2013 (12) TMI 192 - AT - Income Tax

Industrial undertaking - Applicability of section 80IA (3)(ii) Whether the new industrial undertaking can be formed by the transfer to a new business of machinery or plant previously used for any purpose u/s 80IA (3)(ii) of the Income Tax Act - Held that - The assessee had earlier sold the business the windmill plant stood transferred to its sister concern. The sister concern leased back the windmill to the assessee - The assessee had also produced wind power in the year 2003 - As per section 80IA(3)(ii), once the machinery or plant previously used for any purpose is transferred to a new business, the concerned undertaking is not entitled for deduction - Decided against assessee.

Issues Involved:
1. Eligibility for deduction under section 80IA of the Income Tax Act, 1961.
2. Consideration of the rate at which the Tamilnadu Electricity Board credits the assessee's electricity bill for windmill generation.

Detailed Analysis:

1. Eligibility for Deduction under Section 80IA of the Income Tax Act, 1961:
The primary issue in this case is whether the assessee's claim for deduction under section 80IA of the Income Tax Act, 1961, is valid. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] both held that the assessee's claim was barred by section 80IA(3) of the Act. Section 80IA(3) stipulates that the new industrial undertaking should not be formed by the transfer to a new business of machinery or plant previously used for any purpose. The AO noted that the assessee had purchased windmills, produced power, sold them to its sister concern, and then leased them back, which constituted a splitting up of the business. This was seen as violating section 80IA(3)(i) and (ii), as the business was formed by the transfer of previously used machinery or plant.

The assessee argued that section 80IA(3)(i) & (ii) did not apply and cited the case of CIT v. Tata Communication Internet Services Ltd. [2012] 17 taxmann.com 241 (Delhi) to support their claim. However, the tribunal found that the facts of the present case differed from the cited case, as the assessee had failed to meet the conditions of section 80IA(3). The tribunal emphasized that the phrase "any purpose" in section 80IA(3)(ii) has a broad scope, covering the facts of this case where the machinery was previously used.

The tribunal concluded that the assessee's business was indeed formed by the transfer of previously used machinery and thus was not eligible for the deduction under section 80IA. Consequently, the order of the CIT(A) was affirmed, and the assessee's claim was denied.

2. Consideration of the Rate Credited by Tamilnadu Electricity Board:
The second issue raised by the assessee was regarding the rate at which the Tamilnadu Electricity Board (TNEB) credits the assessee's electricity bill for windmill generation. The assessee contended that the rate adopted by TNEB should be considered as the income of the windmill, and not a notional rate as adopted by the AO. The assessee referred to the decision of ITAT, Chennai in the case of M/s. Velayuthasamy Spinning Mills (P) Ltd. (ITA No. 850 (Mds)/2011), which allowed the assessee to consider the buying rate from TNEB as the income.

However, since the tribunal had already concluded that the assessee's claim for deduction under section 80IA was not maintainable, this issue was rendered academic. As the primary claim was dismissed, the tribunal held that the consideration of the rate credited by TNEB was of no consequence and thus, this ground of the appeal also failed.

Conclusion:
The appeal of the assessee was dismissed on both grounds. The tribunal upheld the findings of the CIT(A) and the AO, confirming that the assessee's claim for deduction under section 80IA was barred by section 80IA(3) due to the transfer of previously used machinery. Additionally, the issue regarding the rate credited by TNEB was deemed academic and dismissed. The order was pronounced on 04/01/2013 at Chennai.

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