Depreciation : Additional depreciation : S. 32(1)(iia) of Income-tax Act, 1961 : Increase in installed capacity of final product is not a requirement for claiming additional depreciation.

[CIT v. Hindustan Newsprint Ltd., 183 Taxman 257 (Ker.)]

The assessee was engaged in manufacture and sale of newsprint. It claimed additional depreciation in respect of de-inking plant in which pulp was made from waste paper. The Assessing Officer disallowed the claim on the ground that the installed capacity of final product of the company, viz., newsprint remained unaltered even after installation of de-inking machinery. The Tribunal held that there was increase in installed capacity of pulp and pulp though, an intermediary product is also marketable and, hence, the assessee was entitled to additional depreciation u/s.32(1)(iia).

On appeal by the Revenue the Kerala High Court upheld the decision of the Tribunal and held as under :

“(i) The provision of S. 32(1)(iia) was modified dispensing with the requirement of increase in installed capacity as a condition for eligibility for additional depreciation.

(ii) The fact that pulp is an intermediary product and is generally consumed captively in the manufacture of newsprint does not mean that pulp is not a product that can not be marketed by the assessee as and when it desired. There is no dispute that pulp is a marketable commodity. If there was reduction in the manufacture of the final product on account of any reason, necessarily the assessee would have to market the excess pulp produced.

(iii) The view of the Tribunal that pulp being marketable commodity produced by the assessee, the increase of the installed capacity of the pulp plant on account of the installation of de-inking machinery would entitle the assessee to the benefit of additional depreciation was to be accepted. The finding of the Tribunal that there has been increase in the installed capacity of the production of pulp in terms of the requirement of the provision in the statute was not disputed by the revenue.

(iv) On the other hand its contention was that the installed capacity of an industry should always be understood with reference to final product manufactured and sold by it, which was newsprint in the instant case; that contention of the revenue could not be accepted.

(v) The intermediary product, viz., pulp produced by the company being a marketable commodity, the increase in the installed capacity for claiming benefit of additional depreciation under the above provision could be in the production of intermediary, viz., pulp. Therefore, the finding of the Tribunal was to be accepted.”