) and the ITAT reversed this, granting full additional depreciation of 20% in the first year itself. The Revenue appealed to the High Court. The core legal issue was whether the second proviso to Section 32(1)(ii), which restricts full depreciation to assets used for more than 180 days, applies to additional depreciation under Section 32(1)(iia). The Revenue argued that the second proviso applies to the entire sub-section, including clause (iia), and thus only 50% of additional depreciation (10%) should be allowed in the first year. The assessee contended that the second proviso is specific to clause (ii) and does not apply to clause (iia). The High Court analyzed the language of Section 32(1)(iia) and the second proviso, noting that the proviso begins with 'Provided further that nothing contained in this sub-section shall apply...' which indicates it applies to the entire sub-section. The Court held that the second proviso applies to Section 32(1)(iia) as well, and therefore, when assets are used for less than 180 days, only 50% of the additional depreciation (i.e., 10%) is allowable in the first year, with the balance allowable in the subsequent year. The Court allowed the Revenue's appeal, set aside the ITAT order, and restored the Assessing Officer's order. The judgment was delivered by a Division Bench of Justice Vineet Saran and Justice S. Sujatha on 24th November 2015.
Headnote
A) Income Tax - Depreciation - Additional Depreciation under Section 32(1)(iia) - Second Proviso to Section 32(1)(ii) - The issue was whether full additional depreciation of 20% is allowable when assets are used for less than 180 days. The Court held that the second proviso to Section 32(1)(ii) applies to Section 32(1)(iia) as well, restricting additional depreciation to 50% (i.e., 10%) in the first year, with the balance allowable in the subsequent year. (Paras 1-5) B) Income Tax - Depreciation - Interpretation of Statutes - Harmonious Construction - The Court interpreted Section 32(1)(iia) and the second proviso to Section 32(1)(ii) together, noting that the proviso uses the phrase 'nothing contained in this sub-section' which includes clause (iia). Held that the legislature intended to restrict additional depreciation for assets used less than 180 days. (Paras 3-5)
Issue of Consideration
Whether the assessee is entitled to full additional depreciation of 20% under Section 32(1)(iia) of the Income Tax Act, 1961, when the new plant and machinery was put to use for less than 180 days in the year of acquisition.
Final Decision
Appeal allowed. Order of ITAT set aside. Order of Assessing Officer restored, allowing only 50% of additional depreciation (10%) under Section 32(1)(iia) in the assessment year 2007-08, with balance allowable in subsequent year.
Law Points
- Additional depreciation under Section 32(1)(iia) is subject to second proviso to Section 32(1)(ii) restricting full depreciation to assets used for more than 180 days
- Interpretation of Section 32(1)(iia) with second proviso
- Entitlement to balance additional depreciation in subsequent year
