1. Heard.
2. Revenue has challenged the Judgment of Income Tax Appellate Tribunal (the Tribunal) dated 1 June, 2015. Following question is presented for our consideration:—
“Whether, on the facts and circumstances of the case and in law, the Tribunal is right in law in holding that the Assessee is entitled to 50% of the additional depreciation under Section 32(1)(iia) of the IT Act, 1961?”
3. The issue pertains to Assessment Year 2007-08.
4. Brief facts are as under:—
(i) The assessee firm filed E return of income for A.Y. 2007-08 on 7.11.2007. The assessee declared total income at Rs. Nil as per the normal provisions of the Income Tax Act, 1961 (for short “the Act,”) and Rs. 21,86,10,387/- under Section 115JB of the Act. Subsequently, the case was selected for scrutiny and order under Section 143(3) of the Act, was passed by the AO vide order dated 21.12.2009 computing total loss of Rs. 29,83,16,673/- under the normal provision and total income under Section 115JB of the Act. Subsequently, Commissioner (Appeals) passed order under Section 263 of the Act, on 17.01.2012 on the issue of additional depreciation claimed, carry forward unabsorbed depreciation and provision of doubtful advances not added back while computing the Book Profit under Section 115JB and thus set aside the original assessment order.
(ii) Subsequently, the AO issued notice to the assessee under section 142 (1) on 06.02.2012 pursuant to the order under section 263 of the Act. The AO vide order dated 04.12.2012 restricted the claim for additional depreciation to Rs. 3,21,29,304/- as against Rs. 5,04,88,906/- thereby disallowing the claim for depreciation of 1,83,59,602/- which pertains to additional depreciation claimed under Section 32(1)(iia) of the Act @ 20% in respect of eligible assets put to use for less than 180 days, as against the rate of 10% (i.e. restricted to 50% of the additional depreciation).
(iii) Being aggrieved by the assessment order dated 4.12.2012, the assessee filed an appeal before CIT(A).
(iv) CIT(A) vide order dated 05.08.2013 partly allowed the appeal of the assessee. The CIT(A) by relying on the decision for 2009-2010 directed to allow 50% of the additional depreciation in the year under consideration and to allow the balance 50% in the subsequent year.
(v) Being aggrieved by the order passed by the CIT(A), the Revenue filed an appeal before the Tribunal.
(vi) The Tribunal by an order dated 1 June, 2015, dismissed the appeal of the Revenue.
5. Having heard Counsel for the Revenue and for the Assessee, we notice that the Assessee's claim of additional depreciation arises out of clause (iia) of sub-section 1 of Section 32 of the Act. Clause (ii) of subsection 1 of Section 32 of the Act recognizes the depreciation on block of assets. Clause (iia) grants additional depreciation in case of acquisition and installation of new machinery or plant by an Assessee after 31 March, 2005, the Assessee being engaged in business of manufacture or production of an article or things.
6. We may also notice that the second proviso to clause (ii) of sub-section 1 of Section 32 of the Act, would restrict Assessee's claim of depreciation to 50% in case, the assets are acquired by the Assessee during the previous year and put to use for the purposes of business or profession for a period less than 180 days in the said previous year.
7. In the context of such statutory provisions, the Revenue has raised the question - whether when 50% of the additional depreciation is claimed by the Assessee in a particular Assessment Year, since the acquisition and putting in to use of the assets in the previous Year was for less than 180 days, the Assessee can claim the remaining depreciation in the subsequent Assessment Year. Such a question came up for consideration before the Division Bench of Karnataka High Court in Commissioner of Income Tax v. Rittal India Pvt. Ltd., reported in 380 ITR 423. The Court, after referring to the statutory provisions, held and observed in para 8 as under:—
“8:- The aforesaid two conditions, i.e., the undertaking acquiring new plant and machinery should be a new industrial undertaking, or that it should be claimed in one year, have been done away by substituting clause (iia) with effect from April 1, 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 purposes of business. The proviso to clause (ii) of the said section makes it clear that only 50 per cent of the 20 per cent would be allowable, if the new plant and machinery so acquired is out to use for less than 180 days in a financial year. However, it nowhere restricts that the balance 10 per cent would not be allowed to be claimed by the assessee in the next assessment year.
The language used in clause (iia) of the said section clearly provides that “a further sum equal to 20 per cent 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 per cent additional depreciation. By virtue of the proviso referred to above, only 10 per cent can be claimed in one year, if plant and machinery is put to use for less than 180 days in the said financial year. This would necessarily mean that the balance 10 per cent additional deduction can be availed of in the subsequent assessment year, otherwise the very purpose of insertion of clause (iia) would be defeated because it provides for 20 per cent deduction which shall be allowed.
It has been consistently held by this Court, as well as the apex court, that the 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 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 the provisions related to it have to be construed reasonably, liberally and purposively, to make the provision meaningful while granting the additional allowance. We are in full agreement with such observations made by the Tribunal.
In view of the aforesaid, we do not find that any interference is called for with the order of the Tribunal, or that any question of law arises in this appeal for determination by this court.”
8. After the said judgment of the Karnataka High Court in Rittal India Pvt. Ltd., (supra), legislation has also amended the statutory provisions by adding the third proviso to clause (ii) of sub-section 1 of Section 32 of the Act, which reads as under:—
“Provided also 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, then, the deduction for the balance fifty per cent of the amount calculated at the percentage prescribed for such asset under clause (iia) shall be allowed under this sub-section in the immediately succeeding previous year in respect of such asset.”
9. The third proviso, thus, now recognizes the right of an Assessee to claim the remaining 50% depreciation in subsequent year in a case where machinery and plant being acquired and put to use for less than 180 days in the previous year, the depreciation was restricted to 50%. Such a situation as in the present case, was considered by the Division Bench of the Madras High Court in Commissioner of Income Tax v. Shri T.P. Textiles Pvt. Ltd., 394 ITR 483, the Court referred to the judgment of the Karnataka High Court in Rittal India Pvt. Ltd., (supra) as well as the addition of third proviso to clause (ii) of sub-section 1 of Section 32 of the Act and observed as under:—
“10.1:- The plain language of section 32(1)(iia) read along with relevant proviso would have us come to the conclusion that, there is no limitation in the assessee claiming the balance 10 per cent of additional depreciation in the succeeding assessment year.
10.2:- As a matter of fact, with effect from April 1, 20916, the ambiguity, if any, in this regard, in the mind of the Assessing Officer, stands removed by virtue of the Legislature, incorporating in the Statute, the necessary clarificatory amendment.
10.3 …. …. …. …. …. …. ….
11:- We may only indicate that during the course of the arguments, our attention was drawn to the “Memorandum explaining the provisions in Finance Bill, 2015” whereby, the aforementioned amendment was brought about.
11.1:- The relevant part of the memorandum is extracted hereafter:—
“…. To remove the discrimination in the matter of allowing additional depreciation on plant or machinery used for less than 180 days and used for 180 days or more, it is proposed to provide that the balance 50 per cent of the additional depreciation on new plant or machinery acquired and used for less than 180 days which has not been allowed in the year of acquisition and installation of such plant or machinery, shall be allowed in the immediately succeeding previous year.
This amendment will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.”
11.2:- A perusal of the extract of the memorandum relied upon would show that the legislature recognized the fact that the manner in which the Revenue chose to interpret the provision, as it stood prior to its amendment would lead to discrimination, in respect of plant and machinery, which was used for less than 180 days, as against that, which was used for 180 days or more.
11.3:- In our opinion, as indicated above, the amendment is clarificatory in nature and not prospective, as is sought to be contended by the Revenue. The memorandum cannot be read in the manner, in which, the Revenue has sought to read it, which is, that the amendment brought in would apply only prospectively.
11.4:- We are, clearly, of the view that the memorandum, which is sought to be relied upon by the Revenue, only clarifies as to how the unamended provision had to be read all along.
11.5:- In any event, in so far as the court is concerned, it has to go by the plain language of the unamended provision, and then, come to a conclusion in the matter. As alluded to above, our view, is that, upon a plain reading of the unamended provision, it could not be said that the assessee could not claim balance depreciation in the assessment year, which follows the assessment year, in which, the machinery had been bought and used, albeit, for less than 180 days.”
10. It could be thus, to seen that the Karnataka High Court in Rittal India Pvt., Ltd., (supra) even without the aid of the statutory amendment held that remaining 50% unclaimed depreciation would be available to the Assessee in the succeeding Assessment Year. Now the legislation has amended the provision by adding a proviso which, specifically recognizes the said right. The Madras High Court in Shri T.P. Textiles Pvt. Ltd., (supra) ruled that such proviso being clarificatory in nature, would apply to pending cases, covering past period also.
11. We have no reason to take view different from two High Courts, examining the situation at considerable length. In the result, no question of law arises.
12. Accordingly, Appeal is dismissed.