9 Sections 32, 43(3) – The benefit of additional depreciation is available to the assessees who are manufacturers and is not restricted to plant and machinery used for manufacture or which has first degree nexus with manufacture of article or thing.

9. [2017] 87 taxmann.com 103 (Kolkata)

DCIT vs. Bengal
Beverages (P.) Ltd.

ITA No. :
1218/KOL/2015

A.Y.: 2010-11                                                                     

Date of
Order:  6^th October, 2017

Sections 32,
43(3) – The benefit of additional depreciation is available to the assessees
who are manufacturers and is not restricted to plant and machinery used for
manufacture or which has first degree nexus with manufacture of article or
thing.

A manufacturer of soft drinks is entitled to claim additional
depreciation on `Visicooler’ installed at the distributor’s or retailer’s
premises so as to ensure that the cold drink is served chilled to the ultimate
customer.  Such installation at the
premises of the distributor or the retailer would tantamount to use of the
`visicooler’ for the purpose of business.

 FACTS 

During the
previous year under consideration, the assessee company was engaged in the
business of manufacture of soft drinks, generation of electricity through wind
mill and manufacture of pet bottles for packing of beverages. The assessee
claimed additional depreciation on Visicooler amounting to Rs. 90,56,200 (Rs.
41,67,159 + Rs. 48,89,004). The Visicoolers were kept at the premises of the
distributors/retailers and not at the factory premises of the assessee. The
assessee submitted to the Assessing Officer (AO) that the Visicoolers were
required to be installed at the delivery point to deliver the product to the
ultimate consumer in the chilled form, therefore these Visicoolers are part of
assessee’s plant entitling the assessee to claim additional depreciation.

The AO was of
the view that the assessee is not carrying out manufacturing activity on the
product of the retailer at the retailer’s premises and merely chilling of
aerated water cannot be termed as manufacturing activity and even that chilling
job is the activity of the retailer and not of the assessee. The AO, disallowed
the assessees claim of additional depreciation of Rs. 90,56,200.

Aggrieved, the
assessee preferred an appeal to the CIT(A) who observed that the twin reasons
for which the AO disallowed claim for additional depreciation on visi coolers
was –

(i)   visi cooler
was not used by the assessee at its own premises but at the premises of the
distributor; and

(ii)  the
visi cooler cannot be said to be used for manufacture of cold drinks.

The CIT(A) held
that depreciation is allowed to an assessee if he owns the asset and the asset
is used for the purposes of his business. 
Save and except these two conditions, no further or additional conditions
are required to be fulfilled by an assessee to claim depreciation. In order to
prove that an asset is used “for the purpose of business”, it is not necessary
to prove the first degree nexus between the “use of asset” and its use by the
assessee himself.  So long as the use of
the asset, directly or indirectly, benefits or enables an assessee to carry on
its business, it will be sufficient to satisfy the criteria of “use for the
purpose of business”.  The Apex Court has
in the case of ICDS Ltd. vs. CIT [2013] 29 taxmann.com 129, while
interpreting this condition held that language of section 32 did not mandate
usage of the asset by the assessee itself. 
So long as the asset is used or utilised for the purposes of business,
the requirement of section 32 stands satisfied notwithstanding non usage of the
asset itself by the assessee. The contention of the assessee that the usage of
visicooler at the distributor’s premises so as to ensure that the “cold drink”
is served “cold” to the ultimate consumer tantamount to usage in the course and
for the purpose of business.  The CIT(A)
deleted the addition made by the AO.

HELD 

The Tribunal
noted that the Apex Court has in the case of Scientifc Eng. House (P.) Ltd.
vs. CIT [1986] 1257 ITR 86 (SC) laid down a test viz. Did the article
fulfill 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? If the answer was in
the affirmative it would be a plant. 

The Tribunal
held that applying the said test to the Visicooler came to a conclusion that
the answer is in the affirmative.  It
held that visicooler is a tool which is necessary for carrying out, the
business of the assessee. The Tribunal upheld the order passed by CIT(A).

The appeal filed by the Revenue was dismissed.