2016 (6) TMI 983 - HC - Income Tax

Depreciation on moulds - higher rate of depreciation - @ 30% OR 15% - Held that - We notice that subclause( vii) of clause(3) of Entry III in PartA in the New Appendix I, reads as under (vii) Moulds used in rubber and plastic goods factories Thus for mould used in rubber and plastic factories, higher rate of depreciation of 30% is prescribed. Rate of depreciation of 15% applies to residual items. Thus if an item falls under said subclause (viii) rate of depreciation would be 30%. In the present case, admittedly, moulds were used for manufacturing of plastic goods. These goods were in the nature of electric switches and sockets. Merely because after the manufacture, the consumer may be having plastic wires and circuits installed in such plastic switches and sockets, so as to make them functional, would not take away the basic character of the appliances being plastic goods. The assessee was exclusively involved in manufacturing such goods. Factory of the assessee was therefore, plastic goods factory. The moulds used for manufacturing such goods, therefore, qualify for higher rate of depreciation under subclause( vii) of clause(3) of Entry III in PartA in the New Appendix I @ 30%. - Decided in favour of assessee

Summary

Issues:
1. Interpretation of depreciation rates for moulds used in manufacturing plastic goods.
2. Application of higher rate of depreciation for moulds used in plastic goods factory.
3. Justification for allowing depreciation on moulds at 30% instead of 15%.

Analysis:
1. The main issue in this case was the interpretation of the depreciation rates for moulds used in the manufacturing of plastic goods. The question revolved around whether the Income Tax Appellate Tribunal was correct in allowing depreciation at a rate of 30% instead of the standard 15% for moulds used in the production of electric and electronic goods, considering the manufacturing facility as a rubber and plastic goods factory as per the Income Tax Rules.

2. The respondent, engaged in manufacturing plastic switches and sockets, claimed depreciation at 30% on the dyes and moulds used in the production process for the assessment year 2006-2007. The Assessing Officer, however, disallowed the higher rate of depreciation, reducing it to 15%. The contention was that the company's final products were electrical items, and the higher rate of depreciation was applicable only to industries exclusively manufacturing plastic products, as per the definition of plastic goods industries specified in the relevant appendix.

3. The Court analyzed the provisions of the New Appendix I, specifically subclause (vii) of clause (3) of Entry III, which pertains to moulds used in rubber and plastic goods factories. It was established that the moulds in question were used for manufacturing plastic goods, namely electric switches and sockets. The Court emphasized that even though the final products included electrical components, the basic character of the goods remained plastic. Therefore, the factory was deemed a plastic goods factory, making the moulds eligible for the higher rate of depreciation at 30%.

4. In conclusion, the Court upheld the decision of the Tribunal, ruling in favor of the assessee and against the Revenue. The Court found no error in the Tribunal's interpretation and application of the depreciation rates for the moulds used in the manufacturing process. The tax appeal was disposed of accordingly.