[2016] 71 taxmann.

com 334 (Article)

Interpretation of word "ACQUIRED" for Additional Depreciation- An

Analysis
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SANJAY BANSAL
Senior Advocate

Section 32(1)(iia) of the Income Tax Act, 1961 provides for the benefit of additional depreciation in
respect of any new machinery or plant (other than ships and aircrafts), which has been acquired and
installed by an assessee engaged in the business of manufacture or production of any article or a thing.
The admissibility of additional depreciation is subject to the fulfillment of the following conditions:(i)
(ii)

that the depreciable asset is acquired by the assessee; and

that it is installed for the purposes of assessee's business of manufacture or
production of any article or thing.

The extract of relevant provisions of Section 32 (1) and (iia) reads as under:
"Depreciation.
32. (1) [In respect of depreciation of
(i)
(ii)

[(i)
(ii)

buildings, machinery, plant or furniture, being tangible assets;

know-how, patents, copyrights, trade marks, licences, franchises or any other business or
commercial rights of similar nature, being intangible assets acquired on or after the 1st day
of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the
business or profession, the following deductions shall be allowed
in the case of assets of an undertaking engaged in generation or generation and distribution
of power, such percentage on the actual cost thereof to the assessee as may be prescribed;]
[in the case of any block of assets, such percentage on the written down value thereof as may
be prescribed:]
**
**
**
[(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, 2005, by
an assessee engaged in the business of manufacture
or production of any article or thing [or in the
business of generation or generation and
distribution] of power], a further sum equal to
twenty per cent of the actual cost of such machinery
or plant shall be allowed as deduction under clause
(ii) :

[Provided that where an assessee, sets up an undertaking or enterprise for manufacture or

production of any article or thing, on or after the 1st day of April, 2015 in any backward area
notified by the Central Government in this behalf, in the State of Andhra Pradesh or in the State
of Bihar or in the State of Telangana or in the State of West Bengal, and acquires and installs any
new machinery or plant (other than ships and aircraft) for the purposes of the said undertaking
or enterprise during the period beginning on the 1st day of April, 2015 and ending before the 1st
day of April, 2020 in the said backward area, then, the provisions of clause (iia) shall have effect,
as if for the words "twenty per cent", the words "thirty-five per cent" had been substituted :]

Provided [further] that no deduction shall be allowed in respect of

(A)
(B)
(C)
(D)

any machinery or plant which, before its installation by the assessee, was used either
within or outside India by any other person; or
any machinery or plant installed in any office premises or any residential
accommodation, including accommodation in the nature of a guest-house; or
any office appliances or road transport vehicles; or
any machinery or plant, the whole of the actual cost of which is allowed as a 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 one previous
year;]"

The expression "acquired" has not been defined under the Act and, therefore, the question whether the
same refers to ownership or physical possession only, thus assumes significance in the absence of any
authoritative pronouncement rendered by the Supreme Court of India and/or by any of the High Courts
in India.
The meaning of the word 'acquire' in the Webster's dictionary is:
1.
2.

to get or gain by one's own efforts or actions.

to gain, by any means, as a thing which is in degree permanent, or which becomes
vested or inherited in the possessor; as, to acquire a title, estate, learning, habits,
skill, dominion, etc.; plants acquire a green color from the rays of the sun.
Syn.- attain, compass, earn, get, obtain, procure, realize, win."

The primary meaning of the words 'attain', 'obtain' and 'procure' which are synonyms of word 'acquire'
is referable to obtain, as by effort, labor, or purchase; to get; to gain; to come into possession of,
especially by trying to procure.
When a word is not defined in the Act itself, though it is permissible to refer to dictionaries to find out
the general sense in which word is understood in common parlance, yet the dictionaries are not
dictators of statutory construction as regard must be had to the scheme, text and context in which it
appears1
The provisions pertaining to additional depreciation inserted by the Finance (No. 2) Act, 2002, w.e.f. 14-2003 and subsequently, substituted by the Finance Act, 2005 w.e.f. 1-4-2006 has all along used the
expressions "acquired" and "installed" subject to substantial expansion by way of increase in the
installed capacity. The Finance Minister in his budget speech for the year 2002-03 with regard to
conferring the benefit of additional depreciation spoke as follows {See (2002) 254 ITR (St.) 1}:
"160. At the same time, it is important to recognize the need for specific interventions to provide a
stimulus for industrial growth. I outline these now.
161. I have already mentioned the need to provide incentives for fresh investments in the industrial
sector. To give impetus to such investment, I propose to allow additional depreciation at the rate of
15% on new Plant and Machinery acquired on or after 1st April, 2002 for setting up a new
industrial unit, or for expanding the installed capacity of existing units by at least 25%."
The memorandum explaining provisions in the Finance Bill, 2002 (2002) 254 ITR 190 (St.) reads as
follows:
"INCENTIVES FOR INVESTMENT AND INDUSTRIAL GROWTH
Additional depreciation on new machinery and plant

Under the existing provisions contained in sub-section (1) of section 32 of the Income-tax Act,
deduction is allowed in respect of depreciation on assets owned wholly or partly by the assessee
and used for the purposes of the business or profession at the rates prescribed under the Incometax Rules, 1962.
With a view to give a boost to the manufacturing sector, it is proposed to allow a deduction of a
further sum equal to fifteen per cent. of the actual cost such machinery or plant acquired and
installed after 31st day of march, 2002
(i)
(ii)

In the case of a new industrial undertaking in the previous year in which it begins to
manufacture or produce any article or thing; or
In the case of an existing industrial undertaking in the previous year in which it
achieves substantial expansion by way of increase in the installed capacity by not less
than twenty five per cent.

Such further sum shall be deductible from the written down value of the asset. "Installed capacity"
has been defined to mean the capacity of production as existing on the last day of any previous year
commencing on or after the 31st March, 2002.
The proposed amendment will take effect from 1st April, 2003, and will, accordingly, apply in
relation to the assessment year 2003-04 and subsequent years."
The expression 'owned' though is a generic term has been assigned a wider meaning by the Supreme
Court in the case of Mysore Minerals Ltd. vs. C.I.T. (1999) 239 ITR 775 (SC) to mean any person who
having acquired possession over the building in his own right uses the same for the purposes of the
business or profession though a legal title has not been conveyed to him consistently with the
requirements of laws such as The Transfer of Property Act and Registration Act. The notable
observations of the Hon'ble Supreme Court of India in the aforementioned case reads as follows:"Section 32 of the Income Tax Act confers a benefit on the assessee. The provision should be so
interpreted and the words used therein should be assigned such meaning as would enable the
assessee securing the benefit intended to be given by the legislature to the assessee. The term
'owned' as occurring in Section 32(1) of the Income Tax Act, 1961, must be assigned a wider
meaning. "Building owned by the assessee" the expression as occurring in Section 32(1) of the
Income Tax Act means the person who having acquired possession over the building in his own
right uses the same for the purposes of the business or profession though a legal title has not
conveyed to him consistently with the requirements of laws such as the Transfer of Property Act
and the Registration Act, etc., but nevertheless is entitled to hold the property to the exclusion of
all others. The very concept of depreciation suggest that the tax benefit on account of depreciation
legitimately belongs to one who has invested in the capital asset, is utilizing the capital asset and
thereby loosing gradually investment caused by wear and tear, and would need to replace the same
by having lost its value fully over a period of time." (Emphasis Supplied).
The admissibility of depreciation under section 32(1) of the Income tax Act, 1961 on plant and
machinery etc is subject to the fulfillment of the twin conditions namely, that the depreciable asset is
owned by the assessee and that it is used for the purposes of assessee's business or profession. Thus
there are two different expressions used by the legislature in Section 32(1) and Section 32(1)(iia) of the
Income Tax Act, 1961 for the grant of depreciation and additional depreciation, while the former
provision contains the expressions 'owned and used', the latter part of the same provision contains the
expressions 'acquired and installed'. It is a well settled rule of interpretation that the legislative intent is
to be gathered from the words or expression used in the provision of a statue, which means that
attention should be paid to what has been said as also to what has not been said.2. It is also equally well
settled that the legislature when using well known words and expressions upon which there have been

well known judicial pronouncements, uses those words and expressions in the sense which the
decisions have attached to them3
The speech of a Minister is relevant insofar it gives the background for the introduction of a particular
provision in the Income Tax Act. It is not determinative of the construction of the said provision, but
gives the reader an idea as to what was in the Minister's mind when he sought to introduce the said
provision. As an external aid to construction, the Supreme Court in C.I.T. vs. Meghalaya Steels Ltd.
(2016) 383 ITR 217 (SC), reinforced the earlier view point expressed in K.P. Varghese v. ITO [1981] 131
ITR 597 (SC), referring to a Minister's speech piloting a Finance Bill, by reproducing the same as under:

"Now it is true that the speeches made by the Members of the Legislature on the floor of the House
when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of
interpreting the statutory provision but the speech made by the Mover of the Bill explaining the
reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining
the mischief sought to be remedied by the legislation and the object and purpose for which the
legislation is enacted. This is in accord with the recent trend in juristic thought not only in Western
countries but also in India that interpretation of a statute being an exercise in the ascertainment of
meaning, everything which is logically relevant should be admissible. In fact there are at least three
decisions of this Court, one in Loka Shikshana Trust v. Commissioner of Income-Tax [1975] 101
ITR 234 (SC) the other in Indian Chamber of Commerce v. Commissioner of Income-tax [1975]
101 ITR 796 (SC) and the third in Additional Commissioner of Income-tax v. Surat Art Silk Cloth
Manufacturers Association [1980] 121 ITR 1 (SC) where the speech made by the Finance Minister
while introducing the exclusionary clause in Section 2 Clause (15) of the Act was relied upon by the
Court for the purpose of ascertaining what was the reason for introducing that clause. The speech
made by the Finance Minister while moving the amendment introducing Sub-section (2) clearly
states what were the circumstances in which Sub-section (2) came to be passed, what was the
mischief for which Section 52 as it then stood did not provide and which was sought to be remedied
by the enactment of Sub-section (2) and why the enactment of Sub-section (2) was found
necessary. It is apparent from the speech of the Finance Minister that Sub-section (2) was enacted
for the purpose of reaching those cases where there was under-statement of consideration in
respect of the transfer or to put it differently, the actual consideration received for the transfer was
'considerably more' than that declared or shown by the assessee, but which were not covered by
Sub-section (1) because the transferee was not directly or indirectly connected with the assessee.
The object and purpose of Sub-section (2), as explicated from the speech of the Finance Minister,
was not to strike at honest and bona fide transactions where the consideration for the transfer was
correctly disclosed by the assessee but to bring within the net of taxation those transactions where
the consideration in respect of the transfer was shown at a lesser figure than that actually received
by the assessee, so that they do not escape the charge of tax on capital gains by under-statement of
the consideration. This was real object and purpose of the enactment of Sub-section (2) and the
interpretation of this sub-section must fall in line with the advancement of that object and purpose.
We must therefore accept as the underlying assumption of Sub-section (2) that there is understatement of consideration in respect of the transfer and Sub-section (2) applies only where the
actual consideration received by the assessee is not disclosed and the consideration declared in
respect of the transfer is shown at a lesser figure than that actually received."
The word 'acquired' has to be given a wider interpretation, in the light of the object and purpose with
which depreciation is granted to the assessee. The purpose of granting depreciation is on the user of an
asset owned i.e. whether by a legal and /or beneficial user. The object of granting additional
depreciation when viewed in the light of the speech of Finance Minister is for economic advancement. It
would mean when the assessee gets full possession of the asset irrespective of the factum of transfer of
ownership prior thereto and the same has to be interpreted in the context and text particularly in the

light of the object with which the provision has been engrafted to give benefit to the assessee in
contradistinction to the word 'owned' as occurring in the earlier part of the provisions of Section 32(1)
of the Act which bears a definite and distinct connotation, although the same has not been defined
under the Act, in view of the well settled rule of interpretation that the legislative intent is to be
gathered from the words or expression used in the provision of statute, meaning thereby that attention
should be paid to what has been said as also to what has not been said. Now keeping in view the
aforesaid well settled rule of interpretation and the fact that the legislature in Section 32(1)(iia) of the
Act has used the expression 'Acquired' and not 'owned' clearly reflects upon its intent that what was
intended by it was to assign generic connotation namely, it means to receive or to come into possession
of plant and machinery and the same to be installed before the assessee being entitled to additional
deprecation. What is important is the taking over of physical possession which would fall in the
expression 'Acquired' for the purposes of additional depreciation as stipulated by the provisions of
Section 32(1)(iia) of the Act and not the transfer of title and/or ownership. Such an interpretation
would be in line with another settled rule of interpretation namely, that a provision in a taxing statute
granting incentives by way of additional depreciation for promoting growth and development should be
construed liberally. Assigning any different meaning and/or interpretation to the expression acquired
would not subserve the legislative intent.

1. CIT v. J.H. Gotla Yadgiri [1985] 4 SCC 343, p. 359; Ram Narain v. State of U.P. AIR 1957
SC 18, p. 23 ; State Bank of India v. N. Sundara Money, AIR 1976 SC 1111, p. 1114;
Commissioner of Income Tax, Orissa v. N.C. Bhudhraja and Co., AIR 1993 SC 2529, p.
2540; Reserve Bank of India v. Pearless General Finance and Investment Co., [1987] 1
SCC 424, p. 450: AIR 1987 SC 1023.
2. Gwalior Rayon Silk Mfg. Co. Ltd. v. Custodian of Vested Forests, AIR 1990 SC 1747.
3. CIT v. Bansidhar & Sons, [1986] 157 ITR 665 (SC); R. v. Chard [1983] 3 All ER 637 (HL).