A company client has been told it can claim a fifteen per cent investment allowance on new plant. Which years does section 32AC actually cover, what is the investment threshold, and what happens if the plant is sold?
Section 32AC is a spent provision and its two limbs cover different years on different thresholds. Sub-section (1), inserted by the Finance Act, 2013 with effect from 1 April 2014, applies only to a COMPANY engaged in the business of manufacture or production of any article or thing which acquires AND installs new assets after 31 March 2013 but before 1 April 2015 with an aggregate actual cost exceeding one hundred crore rupees; it gives fifteen per cent for AY 2014-15 on assets acquired and installed after 31 March 2013 but before 1 April 2014, and fifteen per cent for AY 2015-16 on assets acquired and installed after 31 March 2013 but before 1 April 2015, reduced by whatever was allowed for AY 2014-15. Sub-section (1A), inserted by the Finance (No. 2) Act, 2014 with effect from 1 April 2015, lowers the entry price: fifteen per cent where the actual cost of new assets acquired during a previous year exceeds twenty-five crore rupees and those assets are installed on or before 31 March 2017. Sub-section (1B), inserted by the same Act from the same date, kills sub-section (1A) for any assessment year commencing on or after 1 April 2018. So the whole section reaches AY 2014-15 to AY 2017-18 and no further. Whatever is allowed carries a five-year lock-in under sub-section (2): if the new asset is sold or otherwise transferred within five years of the date of INSTALLATION, otherwise than in an amalgamation or demerger, the deduction is deemed to be business income of the year of transfer, "in addition to taxability of gains, arising on account of transfer of such new asset".
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2014-04-01, reported as Section 32AC of the Income-tax Act, 1961, transcribed from incometaxindia.gov.in/w/section-32ac (Year: 2013), /w/section-32ac-1 (Year: 2014), /w/section-32ac-2 (Year: 2015), /w/section-32ac-3 (Year: 2016) and /w/section-32ac-4 (Year: 2017); sub-section (1) is also reproduced in part in the order of the ITAT Hyderabad in ITA No. 1424/H/2019 dated 14 June 2021. It bears on section 32AC, section 32AC(1), section 32AC(1A), section 32AC(1B), section 32AC(2), section 32AC(3), section 32AC(4), section 32AD of the Income Tax Act 1961, in Deductions & Disallowances, How Tax Law Is Read and Capital Gains matters.
Four points decide these claims, and three of them are date points. First, sub-section (1) and sub-section (1A) are alternatives, not a ladder: the second proviso to sub-section (1A) bars a sub-section (1A) claim for AY 2015-16 to an assessee eligible for sub-section (1) in that year. Second, the acquisition-and-installation problem was real and was fixed only part way through. As originally enacted, sub-section (1A) required the new assets to be "acquired and installed" during the previous year, so a company that bought machinery in one year and commissioned it in the next fell between two stools; the Finance Act 2016, with effect from 1 April 2016, substituted the words so that the test is now cost of assets ACQUIRED during the previous year, installed on or before 31 March 2017, and inserted a proviso that where installation is in a year other than the year of acquisition the deduction is allowed in the year of INSTALLATION. That fix operates from AY 2016-17; for AY 2015-16 the original words govern. Third, the eligibility words are "a company, engaged in the business of manufacture or production of any article or thing" — the assessee must be a company, which is a difference from section 32AD, and "manufacture or production of any article or thing" is the battleground for taxpayers who are not obviously factories. Fourth, the clawback is unusually harsh: the deduction comes back as business income AND the gain on the transfer is taxed as well, expressly. It runs from the date of installation, not the end of the year, and only an amalgamation or a demerger is carved out — and even then sub-section (3) transfers the obligation to the amalgamated or resulting company, so the lock-in follows the asset. Note that the list of exclusions from "new asset" in sub-section (4) removes second-hand plant, plant installed in office premises or residential accommodation including a guest-house, office appliances including computers and computer software, any vehicle, and plant whose whole cost is already allowed as a deduction.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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The operative words in final form, as transcribed from the pages stamped Year 2016 and Year 2017. Sub-section (1) opens: "Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new asset after the 31st day of March, 2013 but before the 1st day of April, 2015 and the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees, then, there shall be allowed a deduction,—" with clause (a) for AY 2014-15 and clause (b) for AY 2015-16 as described. Sub-section (1A) reads: "Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new assets and the amount of actual cost of such new assets acquired during any previous year exceeds twenty-five crore rupees and such assets are installed on or before the 31st day of March, 2017, then, there shall be allowed a deduction of a sum equal to fifteen per cent of the actual cost of such new assets for the assessment year relevant to that previous year:" followed by a proviso that where installation is in a year other than the year of acquisition the deduction is allowed in the year of installation, and a further proviso barring a sub-section (1A) deduction for AY 2015-16 to an assessee eligible under sub-section (1) for that year. Sub-section (1B): "No deduction under sub-section (1A) shall be allowed for any assessment year commencing on or after the 1st day of April, 2018." Sub-section (4) defines "new asset" as any new plant or machinery other than a ship or aircraft, excluding plant previously used within or outside India by any other person, plant installed in office premises or residential accommodation including a guest house, office appliances including computers or computer software, any vehicle, and plant the whole of whose actual cost is allowed as a deduction in computing business income of any previous year.
Not a judgment. The statutory position is that section 32AC(1) gives fifteen per cent to a company manufacturing or producing an article or thing on new assets acquired and installed between 1 April 2013 and 31 March 2015 where the aggregate actual cost exceeds one hundred crore rupees, for AY 2014-15 and AY 2015-16 only; that section 32AC(1A) gives fifteen per cent where the actual cost of new assets acquired in a previous year exceeds twenty-five crore rupees and they are installed by 31 March 2017, with the deduction falling in the year of installation from AY 2016-17; that section 32AC(1B) denies any sub-section (1A) deduction from AY 2018-19 onwards; and that a sale or transfer of the new asset within five years of installation, other than in an amalgamation or demerger, brings the deduction back as business income of the year of transfer in addition to the capital gain, with sub-section (3) passing that exposure to the amalgamated or resulting company where the transfer is by amalgamation or demerger.
Not a judgment; no judicial reasoning is stated for the section itself.
No deduction under sub-section (1A) shall be allowed for any assessment year commencing on or after the 1st day of April, 2018.
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Handle my notice → Ask a CA on WhatsAppSection 32AC is a spent provision and its two limbs cover different years on different thresholds. Sub-section (1), inserted by the Finance Act, 2013 with effect from 1 April 2014, applies only to a COMPANY engaged in the business of manufacture or production of any article or thing which acquires AND installs new assets after 31 March 2013 but before 1 April 2015 with an aggregate actual cost exceeding one hundred crore rupees; it gives fifteen per cent for AY 2014-15 on assets acquired and installed after 31 March 2013 but before 1 April 2014, and fifteen per cent for AY 2015-16 on assets acquired and installed after 31 March 2013 but before 1 April 2015, reduced by whatever was allowed for AY 2014-15. Sub-section (1A), inserted by the Finance (No. 2) Act, 2014 with effect from 1 April 2015, lowers the entry price: fifteen per cent where the actual cost of new assets acquired during a previous year exceeds twenty-five crore rupees and those assets are installed on or before 31 March 2017. Sub-section (1B), inserted by the same Act from the same date, kills sub-section (1A) for any assessment year commencing on or after 1 April 2018. So the whole section reaches AY 2014-15 to AY 2017-18 and no further. Whatever is allowed carries a five-year lock-in under sub-section (2): if the new asset is sold or otherwise transferred within five years of the date of INSTALLATION, otherwise than in an amalgamation or demerger, the deduction is deemed to be business income of the year of transfer, "in addition to taxability of gains, arising on account of transfer of such new asset". This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 32AC, section 32AC(1), section 32AC(1A), section 32AC(1B), section 32AC(2), section 32AC(3), section 32AC(4), section 32AD of the Income Tax Act 1961. It is reported as Section 32AC of the Income-tax Act, 1961, transcribed from incometaxindia.gov.in/w/section-32ac (Year: 2013), /w/section-32ac-1 (Year: 2014), /w/section-32ac-2 (Year: 2015), /w/section-32ac-3 (Year: 2016) and /w/section-32ac-4 (Year: 2017); sub-section (1) is also reproduced in part in the order of the ITAT Hyderabad in ITA No. 1424/H/2019 dated 14 June 2021. Four points decide these claims, and three of them are date points. First, sub-section (1) and sub-section (1A) are alternatives, not a ladder: the second proviso to sub-section (1A) bars a sub-section (1A) claim for AY 2015-16 to an assessee eligible for sub-section (1) in that year. Second, the acquisition-and-installation problem was real and was fixed only part way through. As originally enacted, sub-section (1A) required the new assets to be "acquired and installed" during the previous year, so a company that bought machinery in one year and commissioned it in the next fell between two stools; the Finance Act 2016, with effect from 1 April 2016, substituted the words so that the test is now cost of assets ACQUIRED during the previous year, installed on or before 31 March 2017, and inserted a proviso that where installation is in a year other than the year of acquisition the deduction is allowed in the year of INSTALLATION. That fix operates from AY 2016-17; for AY 2015-16 the original words govern. Third, the eligibility words are "a company, engaged in the business of manufacture or production of any article or thing" — the assessee must be a company, which is a difference from section 32AD, and "manufacture or production of any article or thing" is the battleground for taxpayers who are not obviously factories. Fourth, the clawback is unusually harsh: the deduction comes back as business income AND the gain on the transfer is taxed as well, expressly. It runs from the date of installation, not the end of the year, and only an amalgamation or a demerger is carved out — and even then sub-section (3) transfers the obligation to the amalgamated or resulting company, so the lock-in follows the asset. Note that the list of exclusions from "new asset" in sub-section (4) removes second-hand plant, plant installed in office premises or residential accommodation including a guest-house, office appliances including computers and computer software, any vehicle, and plant whose whole cost is already allowed as a deduction. If it applies to you, the first step is this: Fix the assessment year first and pick the right limb. Sub-section (1) is only AY 2014-15 and AY 2015-16 on a one-hundred-crore aggregate; sub-section (1A) is AY 2015-16 to AY 2017-18 on a twenty-five-crore annual figure with installation by 31 March 2017; nothing at all is available from AY 2018-19 because of sub-section (1B).
The operative words in final form, as transcribed from the pages stamped Year 2016 and Year 2017. Sub-section (1) opens: "Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new asset after the 31st day of March, 2013 but before the 1st day of April, 2015 and the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees, then, there shall be allowed a deduction,—" with clause (a) for AY 2014-15 and clause (b) for AY 2015-16 as described. Sub-section (1A) reads: "Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new assets and the amount of actual cost of such new assets acquired during any previous year exceeds twenty-five crore rupees and such assets are installed on or before the 31st day of March, 2017, then, there shall be allowed a deduction of a sum equal to fifteen per cent of the actual cost of such new assets for the assessment year relevant to that previous year:" followed by a proviso that where installation is in a year other than the year of acquisition the deduction is allowed in the year of installation, and a further proviso barring a sub-section (1A) deduction for AY 2015-16 to an assessee eligible under sub-section (1) for that year. Sub-section (1B): "No deduction under sub-section (1A) shall be allowed for any assessment year commencing on or after the 1st day of April, 2018." Sub-section (4) defines "new asset" as any new plant or machinery other than a ship or aircraft, excluding plant previously used within or outside India by any other person, plant installed in office premises or residential accommodation including a guest house, office appliances including computers or computer software, any vehicle, and plant the whole of whose actual cost is allowed as a deduction in computing business income of any previous year. The matter was decided on 2014-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Not a judgment. The statutory position is that section 32AC(1) gives fifteen per cent to a company manufacturing or producing an article or thing on new assets acquired and installed between 1 April 2013 and 31 March 2015 where the aggregate actual cost exceeds one hundred crore rupees, for AY 2014-15 and AY 2015-16 only; that section 32AC(1A) gives fifteen per cent where the actual cost of new assets acquired in a previous year exceeds twenty-five crore rupees and they are installed by 31 March 2017, with the deduction falling in the year of installation from AY 2016-17; that section 32AC(1B) denies any sub-section (1A) deduction from AY 2018-19 onwards; and that a sale or transfer of the new asset within five years of installation, other than in an amalgamation or demerger, brings the deduction back as business income of the year of transfer in addition to the capital gain, with sub-section (3) passing that exposure to the amalgamated or resulting company where the transfer is by amalgamation or demerger.
Not a judgment; no judicial reasoning is stated for the section itself. In the words reproduced by the source cited on this page: "No deduction under sub-section (1A) shall be allowed for any assessment year commencing on or after the 1st day of April, 2018."
It was decided by the CBDT Circulars & Instructions on 2014-04-01 and is reported as Section 32AC of the Income-tax Act, 1961, transcribed from incometaxindia.gov.in/w/section-32ac (Year: 2013), /w/section-32ac-1 (Year: 2014), /w/section-32ac-2 (Year: 2015), /w/section-32ac-3 (Year: 2016) and /w/section-32ac-4 (Year: 2017); sub-section (1) is also reproduced in part in the order of the ITAT Hyderabad in ITA No. 1424/H/2019 dated 14 June 2021. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 32AC, section 32AC(1), section 32AC(1A), section 32AC(1B), section 32AC(2), section 32AC(3), section 32AC(4), section 32AD, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Not a judgment. The statutory position is that section 32AC(1) gives fifteen per cent to a company manufacturing or producing an article or thing on new assets acquired and installed between 1 April 2013 and 31 March 2015 where the aggregate actual cost exceeds one hundred crore rupees, for AY 2014-15 and AY 2015-16 only; that section 32AC(1A) gives fifteen per cent where the actual cost of new assets acquired in a previous year exceeds twenty-five crore rupees and they are installed by 31 March 2017, with the deduction falling in the year of installation from AY 2016-17; that section 32AC(1B) denies any sub-section (1A) deduction from AY 2018-19 onwards; and that a sale or transfer of the new asset within five years of installation, other than in an amalgamation or demerger, brings the deduction back as business income of the year of transfer in addition to the capital gain, with sub-section (3) passing that exposure to the amalgamated or resulting company where the transfer is by amalgamation or demerger. It arises in Deductions & Disallowances, How Tax Law Is Read and Capital Gains matters, on section 32AC, section 32AC(1), section 32AC(1A), section 32AC(1B), section 32AC(2), section 32AC(3), section 32AC(4), section 32AD of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. For AY 2015-16, check the second proviso to sub-section (1A) before claiming under it — an assessee eligible under sub-section (1) for that year cannot use sub-section (1A). Where acquisition and installation fell in different years, check which text applies. From AY 2016-17 the first proviso to sub-section (1A) puts the deduction in the year of installation; for AY 2015-16 the unamended words required acquisition and installation in the same previous year. Confirm the assessee is a company. Section 32AC is confined to companies; a firm or an LLP investing in the same plant has no claim under this section, though section 32AD may be open to it. Run every asset through the sub-section (4) exclusions before it goes into the base: second-hand plant, office or residential installations including guest-houses, office appliances including computers and computer software, vehicles, and plant already fully allowed as a deduction are all out. Keep an installation-date register and diarise five years from each installation date. On a transfer inside that period the deduction is added back as business income of the year of transfer and the capital gain is charged as well; and on an amalgamation or demerger inside the period, sub-section (3) passes the exposure to the amalgamated or resulting company, which is a due-diligence point on the buy side.
Still good law. The final text is verified on two departmental pages carrying different "Year:" stamps (2016 and 2017) which print it identically, and the earlier stages of the section are verified on pages stamped Year 2013, Year 2014 and Year 2015 whose footnotes give the enacting Acts and dates. The section remains on the statute book but is spent: no deduction is available under sub-section (1) after AY 2015-16 because of the acquisition window in sub-section (1), and none under sub-section (1A) for any assessment year commencing on or after 1 April 2018 because of sub-section (1B). The five-year clawback in sub-section (2) can still operate in a later year on an allowance given in one of those years. I did not check judicial treatment beyond the ITAT Hyderabad order noted in corroboration. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Section 32AC was transcribed in full from https://incometaxindia.gov.in/w/section-32ac (Income-tax Act, 1961; heading "Investment in new plant or machinery"; Year: 2013), which prints only sub-sections (1) to (4) — the original Finance Act 2013 text — and then again from /w/section-32ac-1 (Year: 2014), which adds sub-sections (1A) and (1B). Sub-sections (1), (1A) and (1B) and the footnote lists were transcribed from /w/section-32ac-2 (Year: 2015), /w/section-32ac-3 (Year: 2016) and /w/section-32ac-4 (Year: 2017); the Year 2016 and Year 2017 pages print identical text, so the section had reached its final form by then. The commencement dates are the department's own footnotes: "Inserted by the Finance Act, 2013, w.e.f. 1-4-2014" for the section; "Inserted by the Finance (No. 2) Act, 2014, w.e.f. 1-4-2015" (on the Year 2016 and Year 2017 pages, "Ins. by Act No. 25 of 2014 (w.e.f. 1-4-2015)") for sub-sections (1A) and (1B); and "Sub. for 'acquired and installed during any previous year exceeds twenty-five crore rupees' by Act No. 28 of 2016 (w.e.f. 1-4-2016)" together with two "Ins. by Act No. 28 of 2016 (w.e.f. 1-4-2016)" notes for the substitution in sub-section (1A) and its first proviso. Act No. 25 of 2014 is the Finance (No. 2) Act, 2014 and Act No. 28 of 2016 the Finance Act, 2016, on the department's own naming of them on the Year 2015 page, which uses the Act names where the later pages use the Act numbers; I have NOT independently verified either Act number against a gazette copy. I did NOT establish whether a section 32AC deduction and a section 32AD deduction can both be claimed on the same asset: neither section contains an express bar, but nothing I read states the position and readers should not infer one from this entry. I also did not verify whether the two-year installation fix in the first proviso to sub-section (1A) has any counterpart for sub-section (1). This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Not a judgment. The statutory position is that section 32AC(1) gives fifteen per cent to a company manufacturing or producing an article or thing on new assets acquired and installed between 1 April 2013 and 31 March 2015 where the aggregate actual cost exceeds one hundred crore rupees, for AY 2014-15 and AY 2015-16 only; that section 32AC(1A) gives fifteen per cent where the actual cost of new assets acquired in a previous year exceeds twenty-five crore rupees and they are installed by 31 March 2017, with the deduction falling in the year of installation from AY 2016-17; that section 32AC(1B) denies any sub-section (1A) deduction from AY 2018-19 onwards; and that a sale or transfer of the new asset within five years of installation, other than in an amalgamation or demerger, brings the deduction back as business income of the year of transfer in addition to the capital gain, with sub-section (3) passing that exposure to the amalgamated or resulting company where the transfer is by amalgamation or demerger.
TaxSphere, “Statutory position — s.32AC: the fifteen per cent investment allowance for new plant and machinery — two different windows, two different thresholds, and a five-year lock-in that survives the allowance”, https://taxnotice.vittsphere.com/caselaw/case/statutory-position-32ac-investment-allowance-the-hundred-crore-and-twenty-five-crore-windows-and-the-five-year-lock-in/ (validity last checked 2026-09-09)
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