2014 (9) TMI 1115 - HC - Income Tax

Addition depreciation - manufacture or production of an article - assessee in addition to carrying on the business of gold mining is also in the business of generation of electricity through windmill as second line of business - Whether Section 32(1)(iia) includes the business of generation and distribution of power to avail the benefit of additional depreciation? Held that - The material on record shows that the assessee is generating electricity through windmill as a second line of business. It is a product of the assessee company. It is covered under the words article or thing which is tradable / identifiable. In other words the electricity falls within the definition of Sale of Goods Act 1930 and process of generation of electricity is akin to manufacture or production of an article or thing . The power generated need not necessarily be used in the production of assessee s own products namely mining and extraction of gold. The use of electricity in the manufacturing activity of the core business of the assessee is not a precondition for the grant of additional depreciation under the statue. Therefore we do not see any merit in this appeal. Accordingly this appeal is rejected. However we have not gone into the question of applicability of Section 32(1)(iia) of the Income Tax Act 1961 and the question as to whether clarificatory or not is kept open to be decided at proper time.

Summary

Issues:
1. Whether the assessee is entitled to additional depreciation for the business of generation of electricity through windmill.
2. Interpretation of Section 32(1)(iia) of the Income Tax Act, 1961, regarding the inclusion of the business of generation and distribution of power for availing additional depreciation.

Analysis:
1. The case involved an appeal by the Revenue against the Tribunal's decision allowing the assessee to claim additional depreciation for generating electricity through windmills alongside their primary business of gold mining. The assessee had commissioned a windmill with a capacity of 4.5 MW and claimed additional depreciation of 10%, which was initially denied by the assessing authority. The Commissioner of Income Tax (Appeals) later allowed the appeal, leading to the Revenue's appeal to the Tribunal, which was also dismissed. The High Court upheld the Tribunal's decision, emphasizing that electricity generation through windmills qualifies as a separate business line, eligible for additional depreciation under the statute.

2. The High Court's analysis focused on whether the electricity generated by the assessee constitutes a tradable or identifiable product falling within the ambit of the Sale of Goods Act, 1930. The Court determined that electricity is an "article" or "thing" akin to a manufactured product, irrespective of whether it is used in the core business activities of the assessee. The Court clarified that the use of electricity in the assessee's primary business, such as gold mining, is not a prerequisite for claiming additional depreciation. Consequently, the Court rejected the Revenue's appeal, affirming the assessee's right to the additional depreciation for electricity generation through windmills.

3. The High Court refrained from delving into the specific applicability of Section 32(1)(iia) of the Income Tax Act, 1961, and left the question of its interpretative scope open for future consideration. This decision indicates that while the current case established the eligibility of the assessee for additional depreciation based on their windmill power generation business, further clarification may be required regarding the precise interpretation and application of relevant tax provisions in similar contexts.