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.”