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 20th March, 2009. JUDGMENT RAMACHANDRAN NAIR, J. The question raised in the appeal filed by the revenue is whether the Tribunal was justified in confirming the order of the first appellate authority granting additional depreciation under Section 32(1)(iia) of the Income Tax Act, 1961. 2. We have heard standing counsel appearing for the appellant. 3. The respondent is a public sector company under Central Government engaged in manufacture and sale of newsprint. The plant in respect of which additional depreciation is claimed is a de- inking plant in which pulp is made from waste paper. The relevant provision under which the claim was made is extracted hereunder for easy reference:- “(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2002, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to fifteen per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii): I.T.Appeal 44/2009 2 Provided that such further deduction of fifteen per cent shall be allowed to---- (A) a new industrial undertaking during any previous year in which such undertaking begins to manufacture or produce any article or thing on or after the 1st day of April, 2002; or (B) any industrial undertaking existing before the 1st day of April, 2002, during any previous year in which it achieves the substantial expansion by way of increase in installed capacity by not less than twenty-five per cent. (w.e.f. 1.4.2005 ten percent)” The above provision was later modified dispensing with the requirement of increase in installed capacity as a condition for eligibility for additional depreciation. In this case the contention of the revenue is that the installed capacity of the final product of the company viz., newsprint remains unaltered even after installation of the de-inking machinery in respect of which additional depreciation was claimed. However the assessee's case as is clear from the orders of the authorities below including the Income Tax Tribunal is that there is increase in installed capacity of pulp and pulp though an intermediary product also is marketable and hence assessee is entitled to additional depreciation under the above provision. Standing counsel for the revenue contended that installed capacity of an industry should always be understood with reference to the final product manufactured and sold by it. Even though there I.T.Appeal 44/2009 3 cannot be any doubt on this proposition there is nothing to indicate that the respondent assessee cannot sell pulp as a product. 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 cannot be marketed by the respondent as and when they desire. There is no dispute that pulp is a marketable commodity. If there is reduction in the manufacture of final product on account of any reason, necessarily respondent will have to market the excess pulp produced. So much so we agree with the view of the Tribunal that pulp being a marketable commodity produced by the respondent, the increase in the installed capacity of the pulp plant on account of the installation of the de-inking machinery will entitle the respondent for the benefit of additional depreciation. 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 is not disputed in the appeal filed by the revenue. On the other hand their contention is that the installed capacity should have reference to only final product that is newsprint. We are unable to uphold this contention of the revenue and we feel that the intermediary product viz., pulp produced by the company being a marketable commodity the I.T.Appeal 44/2009 4 increase in the installed capacity for claiming benefit of additional depreciation under the above provision can be in the production of intermediary viz., pulp. We therefore agree with the finding of the Tribunal and dismiss the department appeal. C.N. RAMACHANDRAN NAIR Judge K. SURENDRA MOHAN Judge jj K.K.DENESAN & V. RAMKUMAR, JJ. ---------------------------------------------------- M.F.A.NO: ----------------------------------------------------- JUDGMENT Dated: