2008 (6) TMI 586 - AT - Income Tax

Depreciation claimed on Cost of labour work for site development, Civil work control room and Internal road development - Windmil 100 per cent depreciation - transformer upto DP structure - whether a building can be treated as a plant - HELD THAT - The Hon'ble Supreme Court in the case of Indian Hotels Co. Ltd. vs. ITO 2000 (8) TMI 5 - SUPREME COURT with the approval A statute cannot always be construed with the dictionary in one hand and the statute in the other. Regard must also be had to the scheme, context and to the legislative history of the provision . In Karnataka Power Corporation 2000 (7) TMI 72 - SUPREME COURT Hon'ble Supreme Court has given a clear observation that the question whether a building can be treated as a plant, basically is a question of fact and where it is found as fact that a building has been so planned and constructed as to serve the assessee special technical requirements, it will qualify to be treated as a plant for the purpose of investment allowance. For interpreting the scheme of depreciation as prescribed u/s. 32 it is not necessary that we should adopt a judge-sense meaning, which is sometimes artificial and imprecise in application by giving a meaning altogether different from the statutory provisions. The scheme of s. 32 unequivocally leads to the conclusion that on one hand plant and on the other hand machinery are to be treated as separate for the purpose of allowance of depreciation. Moreover, how one can ignore the block of assets as prescribed in the table of rates for the purpose of allowance of depreciation in Appendix I of IT Rules. As per this Appendix Part 'A' contains building in a separate head, furniture and fittings in another head and machinery and plant in a different head by prescribing different rates of depreciations. The scientific reason is often discussed as the period of diminution for tangible assets. If the period of diminution or wear-tear is very fast than higher rate of depreciation is granted. Naturally the speed with which a machinery gets discarded due to wear and tear, the buildings do not get wear and tear so fast. On this basis, as well, we cannot hold that building of control room, internal roads etc. being civil construction work in nature are not at par with the windmill as far as the period of diminution is concerned. Moreover sometimes to promote a particular activity the statute provides certain incentives in the shape of higher depreciation. We have to keep in mind such an intention of the legislature as well. However no such intention has ever been expressed in the legislature to provide higher rate of depreciation in respect of structure surrounding the windmill. Rather the Appendix and the depreciation schedule has categorically worded that windmills and any specially designed devices which run on wind mills are qualified for 100 per cent rate of depreciation. Since the civil work of control room, the site development and the internal road development are not specially designed devices hence in our considered opinion, as per the discussion made herein above, are not entitled for 100 per cent depreciation. The claim in this regard is disallowed. Depreciation on transformer upto DP structure - The appellant had paid a sum for the purpose of supplying of electrical items like transformer upto DP structure, internal line upto metering. The said payment was made to Suzlon Developers (P) Ltd. This gadget is for transmission of electrical power generated upto sub-station of MSEB at site. In our humble opinion the electrical energy so produced by the wind mill is a waste if it is not transmitted to MSEB sub-station. The function of such unit is that the electricity so generated is required to be transferred and transmitted to cable line upto sub-station, where the actual units so generated are stored and metered. Since this is the function of transformer upto DP structure, hence ought to be held as an integral part of the windmill. The other reasons such as the period during which a machinery gets depreciated, as discussed hereinabove, does also apply in case of this machinery. Since we have held so, therefore, the appellant is consequently entitled for higher rate of depreciation as prescribed in IT Rules. In the result, as per the grounds of appeal the claim of depreciation in respect Cost of labour work for site development, Civil work control room and Internal road development are rejected and claim of depreciation in respect of item Transformer upto DP structure is allowed. Resultantly, this appeal is partly allowed.

Summary

Issues Involved:
1. Depreciation on site development expenses.
2. Depreciation on cost of construction for the control room.
3. Depreciation on labour cost for internal road development.
4. Depreciation on transformer up to DP structure.

Issue-wise Detailed Analysis:

1. Depreciation on Site Development Expenses:
The assessee claimed 100% depreciation on site development expenses amounting to Rs. 75,000, arguing it was necessary for the installation of the windmill. The AO treated this as an expense for land improvement, not eligible for depreciation. The CIT(A) upheld this view, stating the expenditure was for clearing the land, not for erecting the windmill, thus it should be embedded in the cost of the land, which is not depreciable. The Tribunal agreed, emphasizing that site development does not qualify as part of the windmill's cost for depreciation purposes.

2. Depreciation on Cost of Construction for the Control Room:
The assessee argued that the control room, housing transformers and other equipment, was integral to the windmill's operation and should be considered part of the plant, thus eligible for 100% depreciation. The AO and CIT(A) disagreed, treating the control room as a building providing protection to the equipment, not as part of the plant. The Tribunal upheld this view, noting that the control room was a civil construction not specifically designed as an integral part of the windmill, thus not qualifying for higher depreciation.

3. Depreciation on Labour Cost for Internal Road Development:
The assessee claimed that internal roads were essential for the erection and operation of the windmill, thus should be eligible for 100% depreciation. The AO categorized this as a building expense, allowing only 10% depreciation. The CIT(A) supported this, stating that internal roads are incidental facilities, not components of the windmill. The Tribunal agreed, emphasizing that internal roads, while beneficial, do not qualify as integral parts of the windmill eligible for higher depreciation.

4. Depreciation on Transformer up to DP Structure:
The assessee claimed 100% depreciation on the transformer and related electrical items costing Rs. 7,00,000, arguing they were crucial for transmitting the generated power to the MSEB sub-station. The AO allowed only 25% depreciation, treating these as general electrical items. The CIT(A) upheld this view. However, the Tribunal differed, recognizing the transformer as integral to the windmill's operation, necessary for transmitting generated power, and thus entitled to 100% depreciation.

Conclusion:
The Tribunal concluded that the claims for 100% depreciation on site development expenses, control room construction, and internal road development were not justified and upheld the lower rates of depreciation for these items. However, it allowed the claim for 100% depreciation on the transformer up to DP structure, recognizing it as an integral part of the windmill's operation. The appeal was thus partly allowed.