CA. Sujit Kumar Sinha
Background and Provision
A new section 32 AC has been inserted by the Finance Act, 2013 to provide a tax incentive by way of investment allowance to encourage huge investment in plant or machinery. This is a new policy of the government which attract the attention of businessman in respect of investment in new plant and machinery. The deduction under section 32 AC is investment linked.
Under this new section 32AC, a manufacturing company is entitled to an investment allowance @ 15% of actual cost of new plant and machinery acquired and installed during the financial years 2013-14 and 2014-15, if the actual cost of new plant and machinery exceeds Rs.100 Crore.
The benefit of this section is available only to a company and not to any other assessee. Section 2(17) of IT Act,1961 defines a company means:-
1) Any Indian company, or
2) Any body corporate incorporated by or under the laws of a country outside India,or
3) Any institution, association or body which is or was assessable or was assessed as a company for any assessment year under the Indian Income tax Act,1922(11 of 1922),or which is or was assessable or was assessed under this Act, as a company for any assessment year commencing on or before April 1,1970, or any institution, association or body whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company:
Provided that such institution, association or body shall be deemed to be a company wholly for such assessment year or assessment years(whether commencing before April1,1971 or on or after that date) as may be specified in the declaration.
Under this section “New Plant or machinery” does not include-
1) Any plant or machinery which before its installation by the assessee was used either within or outside india by any other person;
2) Any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house;
3) Any office appliances including computers or computer software;
4) Any vehicle;
5) Ship or aircraft; or
6) Any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of deprecation or otherwise ) in computing the income chargeable under the head “profits and gains of business or profession’ of any previous year.
“Actual cost” means
The cost of the asset to the assessee reduced by the portion of the cost thereof, if any met by any person. Further, the definition of the term “actual cost” does not specifically reduce the amount of any deduction under the IT Act,1961 except under section 35 in respect of scientific research assets.
As per section 32 AC of IT Act, 1961 a company assessee would be entitled to deduction @ 15% of aggregate investment in new plant and machinery if it is:-
a) Engaged in the business of manufacture of an article or thing; and
b) Invests a sum of more than Rs.100 crore in new plant or machinery during the period beginning from 1st April,2013 and ending on 31st March,2015.
The Investment allowance @15% under this section is in addition to the depreciation and additional deprecation allowable under section 32(1).
Further, the investment allowance would not be reduced to arrive at the written down value of plant and machinery.
Deduction under section 32 AB is available while computing the business income under Chapter IV-D of the Act, and therefore the deduction has to be claimed before arriving at the gross total income and thereafter deduction can be claimed under sections 80 IA and 80 IC of the Act.
Illustration :1
Admissible investment allowance under section 32 AC for A.Y 2014-15 and A.Y 2015-16 in each of the following cases-
| Company |
Investment in new plant and machinery(Rs in crores) |
|
|
P.Y. 2013-14 |
P.Y.204-15 |
|
| X Ltd. |
70 |
20 |
| Y Ltd. |
95 |
25 |
| Z Ltd. |
130 |
50 |
| XYZ Ltd. |
0 |
99 |
Answer:
| Company |
Investment allowance under section 32AC |
|
|
P.Y. 2013-14 |
P.Y.2014-15 |
|
| X Ltd. |
Nil |
Nil |
| Y Ltd. |
Nil |
18 |
| Z Ltd. |
19.5 |
7.5 |
| XYZ Ltd. |
Nil |
Nil |
Minimum lock in period
The new plant and machinery in respect of which investment allowance has been claimed under section 32 AC of IT Act,1961 cannot be sold or otherwise transferred for a period of five years from the date of installation.
Effect of failure to not fulfill lock in period
If new plant and machinery is sold or transferred within the period of five years from the date of installation, the deduction allowed earlier would be deemed as income chargeable to tax under the head “profits and gains of business or profession” of the previous year in which such new plant and machinery is sold or otherwise transferred.
This would be in addition to the taxability of gains on transfer of such plant and machinery.
In case of amalgamation or demerger, this restriction would continue to apply to the amalgamation company or resulting company, as the case may be, as it would have applied to the amalgamating or demerged company.
Illustration: 2
Compute the Investment allowance under section 32 AC
|
Particulars |
₹ in crores | |
| 1. | Purchase of second hand machinery (15%block) on 18.06.2013 for business purpose (the machinery was put to use immediately) | 13.00 |
| 2. | Purchase new computers (60% block) on 09.11.2013 for office | 0.60 |
| 3. | Acquired and installed new plant and machinery (15% block) on 31.08.2013(Rs.60 crore) and on 31.10.2013(Rs.30 crore) | 90.00 |
| 4. | New air conditioners purchased and installed in office premises on 31.07.2013 | 0.20 |
| 5. | Acquired and installed new plant and machinery (15% block) on 1.04.2014 | 20.00 |
Answer
Computation of investment allowance under section 32AC for the A.Y 2015-16
|
Particulars |
(₹ in crore) |
| New plant and machinery acquired and installed during the P.Y.2013-14 | 90.00 |
| New plant and machinery acquired and installed during the P.Y.2014-15 | 20.00 |
| Aggregate investment in new plant and machinery during the period from 01-04-2013 to 31-03-2015` | 110.00 |
| Investment allowance @ 15 % of Rs.110.00 | 16.50 |
| Less: Deduction allowed in respect investment allowance during the A.Y.2014-15 | Nil |
| Deduction under section 32 AC for the A.Y 2015-16 | 16.50 |
Note : The company would be eligible for investment allowance under section 32 AC in the P.Y.2014-15, since the aggregate investment in new plant and machinery from 01.04.2013 to 31.03.2015 exceeded Rs.100 crore
(Author may be contacted on [email protected]
Till which A.Y. exemption u/s 32AC available
what is amendmend regarding sec 32AC of this Act for the Assessment Year 2018-19.
Whether a company claiming exemption under section 80IA (windmill) can claim 32AC? – See more at: https://taxguru.in/income-tax/investment-allowance-section-32ac.html#sthash.nljsTO92.dpuf
Sir,
can you explain what is investment allowance utilization reserve
Yes. There is no such ristriction in the Act. Even if you will see section 35AD threre is a specific restriction given. but not in 32AC
i hv read abt 15 % of actual cost when aggregate is exceeding 25 cr in new plnt n m/c n it is allowed till 1/4/2018
is it true or false ???? plz suggest
nice explaination
Is it compulsory for a company to calim allowance u/s 32AC or there is an option for not claiming the allowance. as my company is already a loss making company and i dont want to increase my loss as per IT
My queryvis if a company is showing loss in its accounts. Then will it be possible to claim this investment allowance u/s 32AC.
Plz explain subsection 1A with an illustration
Excellent doubt clarification
whether the investment allowance u/s 32AC is available if the company is engaged in manufacturing of articles specifed in eleventh schedule
my purchase & Goods received in March 15th and 23 crore and 6 crore in april
both are capitalised in April end
can i take this benefit
other
this is incentive and only effect in IT computation or IT WDV down by this depreciation or not
Whether a company claiming exemption under section 80IA (windmill) can claim 32AC?
Whether an entity claiming exemption under sec 10AA can also claim Sec 32AC deduction and how will the computation be done
If a company having 2-3 plants in different location in india and the combined investment at different plant exceeds rs 100 corore limit.
then the deduction will be available or the investment exceeding Rs.100 crore should be at one location/plant ?
My reply to the queries would be:
query i – Since the section says amount exceeding Rs. 100 Cr., the company will be able to take the benefit only in the second year when the investment exceeds the specified amount of Rs. 100 Cr. In second year 16.5 Cr. will be available on Rs. 110. Cr.
Query 2: Since the assessment is based on PAN, combined investment in multiple locations would be considered.
What happen when investment made for Rs. 100 crores exactly in first year and 10 crores in subsequent year.?
If a company having 2-3 plants in different location in india and the combined investment at different plant exceeds rs 100 corore limit then also the deduction will be available or the investment exceeding Rs.100 crore should be at one location/plant.