2013 (1) TMI 452 - HC - Income Tax

Depreciation u/s 32 Moulds and moulding tools Higher rate of depreciation @ 40% - Held that - For the purpose of considering the relief of depreciation @ 40% in the interest of justice the matter should be remitted back to the A.O. for the purpose of finding out whether recognition has been granted to the said unit as a separate unit. If the unit established is a separate unit then as held in the decision in Amco Batteries Limited (1989 (4) TMI 6 - KARNATAKA HIGH COURT) the assessee will be entitled to claim depreciation @ 40%. Remand back to AO

Summary

Issues:
1. Entitlement to claim higher rate of depreciation on moulds and moulding tools for the manufacture of plastic goods.
2. Recognition of a separate unit for manufacturing plastic parts to claim depreciation.

Analysis:
1. The first issue revolves around the entitlement of the assessee to claim a higher rate of depreciation at 40% on the moulds and moulding tools used for manufacturing plastic goods. The dispute arose from the interpretation of Item III of Machinery and Plant in Appendix-I of the Income Tax Rules, 1962. The assessee, engaged in manufacturing electrical equipment, claimed the higher depreciation rate for moulds used in a separate unit for plastic covers and seals. The Assessing Officer rejected the claim, leading to appeals and counter-appeals. The Tribunal denied the claim, citing lack of evidence for a separate plastic manufacturing unit. The assessee argued for recognition of the unit based on previous orders allowing the claim. The court referred to precedents like CIT v. Falcon Wires (P.) Ltd. and emphasized the need for a separate unit dedicated to plastic goods manufacturing to qualify for the higher depreciation rate.

2. The second issue pertains to the establishment of a separate unit for manufacturing plastic parts to claim higher depreciation. The assessee contended that the unit in Pondicherry was distinct, supported by applications for recognition and annual reports mentioning plastic goods manufacturing. The Revenue, however, supported the Tribunal's decision, highlighting the lack of evidence for a separate unit. The court compared the case with CIT v. Amco Batteries Ltd., where a separate division for rubber containers justified higher depreciation. Drawing parallels, the court emphasized the need for a recognized separate unit for plastic goods manufacturing to avail the 40% depreciation rate. The court directed a reassessment by the Assessing Officer to verify the unit's recognition status for granting the depreciation relief, aligning with the principles of the Amco Batteries case.

3. The judgment clarifies the criteria for claiming higher depreciation rates on specific assets and underscores the importance of establishing a separate manufacturing unit for the eligible assets. It emphasizes the need for clear evidence and recognition of such units to support claims for favorable depreciation rates. The decision reflects a meticulous analysis of precedents and statutory provisions to ensure consistent application of tax laws in determining depreciation benefits based on the nature and setup of manufacturing operations.