It's been very long since I last played M:TW, but I think that was the case. It's a dubious benefit, however, since you will have lost the castle to the enemy anyway. And because the basic structure isn't downgraded, you will have to spend longer besieging it (or storm it while it contains a greater garrison) to retake it.
The main benefit of the upgrades is that it causes the enemy to take greater losses during an assault. Whether that is worth it on a strategic level is something that depends on other factors.
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