By TIOL News Service

KOLKATA, DECE 22, 2017: THE issue is - Whether eligibility of 'Visocooler plant' used by a cold drink manufacturer for chilling of aerated drinks, to benefit of additional depreciation u/s 32(1)(iia), is limited upon its location at manufacture's premises only. NO IS THE ANSWER.

Facts of the case:

The Assessee company during the relevant year, was engaged in the business of manufacture of soft drinks, generation of electricity through wind mill and manufacture of pet bottles for packing of beverages. While filing its return, the assessee claimed additional depreciation on Visocooler amounting to Rs.90,56,200/-, which was however disallowed by AO observing that these Visicoolers were kept at the distributors' premises and not at the factory premises of assessee company. The AO further opined that merely chilling of aerated water could not be termed as 'manufacturing activity' when even that chilling job was the activity of the retailer and not of the assessee.

The Assessee therefore approached the CIT(A) contenting that 'visicooler' actually formed a part of plant although not installed in its manufacturing unit, as it was necessary for supplying the soft drinks in its consumable state i.e. in a cold/chilled condition. ln effect, it is was claimed that manufacturing process of assessee did not end at the factory but continues till the supply of the same to the consumer in the cold state for which visocoolers were an integral and necessary requirement. After considering the submissions of Assessee, the CIT(A) took note of the fact that depreciation u/s 32 should be allowed only if the assets were owned by assessee and used for the purposes of its business. He also noted that the provision nowhere stated that the asset must be used by assessee in its own premises by itself. So long as the use of the asset directly or indirectly, benefited an assessee to carry on its business, it would be sufficient to satisfy the criteria of "use for purpose of business". Accordingly, the assessee's contention that usage of visicooler at the distributor's premises so as to ensure that the "cold" drink was served "cold" to the ultimate consumer tantamount to usage in the course and for the purposes of business, was upheld by CIT(A).

ITAT held that,

++ a careful perusal of the provision shows that the benefit of additional depreciation is available to an assessee engaged in the business of manufacture of article or thing upon the actual cost of plant & machinery. lt is therefore clear that the benefit is available on the plant & machinery only to those assessees who are manufacturers and it is not restricted to plant & machinery used for manufacture or which has first degree nexus with manufacture of article or thing. ln the present case, the assessee is engaged in manufacturing cold drinks, which is not disputed by the AO. Therefore, assessee is legally entitled to avail the benefit of additional depreciation u/s 32(1)(iia) on "visicooler", as the said item falls within the category of "plant & machinery" as laid down in the I-T Rules, 1962. The "visicooler" also does not fall within the exceptions provided in clauses (A) to (D) of the proviso to Section 32(1)(iia) ofthe Act;

++ it is undisputed that assessee is in the business of manufacturing and sale of Coca-Cola, which is a soft drink. Since the assessee is situated at a long distance and the product has to be sold at long distance, the Coca-Cola becomes hot due to the humid weather in the State of West Bengal. It is a known fact that soft drink, like Coca-Cola, cannot be consumed in hot state, whereas it is preferred by majority of customers as a cold drink. So, the assessee, in order to sell its final product to the customers, in various parts of the state required to give the Coca-Cola, in cold state for which the assessee has purchased, the tool, to keep the same in cool condition by the machine called 'Visicooler'. The test laid down by Supreme Court in the case of Scientific Engineering vs. CIT, was whether the article fulfil the function of a plant in the assessee's trading activity. Was it a tool of his trade with which he carried on his business. lf the answer was in the affirmative, it would be a plant. When this test is applied in the case of Visicooler, the answer is in the affirmative, that is, the Visicooler is a tool which is necessary for carrying out the business of assessee. Hence, there is no infirmity in the order of CIT(A).

(See 2017-TIOL-1791-ITAT-KOL)