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2017 (11) TMI 901 - AT - Income TaxDisallowance of additional depreciation U/s 32(1)(iia) relating to visicooler machine - Did the article fulfil the function of a plant in the assessee s trading activity? - Held that - We note that the second condition cited by the AO in the impugned order is not borne from the provisions of Section 32(1)(iia) of the Act. The conditions laid down in Section 32(1)(iia) is that if the assessee is engaged in manufacture of article or thing then it is entitled to additional depreciation on entire additions to plant & machinery provided the items of addition does not fall under any of the exceptions provided in clauses (A) to (D) of the proviso. In the present case the assessee is engaged in the business of manufacture of cold drinks. This fact has not been disputed by the AO. The AO has categorically observed that the assessee s nature of business is manufacture of cold drinks. We therefore find that the assessee is legally entitled to avail the benefit of additional depreciation under Section 32(1)(iia) of the Act. The visicooler is a plant & machinery . The said item falls within the category of plant & machinery as laid down in the l.T. Rules, 1962. The visicooler also does not fall within the exceptions provided in clauses (A) to (D) of the proviso to Section 32(1)(iia) of the Act. We note that the assessee is in the business of manufacturing and sale of Coca-Cola, which is a soft drink. Since the assessee is situated at a long distance and the product has to be sold at long distance, the Coca-Cola becomes hot due to the humid weather in the State of West Bengal. It is a known fact that soft drink, like Coca-Cola, cannot be consumed in hot state, whereas it is preferred by majority of customers as a cold drink. So, the assessee, in order to sell its final product to the customers, in various parts of the state required to give the Coca-Cola, in cold state for which the assessee has purchased, the tool, to keep the same in cool condition by the machine called Visicooler . The test laid down by Hon ble Supreme Court in the case of Scientific Engineering vs. CIT (1985 (11) TMI 1 - SUPREME Court), was Did the article fulfil the function of a plant in the assessee s trading activity? Was it a tool of his trade with which he carried on his business? lf the answer was in the affirmative, it would be a plant. When the aforesaid test is applied in the case of Visicooler, the answer is in the affirmative, that is, the Visicooler is a tool which is necessary for carrying out, the business of the assessee, therefore, we do not find any infirmity in the order of CIT(A).Hence, we confirm the order passed by CIT(A). Appeal filed by the Revenue, is dismissed.
Issues Involved:
1. Disallowance of additional depreciation on visicooler machines under Section 32(1)(iia) of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Disallowance of Additional Depreciation on Visicooler Machines: The Revenue's appeal concerns the deletion of the disallowance of additional depreciation amounting to ?90,56,200 on visicooler machines claimed by the assessee under Section 32(1)(iia) of the Income Tax Act, 1961. The Assessing Officer (AO) had disallowed this claim on the grounds that the visicoolers were not used at the assessee's factory premises but at the distributors' premises and that chilling the soft drinks at the distributors' premises did not constitute a manufacturing activity. The assessee, engaged in the manufacture of soft drinks, generation of electricity through windmills, and manufacture of pet bottles, argued that visicoolers were essential for delivering the product in a consumable, chilled state to the ultimate consumer. The assessee contended that the law did not mandate the assets to be installed at the factory premises, and the twin conditions of owning the assets and using them for business purposes were sufficient for claiming depreciation. The assessee emphasized that visicoolers were integral to the manufacturing process as they ensured the soft drinks were served chilled, aligning with consumer preferences and the business slogan "Thanda Matlab Coca-Cola." The Commissioner of Income Tax (Appeals) [CIT(A)] accepted the assessee's arguments, noting that Section 32 only required the asset to be owned by the assessee and used for business purposes, without specifying that the asset must be used at the assessee's premises. CIT(A) cited the Supreme Court's decision in ICDS Ltd vs. CIT, which held that the asset need not be used by the assessee itself as long as it was used for business purposes. Consequently, CIT(A) deleted the addition made by the AO. The Revenue appealed against CIT(A)'s decision, reiterating the AO's stance. The Tribunal examined the provisions of Section 32(1)(iia) and noted that the benefit of additional depreciation was available to manufacturers on the actual cost of plant and machinery, without restricting it to assets used directly in manufacturing. The Tribunal found that the visicoolers, essential for maintaining the soft drinks in a saleable condition, fulfilled the function of a plant in the assessee's trading activity, as defined by the Supreme Court in Scientific Engineering vs. CIT. The Tribunal concluded that the visicoolers were indeed part of the plant and machinery and that the assessee was entitled to additional depreciation. The Tribunal upheld CIT(A)'s order, confirming that the visicoolers were integral to the assessee's business and satisfied the conditions for additional depreciation under Section 32(1)(iia). The appeal filed by the Revenue was dismissed. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming that the visicoolers qualified as plant and machinery under Section 32(1)(iia) and were eligible for additional depreciation, as they were essential for delivering the soft drinks in a consumable, chilled state, thereby supporting the assessee's business operations.
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