1984 (2) TMI 114 - AT - Income Tax

Appellate tribunal denies additional depreciation for pre-1974 machinery, stresses installation date & functionality.

The appellate tribunal ruled in favor of the revenue, disallowing the additional depreciation claimed by the assessee for machinery installed prior to ... Additional Depreciation, Initial Depreciation, Plant And Machinery Issues:1. Allowance of additional depreciation under section 32(1)(vi) of the Income-tax Act, 1961 on machinery installed prior to 31-5-1974.2. Interpretation of the date of installation of machinery for claiming additional depreciation.3. Determining the eligibility for additional depreciation based on the installation date of the machinery.4. Comparison of the facts of the case with relevant legal precedents regarding installation date and commencement of production.Detailed Analysis:Issue 1: The primary issue in this case revolves around the allowance of additional depreciation under section 32(1)(vi) of the Income-tax Act, 1961 on machinery installed prior to 31-5-1974. The revenue contested the order of the AAC, claiming that the machinery's value included in the additional depreciation calculation had been installed before the crucial date. The insertion of clause (vi) in section 32(1) post the Direct Taxes (Amendment) Act, 1974, mandated additional depreciation on machinery newly installed after 31-5-1974. The revenue argued that the machinery's installation date was crucial for determining eligibility for additional depreciation.Issue 2: The interpretation of the date of installation of machinery was a critical aspect of the case. The appellate tribunal analyzed the facts presented by the assessee regarding the installation timeline of various machines in the industrial unit. The assessee contended that the entire manufacturing unit for cycle-handles was installed in November 1974, after 31-5-1974, making them eligible for additional depreciation on the total machinery value. The tribunal had to determine whether the installation date of the last machine, the plating plant, in November 1974, validated the claim for additional depreciation on all machinery.Issue 3: The eligibility for additional depreciation hinged on the installation date of the machinery, as per the provisions of section 32(1)(vi). The revenue argued that the machinery installed before 31-5-1974 was a functional unit capable of production, except for certain processes like the plating plant. The tribunal had to assess whether the installation of the plating plant in November 1974 could retroactively qualify the entire machinery for additional depreciation, considering it was an independent unit for further processing, not directly related to the core manufacturing process.Issue 4: The tribunal compared the facts of the case with the legal precedent of CIT v. Saurashtra Wire-Healds Mfg. Co. (P.) Ltd., where the High Court emphasized that the entire manufacturing unit was considered complete only after installing all machines. In contrast, the tribunal noted that production of cycle-handles had commenced after the initial machinery installation in April 1974, indicating functionality before the plating plant's installation. By analyzing the installation timeline and production commencement, the tribunal concluded that the AAC erred in accepting the assessee's claim for additional depreciation and upheld the revenue's contention, reversing the AAC's decision.In conclusion, the appellate tribunal ruled in favor of the revenue, disallowing the additional depreciation claimed by the assessee for machinery installed prior to 31-5-1974, emphasizing the importance of the installation date and the functionality of the machinery for eligibility under section 32(1)(vi) of the Income-tax Act, 1961.