2024 (6) TMI 723 - AT - Income Tax

Finance Act 2015 amendment to section 32(1)(ii) removing 180-day restriction for additional depreciation is retrospective and clarificatory

Diadora Shoes Pvt. Ltd. Versus Asst. CIT, Circle - 2 Calicut

ITAT Cochin-AT held that the Finance Act 2015 amendment to section 32(1)(ii) regarding additional depreciation is retrospective and clarificatory in ... Additional depreciation on plant or machinery used for less than 180 days and used for 180 days or more - Retrospective nature of amendment to section 32(1)(ii) by Finance Act, 2015 - HELD THAT:-Correct manner of proceeding in the matter is to read the unamended law, and to come to a conclusion as to the clarificatory or otherwise nature of the amendment, on that basis, as was also undertaken in TP Textiles Pvt. Ltd. [2017 (3) TMI 739 - MADRAS HIGH COURT] Reference in this context may also be made to the decision in CWT v. B.R. Theatres &Indl. Concerns P. Ltd. [2003 (12) TMI 3 - MADRAS HIGH COURT]. The test to be applied for deciding as to whether a later amendment should be given a retrospective effect, despite the legislative declaration specifying a prospective date as the date from which the amendment is to come into force, it was explained therein, is as to whether without the aid of the subsequent amendment the unamended provision is capable of being so construed as to take within its ambit the subsequent amendment. If the unamended law could be held in a manner consistent with what the amendment seeks to achieve, the same is clearly clarificatory and, thus, retrospective, else not. This in fact represents settled law in the matter; the amended provision thereby clearly indicating of it being explanatory or declaratory of what the law always was. The sole premise of interpretation is to decipher the legislative intent consistent with it’s object [Catholic Syrian Bank v. CIT [2012 (2) TMI 262 - SUPREME COURT], CIT v. Baby Marine Exports [2007 (3) TMI 206 - SUPREME COURT] and Mahindra & Mahindra Ltd. [1983 (9) TMI 1 - SUPREME COURT] The legislative intent per s. 32(1)(iia) is to provide additional depreciation (of 20%) qua the eligible plant and machinery, with a view to provide a fillip to the industry, where put to use for the purpose. The condition of acquire and put to use, stated in s. 32(1)(iia), is basic to a claim of depreciation and, therefore, is to be read in that context. The law, however, restricting depreciation to 50% of that eligible where the asset under reference is put to use for less than 180 days during the relevant year, puts an artificial curb thereon. This would not be of much consequence in the normal course as the assessee would be, for the following year, entitled to depreciation on the WDV computed by reducing from its cost, thus, the depreciation actually allowed. However, in the case of additional depreciation u/s. 32(1)(iia), a one-time allowance, the said restriction, though applicable inasmuch as the depreciation u/s. 32(1)(iia) is only by way of an addition to that exigible u/s. 32(1)(ii), has no correlation with the WDV, though operates to bar the claim for the balance 50% where the asset is put to use for less than 180 days during the year of it’s acquisition, also rendering it discriminatory to the assessee who puts the asset to use for less than 180 days during the year of acquisition. Without doubt, that could not possibly be the legislative intent. And it is this that stands rectified per the amendment by way of third proviso, also removing the discrimination between the two sets of assessees, i.e., who acquire the asset, on the basis of the number of days it is put to use during the relevant year; clearly, an irrelevant criterion in the grant of additional depreciation. True, the words in s. 32(1)(iia) are ‘acquired and installed’, but then the same, as afore-noted, represent the twin conditions basic to a claim for depreciation, so that nothing turns thereon per se. That is, the same furnish the qualifying conditions for additional depreciation, since satisfied in the first year – AY 2014-15 in the instant case, itself. We, therefore, subscribe to the view per the decisions cited by the assessee in it’s favour. Issues:- Whether the amendment to section 32(1)(ii) by Finance Act, 2015, is retrospective in natureRs.Analysis:1. The appeal challenged the dismissal of the Assessee's appeal by the Commissioner of Income-Tax (Appeals) regarding its assessment under section 143(3) of the Income Tax Act, 1961 for Assessment Year 2015-16.2. The main issue was the retrospective nature of the amendment to section 32(1)(ii) by Finance Act, 2015. The Assessee relied on certain cases, while the Revenue referred to other judgments, including Pr. CIT vs. Era Infrastructure(India) Ltd. The Tribunal clarified that decisions by the Hon'ble Apex Court or the jurisdictional High Court are binding, and in the absence of a contrary view, the Tribunal's decision prevails.3. The Tribunal examined the relevant provision of section 32(1)(ii) and the third proviso inserted by Finance Act, 2015. Various judgments were reviewed, including Rittal India Pvt. Ltd., Brakes India Ltd., Aztec Auto Pvt. Ltd., Godrej Industries Ltd., and TP Textiles Pvt. Ltd. The Tribunal emphasized the need to interpret the law based on its unamended form to determine the nature of the amendment.4. The Tribunal analyzed the legislative intent behind the amendment and concluded that the amendment was clarificatory and retrospective. It highlighted that the restriction on depreciation for assets used for less than 180 days was discriminatory and not in line with the legislative intent of providing additional depreciation to boost the industry.5. Ultimately, the Tribunal allowed the Assessee's appeal, stating its decision on March 28, 2024, under Rule 34 of The Income Tax (Appellate Tribunal) Rules, 1963.