Section 18
Replacement of machinery or plant
(1)
Where machinery or plant in the case of which any of the events mentioned in section 17(1) has occurred is replaced by the owner thereof and a balancing charge falls to be made by him by reason of that event or, but for the provisions of this section, would have fallen to be made on him by reason thereof, then, if by notice in writing to the Collector he so elects, the following provisions shall have effect —
(a)
if the amount on which the charge would have been made is greater than the capital expenditure on providing the new machinery or plant —
(i)
the charge shall be made only on an amount equal to the difference;
(ii)
no initial allowance, no balancing allowance and no annual allowance shall be made or allowed in respect of the new machinery or plant or the expenditure on the provision thereof; and
(iii)
in considering whether any and, if so, what balancing charge falls to be made in respect of the expenditure on the new machinery or plant, there shall be deemed to have been made in respect of that
Income Tax 58
expenditure an initial allowance equal to the full amount of that expenditure;
(b)
if the capital expenditure on providing the new machinery or plant is equal to or greater than the amount on which the charge would have been made —
(i)
the charge shall not be made;
(ii)
the amount of any initial allowance in respect of that expenditure shall be calculated as if the expenditure had been reduced by the amount on which the charge would have been made;
(iii)
in considering what annual allowance is to be made in respect of the new machinery or plant, there shall be left out of account a proportion of the machinery or plant equal to the proportion which the amount on which the charge would have been made bears to the amount of that expenditure; and
(iv)
in considering whether any and, if so, what balancing allowance or balancing charge falls to be made in respect of the new machinery or plant, the initial allowance in respect thereof is deemed to have been increased by an amount equal to the amount on which the charge would have been made.
(2)
Expenditure on the provision of machinery or plant shall include capital expenditure on alterations to an existing building incidental to the installation of that machinery or plant for the purposes of the trade, profession or business.