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Additional depreciation for increased installed capacity

QUESTION: Sec. 32(iia) grants additional depreciation at 15 per cent on plants and machinery installed after March 31, 2002 in the year where there is increase in installed capacity is not less than 25 per cent (now reduced to 10 per cent from assessment year 2005-06), if such machinery so acquired is a new machinery other than office appliances or road transport vehicles, my question is whether such machinery should have been brought to use during the year as is generally necessary for entitlement to depreciation. The further question is whether such machinery should have contributed to increased capacity to be so eligible for depreciation.

Since additional depreciation is also part of depreciation, it should be necessary to satisfy the condition, that it should have been brought to use during the year of specified increase in installed capacity.

As for the second question, whether it should have directly contributed to the increase in installed capacity, there is no such condition in the clause in Sec. 32(1)(ii). New machinery for existing installed capacity also contributes in one sense to increased productivity as a result of higher installed capacity, so that an industry which contributes to such additional productivity by increasing its installed capacity certainly deserves such additional depreciation without having to prove, what plants and machinery have contributed to such additional capacity. Report in Form 3AA requires the Chartered Accountant only to certify that the claim is in order "on the basis of new plant and machinery acquired and installed ... by the assessee in the new industrial undertaking." Further clarification is only in respect of substantial expansion by increasing the installed capacity.

The annexure would also require particulars relating to installed capacity and the details of new plant and machinery acquired during the year.

There is no further obligation on the part of the Chartered Accountant to certify, that the addition of new machinery is directly linked to the increase in installed capacity. Additional depreciation on the new machinery is a reward for having increased the installed capacity.

Nominees v legal heirs

Q: Does nomination means that the nominee has absolute right over the property or that he would be receiving the same on behalf of the estate of the deceased.

A: Payment to the nominee discharges the liability of the insurer under the insurance contract. The nominee is accountable to the other legal heirs.

This decision was followed in respect of nomination under Government Savings Certificate Act, 1959 relating to payment to nominee on death of the holder of National Savings Certificates in Vishin N. Kanchandani v Lachmandas Kanchandani (2000) 246 ITR 306 (SC).

The object of nomination under the Post Office National Savings Scheme Ordinance as explained in the Objects and Reasons is that, nomination facility was introduced to avoid difficulties faced in production of legal proof of succession by way of delay and expense.

Nomination was, therefore, not intended to be a substitute for succession. Succession law, it was held, will override the nomination rules and that Sarbati Devi's case will apply for nomination in respect of amount due under National Savings Scheme.

It was held that the nominee is entitled to receive payment but he is in turn liable to account for the amount to all those in whose favour law creates beneficial interest.

The same rule should probably apply for nomination in respect of fixed deposits as well, though in some instances documentation by way of instruction to the bank had indicated that the right over the fixed deposits passed to the nominees during lifetime of depositor retaining only life interest over the yield (interest) from the fixed deposit. In such a case inference is possible that the present right itself is given to the nominee, so that it has to go to the nominee in his own right.

If the right passes on as in the case of assignment to the nominee, he would be receiving in his own right, but then same special language on par with assignment would be necessary.

Nomination under Senior Citizens Savings Scheme does not indicate such special rights in favour of the nominee.

In view of the fact, that more than one nominee, can be indicated with respective share, nomination form will serve the purpose of a Will, but then in view of the precedents on the subject, the depositor would be advised to leave a Will indicating that the succession will follow the nomination.

(Concluded)

S. Rajaratnam

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