Ita/44/2009 Of Commissioner Of Income Tax v. M/S.hindustan Newsprint Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN FRIDAY, THE 20TH MARCH 2009 / 29TH PHALGUNA 1930 ITA.No. 44 of 2009() --------------------------- ITA.121/COCH//2007 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/RESPONDENT --------------------------------------- THE COMMISSIONER OF INCOME TAX, KOTTAYAM. BY ADV. MR.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/APPELLANT --------------------------------------- M/S.HINDUSTAN NEWSPRINT LTD, NEWSPRINT NAGAR P.O., VELLOOR, KOTTAYAM. BY THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 20/03/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: Rs/ C.N.RAMACHANDRAN NAIR & K.SURENDRA MOHAN, JJ. ------------------------------------------------------------------------------------ I.T.Appeal NO: 44 OF 2009 ----------------------------------------------------------------------------------- Dated this the 20[th] March, 2009. JUDGMENT RAMACHANDRAN NAIR, J. The question raised in the appeal filed by the revenue iswhether the Tribunal was justified in confirming the order of thefirst appellate authority granting additional depreciation underSection 32(1)(iia) of the Income Tax Act, 1961. 2. We have heard standing counsel appearing for theappellant. 3. The respondent is a public sector company under CentralGovernment engaged in manufacture and sale of newsprint. Theplant in respect of which additional depreciation is claimed is a de-inking plant in which pulp is made from waste paper. The relevantprovision under which the claim was made is extracted hereunder for easy reference:- “(iia) in the case of any new machinery orplant (other than ships and aircraft), which hasbeen acquired and installed after the 31[st] day ofMarch, 2002, by an assessee engaged in thebusiness of manufacture or production of anyarticle or thing, a further sum equal to fifteenper cent of the actual cost of such machinery orplant shall be allowed as deduction under clause(ii): Provided that such further deduction offifteen per cent shall be allowed to---- (A) a new industrial undertaking during any previous year in which such undertaking beginsto manufacture or produce any article or thingon or after the 1[st] day of April, 2002; or (B) any industrial undertaking existingbefore the 1[st] day of April, 2002, during anyprevious year in which it achieves the substantialexpansion by way of increase in installedcapacity by not less than twenty-five per cent.(w.e.f. 1.4.2005 ten percent)” The above provision was later modified dispensing with therequirement of increase in installed capacity as a condition foreligibility for additional depreciation. In this case the contention ofthe revenue is that the installed capacity of the final product of thecompany viz., newsprint remains unaltered even after installation ofthe de-inking machinery in respect of which additional depreciationwas claimed. However the assessee's case as is clear from theorders of the authorities below including the Income Tax Tribunal isthat there is increase in installed capacity of pulp and pulp thoughan intermediary product also is marketable and hence assessee isentitled to additional depreciation under the above provision.Standing counsel for the revenue contended that installed capacityof an industry should always be understood with reference to thefinal product manufactured and sold by it. Even though there I.T.Appeal 44/2009 I.T.Appeal 44/2009 cannot be any doubt on this proposition there is nothing to indicatethat the respondent assessee cannot sell pulp as a product. Thefact that pulp is an intermediary product and is generally consumedcaptively in the manufacture of newsprint does not mean that pulpis not a product that cannot be marketed by the respondent as andwhen they desire. There is no dispute that pulp is a marketablecommodity. If there is reduction in the manufacture of finalproduct on account of any reason, necessarily respondent will haveto market the excess pulp produced. So much so we agree with theview of the Tribunal that pulp being a marketable commodityproduced by the respondent, the increase in the installed capacityof the pulp plant on account of the installation of the de-inkingmachinery will entitle the respondent for the benefit of additionaldepreciation. The finding of the Tribunal that there has beenincrease in the installed capacity of the production of pulp in termsof the requirement of the provision in the statute is not disputed inthe appeal filed by the revenue. On the other hand their contentionis that the installed capacity should have reference to only finalproduct that is newsprint. We are unable to uphold this contentionof the revenue and we feel that the intermediary product viz., pulpproduced by the company being a marketable commodity the I.T.Appeal 44/2009 increase in the installed capacity for claiming benefit of additionaldepreciation under the above provision can be in the production ofintermediary viz., pulp. We therefore agree with the finding of theTribunal and dismiss the department appeal. C.N. RAMACHANDRAN NAIRJudge K. SURENDRA MOHANJudge jj K.K.DENESAN & V. RAMKUMAR, JJ. ---------------------------------------------------- M.F.A.NO: ----------------------------------------------------- JUDGMENT Dated: