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2016 (8) TMI 1156 - HC - Income TaxAdditional depreciation on the windmill - generation of electricity by wind mill - Held that - After the installation of the additional wind mills both prior to as well as after the installation of the additional wind mills the assessee was using wind energy for generating power for its capitative consumption apart from selling the surplus power generated to the Tamil Nadu Electricity Board. As far as application of Section 32(1)(iia) of the Act is concerned what is required to be satisfied in order to claim the additional depreciation is that the setting up of a new machinery or plant should have been acquired and installed after 31st March 2002 by an assessee who was already engaged in the business of manufacture or production of any article or thing. The said provision does not state that the setting up of a new machinery or plant which was acquired and installed upto 31.03.2002 should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore the contention that the setting up of a wind mill has nothing to do with the power industry namely manufacture of oil seeds etc. is totally not germane to the specific provision contained in section 32(1)(iia) of the Act. See Commissioner of Income-Tax v. Atlas Export Enterprise(2015 (3) TMI 846 - MADRAS HIGH COURT ) (Mad.) which followed in Hi-Tech Arai s case (2009 (9) TMI 60 - MADRAS HIGH COURT) Thus upheld the order of the Tribunal allowing additional depreciation. - Decided against revenue
Issues Involved:
1. Entitlement to additional depreciation on windmill under Section 32(1)(iia) of the Income Tax Act, 1961. 2. Disallowance of Employees' Provident Fund (PF) and Employees' State Insurance (ESI) contributions. Issue-wise Detailed Analysis: 1. Entitlement to Additional Depreciation on Windmill: The primary issue in this case revolves around whether the assessee, engaged in the manufacture of iron and steel products, is entitled to additional depreciation on a windmill installed during the financial year 2005-06. The assessee claimed additional depreciation under Section 32(1)(iia) of the Income Tax Act, 1961, arguing that the windmill was used for captive consumption in their manufacturing activity, thus qualifying for the depreciation. The appellate authority and the Tribunal both relied on the precedent set by the High Court in CIT v. VTM Ltd., reported in 319 ITR 336 (Mad.), which held that additional depreciation is allowable for new machinery or plant acquired and installed after 31.03.2002 by an assessee engaged in manufacturing, irrespective of whether the new machinery or plant has operational connectivity to the existing manufacturing activities. The Tribunal confirmed the appellate authority's decision, stating that the electricity generated by the windmill used for captive consumption in manufacturing qualifies for additional depreciation. The revenue's appeal raised two substantial questions of law: (i) Whether the assessee is entitled to additional depreciation on the purchase of windmills when their main business is not producing or generating electricity. (ii) Whether the benefit of additional depreciation on power generation applies only from assessment year 2013-14 onwards, as per the amended provisions effective from 01.04.2013. The High Court, referencing its earlier judgments in CIT v. Hi-Tech Arai Ltd., reported in 321 ITR 477 (Mad.), CIT v. Texmo Precision Castings, reported in 321 ITR 481 (Mad.), and M.M. Forgings Ltd. v. Additional Commissioner of Income-Tax, reported in 349 ITR 673 (Mad.), upheld the Tribunal's decision. These precedents consistently held that additional depreciation is allowable for new machinery or plant installed by an assessee engaged in manufacturing, without requiring operational connectivity to the existing manufacturing activities. 2. Disallowance of Employees' Provident Fund (PF) and Employees' State Insurance (ESI) Contributions: The second issue concerns the disallowance of the assessee's claims for PF and ESI contributions. The Commissioner of Income-Tax (Appeals) observed that the payments towards Employees' Contribution to PF and ESI are governed by Section 36(1)(va) of the Income Tax Act and not by Section 43B. Consequently, the appellate authority disallowed the contributions of ?25,208 towards PF and ?6,800 towards ESI. The Tribunal upheld this disallowance, and the High Court did not find any reason to interfere with the Tribunal's decision. The revenue's appeal did not specifically challenge this aspect, focusing instead on the issue of additional depreciation. Conclusion: The High Court dismissed the revenue's appeal, affirming the decisions of the appellate authority and the Tribunal. The Court concluded that the assessee is entitled to additional depreciation on the windmill under Section 32(1)(iia) and upheld the disallowance of PF and ESI contributions. The judgment reiterates the principle that additional depreciation is allowable for new machinery or plant installed by an assessee engaged in manufacturing, without requiring operational connectivity to the existing manufacturing activities.
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