During February, while weakness persisted across most segments, it was more prominent in MHCV, tractor, passenger car, and two-wheeler segments. The UV segment, which had so far remained insulated from the slowdown, also witnessed initial signs of weakness
Automobile sales during February 2013 continued to suffer from extreme weakness, with utility vehicles (UVs) and sports utility vehicles (SUVs), the only segment that was growing, too taking a hit. During the month auto sales remained weak across most segments, led by continued weakness in domestic demand on account of high interest rates, inflation and slowdown in economic activity. High base effect due to pre-budget buying in February 2012 also impacted the growth.
“The decline in car sales in February was the biggest since December 2000, when sales declined by 39.86%. The market continues to be extremely difficult as high fuel prices, interest rates and overall macro economic factors are adding to low consumer sentiments,” Sugato Sen, deputy director general of Society of Indian Automobile Manufacturers (SIAM) told reporters in New Delhi.
According to the data released by the SIAM, during February, overall sales fell by 5.45% to 14.51 lakh units from 15.34 lakh units same month last year. Domestic passenger car sales fell 25.71% to 1.58 lakh units compared with 2.13 lakh units same month of 2012 taking the total passenger vehicle sales 16.67% down.
The automobile sector has witnessed a shift in demand in almost all the segment of vehicles. In the passenger vehicles segment, the gradual shift towards UVs against cars is evident as they are powered by cheaper fuel and have space to accommodate more people. UVs’ contribution in the total sales of passenger vehicles has increased to 20% from 14% last year.
While weakness persisted across most segments, it was more prominent in the medium and heavy commercial vehicle (MHCV), tractor, passenger car, and two-wheeler segments. The UV segment, which had so far remained insulated from the slowdown, also witnessed initial signs of weakness.
Maruti Suzuki India’s UV sales declined 2% mom (month-on-month). While passenger vehicle sales for Mahindra & Mahindra (M&M) grew 14% during February, Tata Motors’ domestic UV sales and car sales tumbled 57% and 73% to 2,844 units and 7,769 units, respectively, compared with a year-ago period.
Post Union Budget, both M&M and Tata Motors have increased prices of their SUVs in line with the increase in excise duty, which may impact sales for the only segment that was witnessing growth in automobile industry.
During the month, total sales of commercial vehicles declined by 11.1% to 68,388 units from 76,891 units in the year-ago period. In February, M&HCVs sales tumbled 34.72% due to hike in diesel prices and slow down in industrial activities.
Total two-wheeler sales in February 2013 slipped by 2.77% to 11.12 lakh units from 11.43 lakh units in the same period last year. Motorcycle sales during the month fell 4.48% to 8.00 lakh units from 8.37 lakh a year ago period, SIAM said.
In this segment, there is gradual rise (2.55%) in the sales of scooters over motorcycles. Scooters contribute around 21% in the total sales of two-wheelers, an increase of 3 percentage points from last year. Honda is a leader in scooters which is impacting sales of Hero MotoCorp and TVS Motors.
“Going ahead, we expect the demand environment to remain weak in fourth quarter of FY13 as a slowdown in economic growth coupled with higher interest rates and fuel expenses continue to dampen consumer sentiments,” said one brokerage in a research note.
Section 32AC introduced in the Union Budget has come as a blessing to a manufacturer. The manufacturer is free to take allowance of 15% at the time of acquisition of asset and can claim depreciation for the entire life of the asset. It’s a kind of double benefit
The Budget 2013-14 introduced a Section 32AC in the Income Tax (I-T) Act which provides one time investment allowance of 15% on the actual cost of the asset. Section 32AC as reproduced below –
(1) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new asset (emphasis ours) after the 31st day of March, 2013 but before the 1st day of April, 2015 (emphasis ours) and the aggregate amount of actual cost of such new assets exceeds Rs100 crore (emphasis ours), then, there shall be allowed a deduction—
(2) If any new asset acquired and installed (emphasis ours) by the assessee is sold or otherwise transferred, except in connection with the amalgamation or demerger, within a period of five years from the date of its installation, the amount of deduction allowed under sub-section (1) in respect of such new asset shall be deemed to be the income of the assessee chargeable under the head “Profits and gains of business or profession” of the previous year in which such new asset is sold or otherwise transferred, in addition to taxability of gains, arising on account of transfer of such new asset.
(3) Where the new asset is sold or otherwise transferred in connection with the amalgamation or demerger within a period of five years from the date of its installation, the provisions of sub-section (2) shall apply to the amalgamated company or the resulting company, as the case may be, as they would have applied to the amalgamating company or the demerged company.
(4) For the purposes of this Section, “new asset” means any new plant or machinery (other than ship or aircraft) but does not include—
(whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year.
What does the Section mean
New asset acquired in the financial year 2013-14 & 2014-15 will allowed 15% investment allowance along with depreciation benefit. For example, if a company acquires plant & machinery in financial year 2013-14 then investment allowance will be available in the assessment year 2014-15 relating to the previous year in which the “new asset” is acquired and installed after satisfying all the conditions mentioned below:
The provision of Section 32AC is explained hereunder with the help of examples:
Company X (engaged in the business of manufacture or production) acquiring new asset costing Rs 50 crore in AY 2014-15 and Rs50 crore in next assessment year, when will be the investment allowance available?
The company shall be eligible to take investment allowance in the AY 2015-16 on the entire amount of Rs100 crore.
Company X (engaged in the business of manufacture or production) acquiring new asset costing Rs100 crore in AY 2014-15 and Rs50 crore in next assessment year, when will be the investment allowance available?
The company shall be eligible to take investment allowance @15% on the entire amount of Rs100 crore in AY 2014-15. In the next year i.e. in AY 2015-16 the company is eligible to take investment allowance @15% on Rs150 crore minus allowance already taken in AY 2014-15.
Withdrawal of allowance
However, this investment allowance shall be withdrawn, where:
In case the company which has acquired new assets and merges with another company, the five year provision shall be applicable to the resultant amalgamated company as well.
What does Section 32AC offer leasing companies?
The new Section provides impetus to leasing business to generate more leasing business in the plant & machinery segment as additional investment allowance shall have implications on the economics of leasing as well. The lessor can claim 15% deduction if he satisfies the condition mentioned above. However, in leases of less than five years, this benefit will not be available.
There are several case laws where the leasing companies were allowed additional depreciation u/s 32(1) (iia) of the I-T Act. In case of Shaan Finance1, the Supreme Court held that notwithstanding the fact that the assessee is a leasing company and the plant and machinery leased out by it are not used by the assessee in any industry the assessee is entitled to investment allowance.
This Section is come as a blessing to the company basically engaged in the business of manufacture or production of any article or thing. Acquirer is free to take allowance of 15% at the time of acquisition and can claim depreciation for the entire life of the asset. It’s a kind of double benefit which will surely affect the business of manufacturing & production
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