Income Tax benefit on Acquisition/ Installation of New Plant/ Machinery to Manufacturing Companies
A new section 32AC in the Income- tax Act is proposed to be inserted to provide to provide additional deduction to such assessee,
(1)where an assessee, being a company,—
(a) is engaged in the business of manufacture of an article or thing; and
(b) invests a sum of more than Rs. 100 crore in new assets (plant or machinery) during the period beginning from 1st April, 2013 and ending on 31st March, 2015,then, the assessee shall be allowed—
(i) for assessment year 2014-15, a deduction of 15% of aggregate amount of actual cost of new assets acquired and installed during the financial year 2013-14, if the cost of such assets exceeds Rs. 100 crore;
(ii) for assessment year 2015-16, a deduction of 15% of aggregate amount of actual cost of new assets, acquired and installed during the period beginning on 1st April, 2013 and ending on 31st March, 2015, as reduced by the deduction allowed, if any, for assessment year 2014-15.
(iii) Lock in Period of 5 Years
Note: This is over & above Normal & Additional Depreciation.
The phrase “new asset” has been defined as new plant or machinery but does not include—
(i) any plant or machinery which before its installation by the assessee was used either within or outside India by any other person;
(ii) any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house;
(iii) any office appliances including computers or computer software;
(iv) any vehicle;
(v) ship or aircraft; or
(vi) any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year.
It is further proposed to provide suitable safeguards so as to restrict the transfer of the plant or machinery for a period of 5 years. However, this restriction shall not apply in a case of amalgamation or demerger but shall continue to apply to the amalgamated company or resulting company, as the case may be.
Consequences if new asset acquired and installed is transferred with in 5 years from date of installation
(2) If any new asset acquired and installed (emphasis ours) by the assessee is sold or otherwise transferred, except in connection with the amalgamation or demerger, within a period of five years from the date of its installation, the amount of deduction allowed under sub-section (1) in respect of such new asset shall be deemed to be the income of the assessee chargeable under the head “Profits and gains of business or profession” of the previous year in which such new asset is sold or otherwise transferred, in addition to taxability of gains, arising on account of transfer of such new asset.
(3) Where the new asset is sold or otherwise transferred in connection with the amalgamation or demerger within a period of five years from the date of its installation, the provisions of sub-section (2) shall apply to the amalgamated company or the resulting company, as the case may be, as they would have applied to the amalgamating company or the demerged company.
The provision of Section 32AC is explained hereunder with the help of examples:
Example 1:
Company X (engaged in the business of manufacture or production) acquiring new asset costing Rs 50 crore in AY 2014-15 and Rs50 crore in next assessment year, when will be the investment allowance available?
ANS. The company shall be eligible to take investment allowance in the AY 2015-16 on the entire amount of Rs100 crore.
Example 2:
Company X (engaged in the business of manufacture or production) acquiring new asset costing Rs100 crore in AY 2014-15 and Rs50 crore in next assessment year, when will be the investment allowance available?
The company shall be eligible to take investment allowance @15% on the entire amount of Rs100 crore in AY 2014-15. In the next year i.e. in AY 2015-16 the company is eligible to take investment allowance @15% on Rs. 150 crore minus allowance already taken in AY 2014-15.
(CA Deepak Rathore – For any clarification please contact at Deepakrathore.8888@gmail.com)
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In both the above examples no deductions will be allowed because the words used in sections are “exceeds 100crores”.