2018 (8) TMI 1420 - HC - Income Tax

Additional depreciation @20% u/s 32(1)(iia) - vehicle used for the transport of Ready Mix Concrete (RMC) for use in their construction site, from their own manufacturing unit - Held that - there is no question of the assessee claiming any deduction of a percentage of the entire profits and gains of the business. The income derived from the construction activity or the profits or gains is irrelevant in computing the depreciation available under Section 32(1)(iia). The assessee does not also have a claim that the construction activity leads to a production or manufacture. The specific claim is that, one of the ingredients used in the construction being RMC, is manufactured by the assessee at its unit, which article or thing is captively consumed and also sold to third parties. The dominant test has no application from the plain meaning of the words employed. Whatever be the business of the assessee, if the assessee is involved in a manufacture or production of articles or thing; then a claim under Section 32(1)(iia) would be permissible to the extent allowed as depreciation. We are of the opinion that though RMC does not have a shelf-life, the final mixture of stone, sand, cement and water in a semi-fluid state; transported to the construction site to be poured into the structure and allowed to set and harden into concrete is a thing or article manufactured. RMC is an article obtained as a result of manufacture. - Claim of additional depreciation allowed. - Decided in favor of assessee.

Summary

Issues Involved:
1. Whether the production of Ready Mix Concrete (RMC) constitutes "manufacture."
2. Whether the appellant is entitled to additional depreciation under Section 32(1)(iia) for machinery used in manufacturing RMC.
3. Whether transit mixers, Tata trucks, and Ashok Leyland trucks qualify for additional depreciation under Section 32(1)(iia).

Detailed Analysis:

Issue 1: Manufacture of RMC
The primary question was whether the production of RMC qualifies as "manufacture." The Tribunal's majority view, relying on the Supreme Court judgment in Commissioner of Income Tax v. N.C. Budharaja & Co., concluded that the making of RMC does not involve manufacturing. However, the High Court disagreed, noting that RMC is classified under Tariff Entry 38.24 of the Excise Tariff Rules, indicating it is a manufactured product. The Court referenced the Supreme Court's decision in Larsen & Toubro Ltd. v. Commissioner of Central Excise, which distinguished RMC from conventional concrete mix due to its sophisticated manufacturing process. Consequently, the High Court held that RMC is indeed a product of manufacture.

Issue 2: Additional Depreciation for Machinery
The second issue was whether the appellant, engaged primarily in construction, could claim additional depreciation under Section 32(1)(iia) for machinery used in manufacturing RMC. The High Court clarified that Section 32(1)(iia) does not require the assessee to be principally engaged in manufacturing. It suffices if the assessee is involved in manufacturing or production of any article or thing. The Court emphasized that the provision allows additional depreciation for any new machinery or plant acquired and installed by an assessee engaged in manufacturing, regardless of the principal business activity. Therefore, the appellant was entitled to additional depreciation for the machinery used in manufacturing RMC.

Issue 3: Depreciation for Transit Mixers and Trucks
The final issue concerned whether transit mixers, Tata trucks, and Ashok Leyland trucks qualify for additional depreciation under Section 32(1)(iia). The Judicial Member initially found these vehicles to be plant and machinery, eligible for additional depreciation. However, the Accountant Member and the third member disagreed, leading to a denial of the claim. The High Court remanded this specific question to the Tribunal for fresh consideration, instructing it to examine whether these vehicles, given their role in the manufacturing process, qualify as plant and machinery under Section 32(1)(iia). The Court noted that the vehicles are crucial in transporting RMC in a semi-fluid state to construction sites, which could qualify them as plant and machinery involved in a manufacturing activity.

Conclusion
The High Court answered the first two questions in favor of the appellant, recognizing RMC as a manufactured product and affirming the appellant's entitlement to additional depreciation for machinery used in its production. The third question regarding the qualification of transit mixers and trucks for additional depreciation was remanded to the Tribunal for further consideration. The Income Tax Appeal was partly allowed, with each party bearing its own costs.