2014 (1) TMI 386 - AT - Income Tax

Deduction u/s 80IA of the Act - Deduction u/s 80IA after reducing amount of depreciation on WEG s allocated on pro-rata basis Held that - deduction under section 80-IA is to be computed after setting off the depreciation relatable to the wind mill against the income earned out of electricity generator which qualified for deduction under sec. 80-IA of the Act. Allowance of eligible and non eligible units - Held that - It has been excluded from the computation for the purpose of sec. 80IA of the Act Thus, deduction under section 80-IA is to be computed after setting off the depreciation relatable to the wind mill against the income earned out of electricity generator which qualified for deduction under sec. 80-IA of the Act - assessee has been treating each WEG as a separate unit and claiming the deduction Following Dalmia Cement (Bharat) Ltd. Versus Additional Commissioner of Income-tax, Range-10, New Delhi 2009 (5) TMI 623 - ITAT DELHI The depreciation allowable to each unit whether unabsorbed or present year has to be allocated against the profit of that unit before computing the deduction admissible to the assessee under sec. 80-A the issue remitted back to the Assessing Officer for recomputation of deduction admissible under section 80-IA of the Act - the deduction should not exceed the ceiling of gross total income Decided in favour of Revenue. Deletion u/s 40(a)(ia) of the Act Applicability of Section 194 C of the Act - Nature of Payment Contract of service OR Rent for hiring a plant Held that - Following Commissioner of Income-Tax Versus Prasar Bharti (Broadcasting Corporation of India) 2006 (11) TMI 159 - DELHI High Court - According to the contract, the travel agency has to ply the bus for a fixed number of hours - Thus, it is a simplicitor service contract for transportation of the passengers and it falls within the ambit of clause (c), Sr. No.(IV) of explanation appended to sec. 194C - assessee has just hired the transportation facilities which is akin to hiring of a taxi though on regular basis for a fixed number of hours As per Board s Circular No. 558 dated 28.3.1990, where a vehicle is given on hire along with provisions of a driver for use of carrying of the passengers for fixed hours than it is a service contract for carrying out the work - It will be covered under sec. 194C of the Act because the vehicle has been made available as a matter of service - it is a service contract and assessee was to deduct tax under sec. 194 C of the Act - The assessee has availed the services of cranes which were operated by the contractee - Assessing Officer has erred in construing that assesse has paid rent and its case falls under sec. 194I of the Act Decided Against Revenue.

Summary

Issues Involved:
1. Deduction under Section 80IA of the Income-tax Act, 1961.
2. Allocation of depreciation and expenses.
3. Eligibility period for claiming deduction under Section 80IA.
4. Disallowance under Section 40(a)(ia) of the Income-tax Act, 1961.

Detailed Analysis:

1. Deduction under Section 80IA of the Income-tax Act, 1961:
The primary issue revolves around the eligibility of the assessee for deduction under Section 80IA, which pertains to profits and gains derived from an industrial undertaking engaged in the business of generating power. The assessee claimed a deduction of Rs. 87,35,282 for six units of Wind Electric Generators (WEGs). The Assessing Officer (AO) denied the deduction, arguing that the ten-year eligibility period had lapsed, as the first claim was made in the assessment year 1996-97. However, the assessee contended that each WEG is a separate unit, and the deduction should be computed for each unit independently.

2. Allocation of Depreciation and Expenses:
The AO computed the unabsorbed depreciation and current year depreciation for two units, totaling Rs. 66,10,294, and proportionate expenses of Rs. 8,42,718. The AO aggregated these amounts and set them off against the power generation income, concluding that the income was insufficient to claim the deduction. The CIT(A) directed that depreciation should be allocated proportionately at 0.2%, similar to the maintenance expenses. The ITAT upheld the AO's view that depreciation and expenses must be deducted from the gross receipts to compute the eligible profit, as per Sections 80IA(1), (4), and (5).

3. Eligibility Period for Claiming Deduction under Section 80IA:
The AO argued that the ten-year period for claiming deduction had expired. However, the ITAT noted that each WEG is a separate unit, and the deduction should be computed independently for each unit. The ITAT referenced the case of Dalmia Cement, where it was held that each WEG is a "stand-alone" unit capable of generating electrical energy independently. The ITAT directed the AO to recompute the deduction based on the profit from each unit and allocate the depreciation accordingly.

4. Disallowance under Section 40(a)(ia) of the Income-tax Act, 1961:
The AO disallowed Rs. 123,35,991 under Section 40(a)(ia), arguing that the assessee failed to deduct TDS at 20% for crane hire charges, which should be considered rent under Section 194I. The assessee contended that it was a service contract, not a hire of machinery. The CIT(A) agreed with the assessee, stating that the cranes were operated by the contractor's staff, and thus, it was a service contract. The ITAT upheld the CIT(A)'s decision, referencing a similar case where it was held that hiring transportation services falls under Section 194C, not Section 194I.

Conclusion:
The ITAT concluded that the deduction under Section 80IA should be computed after setting off the depreciation and expenses related to each WEG unit. The AO was directed to recompute the deduction based on the profit from each unit and allocate the depreciation accordingly. The disallowance under Section 40(a)(ia) was deleted, as the payments were for a service contract, not rent. The appeal of the revenue was partly allowed.