Balance Depreciation Allowed In Subsequent Year For Assets Used Less Than 180 Days: Madras High Court

The Madras High Court on 2 March held that a taxpayer is entitled to claim the balance 50% of additional depreciation in the subsequent assessment year where new plant and machinery are put to use for less than 180 days in the year of acquisition.

A Bench of Justice G. Jayachandran and Justice Shamim Ahmed allowed an appeal filed by Wheels India Limited against an order of the Income Tax Appellate Tribunal for the assessment year 2007–08, which had upheld the partial disallowance of the company's claim for additional depreciation.

The Bench held:

“Since the additional depreciation is given to encourage purchase of new plant and machinery, as found in the Memorandum, the advantage of granting additional depreciation should be extended to all assessees without any discrimination, whether they used the machinery for less than 180 days or more than 180 days in a particular assessment year. If the assessee has used the machinery for less than 180 days in a particular year, the statute provides for 50% of the additional depreciation on that particular assessment year and the remaining 50% shall be allowed to the subsequent assessment year.”

Wheels India Limited had purchased and installed new plant and machinery during the relevant previous year but had put them to use for less than 180 days. The company therefore claimed 50% of the additional depreciation in that year and sought to claim the remaining 50% in the subsequent assessment year.

However, the Assessing Officer disallowed the balance claim amounting to Rs. 3.15 crore. The disallowance was subsequently upheld by the appellate authorities as well as the Tribunal.

Before the High Court, Wheels India Limited contended that Section 32(1)(iia) of the Income Tax Act, 1961 provides an incentive in the form of additional depreciation for investment in new plant and machinery, and that the proviso restricting depreciation to 50% where the asset is used for less than 180 days applies only to the year of acquisition.

The Court observed that the legislative intent behind granting additional depreciation is to encourage investment in new plant and machinery, and that denying the balance 50% merely because the asset was used for less than 180 days would defeat this objective.

It emphasised that the proviso to Section 32(1) only restricts the quantum of depreciation in the first year and does not curtail the total benefit available to the taxpayer.

The Bench further held that to avoid discrimination between taxpayers who use assets for more than 180 days and those who use them for a shorter period, the statute permits the remaining depreciation to be claimed in the subsequent assessment year. Accordingly, it ruled that the balance 50% of additional depreciation must be allowed in the following year.

The Bench stated that “If an assessee is entitled to additional depreciation, such benefit cannot be deprived partially on the sole ground that he has not put to use the plant and machinery for more than 180 days in a particular assessment year.”

Accordingly, the High Court answered all substantial questions of law in favour of Wheels India Limited and allowed the appeal.

For Appellant: R. Venkatanarayanan for Subbaraya Aiyar

For Respondent: V. Pushpa Senior Standing Counsel for IT