2013 (10) TMI 653 - HC - Income Tax

Eligibility for Higher Depreciation - Whether the machinery purchased under the Textiles Upgradation Fund Scheme (TUFS) and used for embroidery on unembroidered cloth used in textile industry are eligible for higher depreciation of 50% Held that - There is no stipulation by the Government of India or in law that the machinery purchased under TUFS is necessarily to be deployed in manufacture or production , as has been claimed by the revenue - Rather, existence of the words used in weaving, processing and garment sector of textile industry appearing immediately after the words machinery and plant in Appendix-I of the Rules is not without significance - Even Section 32 of the 1961 Act, to claim depreciation, nowhere restricts user inter-alia of the machinery in manufacture or production - Similarly, conditions of TUFS also do not hedge user of the machinery to activities of manufacture or production only - use of words processing and garment sector are vibrant enough to include in their fold user of the machinery for any activity in textile industry so as to be eligible to claim higher depreciation. The words depict that the entire process starting from the weaving stage culminating upto the stage of manufacturing of garments is covered in these words. Embroidery is a sort of process on the clothes so as to turn those clothes into different textile products. In short embroidery is one of several processes which are carried out on cloth to make such cloth different products Relying upon CIT v. Sovrin Knit Works 1992 (11) TMI 84 - PUNJAB AND HARYANA High Court - business of bleaching, dyeing, finishing and embroidery of grey cloth which is not manufactured by the assessee itself but is purchased by it constitutes business of manufacture of producing textiles Decided against Revenue.

Summary

Issues:
- Interpretation of eligibility criteria for higher depreciation under the Income Tax Act, 1961.
- Whether machinery used for embroidery on cloth in the textile industry qualifies for enhanced depreciation.
- Consideration of conditions for higher depreciation under the Textiles Upgradation Fund Scheme (TUFS).

Interpretation of Eligibility Criteria for Higher Depreciation:
The case involved a dispute regarding the interpretation of eligibility criteria for higher depreciation under the Income Tax Act, 1961. The appellant contended that machinery must be used in weaving, processing, and the garment sector of the textiles industry to qualify for enhanced depreciation. However, the respondent argued that the terms "processing" and "garment sector" encompass a broader range of activities in the textile industry, making the machinery eligible for higher depreciation even if used for embroidery work on cloth.

Machinery Used for Embroidery and Higher Depreciation:
The main contention revolved around whether machinery used for embroidery on cloth in the textile industry qualifies for enhanced depreciation. The respondent, engaged in garments and textiles business, claimed higher depreciation for machinery purchased under the Textiles Upgradation Fund Scheme (TUFS) used for embroidery work on grey cloth. The Assessing Officer initially rejected the claim, citing that the machinery was not used in weaving, processing, or manufacturing. However, the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal upheld the respondent's claim, emphasizing the broader interpretation of activities in the garment sector that qualify for higher depreciation.

Conditions for Higher Depreciation under TUFS:
The conditions for claiming higher depreciation under the Textiles Upgradation Fund Scheme (TUFS) were also scrutinized. The machinery in question was purchased under TUFS between 2001 and 2004 and was used for embroidery work. The revenue argued that since the machinery was solely used for embroidery on cloth, it did not meet the criteria for enhanced depreciation. However, the Tribunal, citing a similar decision from a different bench, dismissed the revenue's appeal, affirming that the machinery qualified for higher depreciation based on the broader interpretation of activities in the textile industry.

Conclusion:
After thorough analysis, the court ruled in favor of the respondent, upholding the decisions of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal. The court concluded that the machinery used for embroidery on cloth in the textile industry was eligible for higher depreciation under the Textiles Upgradation Fund Scheme. The judgment highlighted the dynamic and inclusive nature of the terms "processing" and "garment sector" in determining eligibility for enhanced depreciation, ultimately dismissing the revenue's appeal.