3 Section 32 – Depreciation – Additional depreciation – Condition precedent – Manufacture of article – Assessee need not be principally engaged in manufacture – Assessee entitled to additional depreciation on plant and machinery used in manufacture of ready mix concrete

Cherian Varkey Construction Co. (P) Ltd.
vs. UOI; 406 ITR 262 (Ker): Date of order:
19^th December, 2017

A.
Y. 2006-07

For the A.
Y. 2006-07, the assessee procured three vehicles, specifically for the
transport of ready mix concrete for use in the construction site, from its own
manufacturing unit. The procurement of the vehicles was in the relevant year.
The assessee claimed additional depreciation u/s. 32(1)(iia) of the Act to the
extent of 20% of the actual cost of such vehicles which, according to the
assessee qualified as plant and machinery used in manufacture. The claim was allowed
by the Assessing Officer, but later disallowed in reassessment u/s. 147/148 of
the Act.

The
Tribunal held that there was no manufacture involved in the making of ready mix
concrete and upheld the disallowance.

On appeal
by the assessee, the Kerala High Court reversed the decision of the Tribunal
and held as under:

“i)    It cannot be held on a reading of section
32(1)(iia) of the Act, that the additional depreciation permissible to the
extent of 20% of the actual cost of plant and machinery, would be permissible
only in the case of an assessee engaged principally in the business of
manufacturing or production. This would be doing violence to the provision
since then it would amount to introducing the word “principally” to read “ an
assessee engaged in the business principally of manufacture and production of
any article or thing; then a claim u/s. 32(1)(iia) would be permissible to the
extent allowed as depreciation.

ii)    Considering the high degree of precision and
stringent quality control observed in the selection and processing of
ingredients as also the specific entry in the Central Excise Tariff First
Schedule, heading 3824 50 10 which deals with “Concrete ready to use known as
“Ready mix concrete”, though the ready mix concrete did not have a shelf-life,
the final mixture of stone, sand, cement and water in a semi-fluid state,
transported to the construction site to be poured into the structure and
allowed to set and harden into concrete was a thing or article manufactured.

iii)    The assessee, though engaged principally in
the business of construction, was entitled to additional depreciation u/s.
32(1)(iia) for the plant and machinery used in the manufacturing activity being
the production of ready mix concrete.”