2018 (5) TMI 1168 - HC - Income Tax

Admit Tax Appeal for consideration of the following substantial question of law A Whether the Appellate Tribunal was justified in allowing the claim of additional depreciation u/s.32(1)(iia) solely on the ground that allowance u/s.32 was to be provided as per Section 57( ii) and (iii) even though the assessee was not engaged in the manufacture or production of article or things after 30.09.2005, which is a condition precedent to allowance of additional depreciation ?

Summary

Issues:
1. Draft amendment of three Tax Appeals sought by Revenue.
2. Allowability of depreciation and additional depreciation for the assessee.
3. Interpretation of provisions related to depreciation and income from other sources.
4. Justification of the Appellate Tribunal's decision on additional depreciation.

Analysis:
1. The Revenue requested a draft amendment for three Tax Appeals arising from a common judgment of the Income Tax Appellate Tribunal concerning the same assessee for different assessment years.
2. The assessee, a Private Limited Company engaged in manufacturing activity, purchased new machinery in July 2005 and leased it out to another entity from October 2005, earning rental income. Disputes arose regarding the claim of normal depreciation and additional depreciation under Section 32(1)(iia) of the Income Tax Act, 1961.
3. The Assessing Officer initially restricted the depreciation claims, stating that the machinery was not used before the specified date and the assessee was not engaged in manufacturing after a certain period. The CIT(A) and Tribunal ruled in favor of the assessee, allowing the depreciation claims based on interpretations of relevant sections.
4. The Tribunal held that additional depreciation would be available even when the plant and machinery were leased out. The controversy in the later years focused only on normal depreciation under Section 32(1) without the claim of additional depreciation.
5. Section 32 pertains to depreciation for tangible assets used for business or profession, while Section 56 deals with income from other sources, including letting of machinery and plant. Section 57 provides for deductions from income under the head "Income from other sources."
6. The Tribunal's decision on allowing additional depreciation was based on the provisions of Section 57 read with Section 32(1) of the Act, supporting the assessee's claim despite leasing out the machinery.
7. The judgment highlighted the eligibility criteria for additional depreciation under Section 32(1)(iia) and emphasized that the assessee, engaged in manufacturing, was entitled to such depreciation even if the machinery was leased out after initial use for manufacturing activity.
8. The Court admitted one Tax Appeal for consideration on the justification of allowing additional depreciation based on the interpretation of relevant provisions, while dismissing the other two appeals.

This detailed analysis covers the issues raised in the judgment, providing a comprehensive overview of the legal aspects and interpretations involved in the case.