2019 (3) TMI 499 - HC - Income Tax

Depreciation on dies and moulds @ 100% - replacement of the dies and moulds - HELD THAT - Isuue covered against the Revenue, in the light of the decision in the assessee s own case in CIT vs. TVS Motors Limited 2014 (2) TMI 522 - MADRAS HIGH COURT with regard to the moulds and dies attached to the machinery like press designs specification, moulds and dies are not independent of the plant and machinery, but are parts of the machinery. Once the dies are worn out, the machines cannot turn out the product to the business specifications and this has to be obtained only on a replacement of the dies and moulds, a fact which is not refuted by the revenue the right of the assessee to the relief is not restricted to the plea raised by him. On the facts before us, when the dies and moulds were attached to the machine to manufacture the designed product, we have no hesitation to accept the plea of the assessee that the claim would fall for consideration only under Section 31 of the Act. - Decided against revenue Depreciation on plant - HELD THAT - No challenge with regard to the claim for depreciation in respect of the Reverse Osmosis Plant and TET Plant - Assessing Officer restricted the claim of depreciation to 10%. However, he did not assign any reason for doing so. on seeing the note furnished about the Reverse Osmosis System and the TET Plant, it was observed that there is no doubt that the civil structures are part of the entire plant, without which, the plant cannot function. The concrete tanks, pump beds, filter unit beds are special requirements to hold water or motor and pump in a sturdy position at required height and without this, the Reverse Osmosis cannot function properly and therefore, the CIT(A) directed the Assessing Officer to treat the civil structures as part of the plant and machinery and allow depreciation at the same rates, at which, the relevant plants were allowed. - Decided against the Revenue.

Summary

Issues:
1. Depreciation on dies and moulds.
2. Depreciation on civil works related to Reverse Osmosis Plant and TET Plant.

Depreciation on Dies and Moulds:
The appeal challenged the order passed by the Income-tax Appellate Tribunal regarding the entitlement to depreciation at 100% on dies and moulds. The High Court referred to a previous decision in a similar case and concluded that dies and moulds, being integral parts of machinery, are not independent entities but essential components for production. The court emphasized that when dies wear out, the machinery cannot function correctly, necessitating replacement. Citing legal precedent, the court ruled in favor of the assessee, stating that the claim for depreciation on dies and moulds falls under Section 31 of the Income-tax Act, 1961. Consequently, the first substantial question of law was answered against the Revenue.

Depreciation on Civil Works for Reverse Osmosis Plant and TET Plant:
Regarding the second substantial question of law, the Tribunal highlighted previous favorable decisions for the assessee in similar cases. The court noted that the Revenue did not contest the claim for depreciation on civil works related to the Reverse Osmosis Plant and TET Plant in earlier appeals. Referring to a Supreme Court case involving depreciation on specially designed ponds, the court emphasized that structures essential for business operations qualify as 'plant' for depreciation purposes. The Assessing Officer had limited depreciation to 10% without providing a rationale. However, the CIT(A) considered the civil works integral to the plant's functioning and directed the allowance of depreciation at the same rates as the relevant plants. The High Court concurred with the CIT(A)'s decision, aligning it with the Supreme Court's precedent. Consequently, the second substantial question of law was also answered against the Revenue.

In conclusion, the High Court dismissed the Revenue's appeal, upholding the decisions on both issues and ruling in favor of the assessee. The court emphasized the importance of considering integral components for production processes as eligible for depreciation, in line with legal precedents and the interpretation of 'plant' for depreciation purposes.