2012 (2) TMI 640 - AT - Income Tax

Additional depreciation on Wind Mill purchased during the year - Whether Electricity is neither an article nor a thing? - Held that - As decided in Texmo Precision Castings 2009 (10) TMI 140 - MADRAS HIGH COURT for the application of s. 32(1)(iia) what is required to be satisfied 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 and there is no requirement that the setting up of a new machinery or plant should have any operational connectivity to the article or thing that was already being manufactured by the assessee It is not the case of the Revenue that the assessee has not manufactured woolen carpets and dhurries. - Decided in favour of assessee

Summary

Issues:
1. Addition of additional depreciation on Wind Mill
2. Allowability of keyman insurance premium as business expenditure

Issue 1: Addition of additional depreciation on Wind Mill
The appeal was against the addition of additional depreciation on a wind mill purchased during the year, with the main contention being whether electricity generation can be considered an "article" or "thing" for claiming additional depreciation. The Assessing Officer disallowed the claim, stating that electricity is not excisable as a "good" and therefore does not qualify as an "article" or "thing" under section 32(1) clause (iiia). The first appellate authority upheld this decision, emphasizing the need for the manufacture or production of a tangible article or thing to claim additional depreciation.

On appeal, the assessee argued that manufacturing woolen carpets constituted the production of an "article" or "thing," supporting their claim with case laws CIT v/s VTM Ltd., CIT v/s Hi Tech Arai Ltd., and CIT v/s Texmo Precision Castings. The counsel highlighted that operational connectivity of new machinery to the already manufactured article was not a requirement under section 32(1)(iia). Additionally, the consistency of allowing the claim in previous and subsequent assessment years was emphasized.

The Revenue contended that electricity generation does not qualify as manufacturing an "article" or "thing" and distinguished the case laws cited by the assessee, noting they involved captive power generation units. The Revenue also argued against the application of res judicata in income tax procedures.

The Tribunal referred to the decision of the Hon'ble Madras High Court in Texmo Precision Castings, Hi Tech Arai Ltd., and VTM Ltd., which clarified that operational connectivity to the already manufactured article was not necessary for claiming additional depreciation under section 32(1)(iia). As the Revenue did not present any contrary decisions and did not dispute the assessee's manufacturing activities, the Tribunal allowed the appeal, following the precedent set by the Madras High Court.

Issue 2: Allowability of keyman insurance premium as business expenditure
The first appellate authority allowed the insurance premium paid on the life of the partner as a business expenditure, citing keyman insurance as an allowable expense under the Act. The authority emphasized the importance of managing partners to the business and referenced precedents where keyman insurance premium was considered an allowable business expense.

The Tribunal upheld the decision to allow the insurance premium as a business expenditure, highlighting the distinction between partners and the firm, with the partners' salary and remuneration being taxed separately. The Tribunal noted that the receipts on maturity from the keyman insurance policy would be taxable in the firm's hands, justifying the allowance of the premium as an expenditure.

Overall, the Tribunal ruled in favor of the assessee, allowing both the appeal regarding the additional depreciation on the wind mill and the claim for keyman insurance premium as a business expenditure.

This comprehensive analysis covers the issues raised in the legal judgment, detailing the arguments presented by both parties and the Tribunal's reasoning for the final decision.