Income-tax (8th Amendment) Rules, 2014- contains apparent mistake- need correction. Higher rate of depreciation on renewal energy devices like wind mills must be allowed irrespective of date of installation to follow consistency and LTFP.

[CA DEV KUMAR KOTHARI]

Vide notification S.O. 2399(E) issued on  16^th September, 2014 the CBDT has  issued Income-tax (8th Amendment) Rules, 2014 and amended Appendix to Income Tax Rules,1962  so as to restore 80% rate of depreciation on some items of plant and machinery which are energy saving devices.

The effective part of the notification reads as follows (with highlights added) :

2.  In the Income-tax Rules, 1962, in the New Appendix I, in Part-A relating to Tangible Assets, under the heading III. Machinery and Plant, in item (8), in sub-item (xiii), –

(a) In clause (l), for the words, figures and letters “installed on or before 31st day of March, 2012”, the words, figures and letters “ installed on or after the 1st day of April, 2014” shall be substituted; and

(b) In clause (m), for the words, figures and letters “installed on or before 31st day of March, 2012”, the words, figures and letters “installed on or after 1st day of April, 2014” shall be substituted.

Un quote

Substitution of words etc.

We find that the amendment has effect of substitution certain words, letters and figures  and  it is not to make additions to words, letters and figures  used earlier.

It may be noted that  originally there were no similar words. Vide IT (fourth) Amendment Rules 2012 the words , figures and letters “installed on or before 31st day of March, 2012” were inserted in respective clauses. And that amendment was w.e.f. 01.04.2012.

Effect of two amendments:

Till AY 2011-12 respective items were eligible for higher rate of depreciation. By amendment of 2012 the higher rate  of such machines was denied  if they were not installed on or before 31.03.2012.

This means similar items if installed before 31.03.12 continue to be included in block of assets @ 80% however, similar items if installed after 31.03.12 were not eligible for higher rate but were allowed general rate of 15%.

There seems no justification at all for making out such a difference. Any reason was also not given for such amendment to restrict depreciation @ 15 % on similar items installed after 31.03.2012.

After the amendment of 2014 the relevant entries reads as follows:

8.

(xiii) Renewable energy devices being:

(l)  Wind mills and any specially designed devices which run on wind mills installed on or after the 1st day of April, 2014

(m)  Any special devices including electric generators and pumps running on wind energy installed on or after 1st day of April, 2014.  

Effect of the amendment of 2014:

By the amendment of 2014 amendment has been made with  has effect of, allowing higher rate of depreciation if respective items are installed on or 01.04.2014.

This means that any of similar item installed on or before 01.04.2014 that is up to 31.03.14 will not be entitled to higher rate. Even relevant items installed on or before 31.03.12 will become ineligible for higher rate of depreciation because they are not installed on or after 01.04.2014.

Apparent mistake in amendment:

Higher rate of depreciation allowed on eligible plant and machinery installed till 31.03.2012 cannot be withdrawn by amendment of 2014. However, the effect of amendment is on that line.

With due respect author feels that the words used in the amendment are not correct. The impact of the amendment is not as per intention which prevailed for prescribed machinery installed till 31.03.2012, those installed between 01.04.12. to 31.03.2014 and those which will be installed on or after 01.04.2014.   

The amendment must be on following lines to rectify the  mistake:

(a) In clause (l), after the words, figures and letters “installed on or before 31st day of March, 2012”, the words, figures and letters   “ and installed on or after the 1st day of April, 2014” shall be inserted ; and

(b) In clause (m),  after the words, figures and letters “installed on or before 31st day of March, 2012”, the words, figures and letters “ and installed on or after 1st day of April, 2014” shall be inserted.

Amended provision, as suggested will  read as follows:

8.

 (xiii) Renewable energy devices being:

(l)  Wind mills and any specially designed devices which run on wind mills installed on or  before 31st day of March, 2012 and installed  on or after the 1st day of April, 2014

(m)  Any special devices including electric generators and pumps running on wind energy installed on or  before 31st day of March, 2012 and installed  on or after the 1st day of April, 2014.

There is no justification to treat as general block if installed during

 Intervening period of 01.04.2012 – 30.03.14:

For the same plant and machinery lower rate is applied if installed on or after 01.04.2012 and before 31.03.2014. Higher rate is allowed on those similar items if installed before 01.04.12 and after 31.03.2014 . There is no justification for such differentiation, at all. No reason, explanation or justification has been  given at the time of amendment in 2012 and 2014 both.

There is no intelligible differentia making it rational to deny higher rate  of  depreciation to similar plant and machinery if installed during 01.04.2012 – 31.03.2014.

Therefore, it seems that such amendments are taken in very lightly manner and may be in nature of biased and whimsical decisions. Such bias and whims in legislation must be avoided at all cost. Policy of frequent  amendments make law uncertain and complex. These must be avoided.

Can it be said that higher rate will apply for intervening period also?

 In view of history of the provision, its purpose and legislative intention it can be said that always intention was to allow higher rate on items covered by the two entries.

Applying liberal interpretation to an incentive provision, purpose seeking approach,  theory of consistency of rules, theory of long-term fiscal policies etc. it can be said that eligible items covered by these two entries must be held to be eligible for higher rate even if installed during intervening period of 01.04.2012 -31.03.2014.

Are two amendment illegal and void?

There being no reason given for amendment of 2012 and 2014 both, it can be said that the amendment is result of excessive exercise of rule making and amending powers given to the Board.  There being no rational and logic for denying higher rate of depreciation on eligible plant and machinery covered by two entries, it can be said that an amendment which is not rational, logical, and have no purpose at all is not a valid amendment.

Board must make rectification and tax payers should not be forced to approach courts:

Author hopes that the Board will act in a pragmatic manner, recognize its mistakes, and inconsistencies and make amendment to allow higher rate of depreciation on relevant eligible plant and machinery whenever installed. This can be done either by another amendment or just be revoking two related amendments of 2012 and 2014.

 The notification is reproduced below with highlights added:

Notification - Income Tax - Income Tax

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

(Department of Revenue)

NOTIFICATION NO. 43/2014

New Delhi, the 16^th September, 2014

INCOME-TAX

S.O. 2399(E).—In exercise of the powers conferred by Section 295 read with Section 32 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:—

1. (1) These rules may be called the Income-tax (8th Amendment) Rules, 2014.

    (2) They shall come into force on the date of their publication in the Official Gazette.

2.  In the Income-tax Rules, 1962, in the New Appendix I, in Part-A relating to Tangible Assets, under the heading III. Machinery and Plant, in item (8), in sub-item (xiii), –

(a) In clause (l), for the words, figures and letters “installed on or before 31st day of March, 2012”, the words, figures and letters “ installed on or after the 1st day of April, 2014” shall be substituted; and

(b) In clause (m), for the words, figures and letters “installed on or before 31st day of March, 2012”, the words, figures and letters “installed on or after 1st day of April, 2014” shall be substituted.

[F.No.152/1/2013-TPL]

RAJESH KUMAR BHOOT, Director (TPL)

Note: The principal rules were published in the Gazette of India vide notification number S.O. 969(E), dated the 26th March, 1962 and last amended vide notification number S.O. 1902(E), dated the 25th July, 2014.