2014 (12) TMI 752 - HC - Income Tax

Admission of appeal - Disallowance of excess claim of depreciation on windmill deleted Held that - The approach of both the authorities is perfectly justified - windmill would require a scientifically designed machinery in order to harness the wind energy to the maximum potential - Such device has to be fitted and mounted on a civil construction, equipped with electric fittings in order to transmit the electricity so generated - Such civil structure and electric fittings, therefore, it can be well imagined, would be highly specialized - Thus, such civil construction and electric fitting would have no use other than for the purpose of functioning of the windmill - the installation of windmill and the civil structure and the electric fittings are so closely interconnected and linked as to form the common plant - the legislature has provided for higher rate of depreciation of 80 per cent on renewable energy devises including windmill and any specially designed devise, which runs on windmill - The civil structure and the electric fitting, equipments are part and parcel of the windmill and cannot be separated from the same. Disallowance of Additional depreciation u/s 32(1)(iia) deleted Held that - The assessee s claim of additional depreciation at the rate of 20 per cent u/s 32(1)(iia) on the same windmill - Revenue opposed such claim on the ground that the assessee cannot be stated to be engaged in the business of manufacturing or production of any article or thing this question needs consideration thus, the appeal is admitted for considering the same Decided partly in favour of revenue.

Summary

Issues involved:
1. Disallowance of excess claim of depreciation on windmill.
2. Disallowance of additional depreciation under Section 32(1)(iia) of the Income Tax Act, 1961, on windmill.

Detailed Analysis:
Issue 1: Disallowance of excess claim of depreciation on windmill
The first issue revolves around the claim of the assessee for depreciation at the rate of 80% on the installation of a windmill for electricity generation. The disputed items for depreciation included interest on term loan, civil works, installation costs, and land application fees. The CIT Appeals and the Tribunal ruled in favor of the assessee, citing a precedent where the Apex Court had allowed investment allowance on a building as part of a generating system. The Tribunal upheld the decision, emphasizing that the civil structure and electrical works are integral to the windmill project and necessary for its operation. The higher rate of depreciation was justified as the civil construction and electric fittings were deemed essential for the windmill's functioning and could not be separated from it.

Issue 2: Disallowance of additional depreciation under Section 32(1)(iia) of the Income Tax Act
The second issue pertains to the assessee's claim for additional depreciation at a rate of 20% under Section 32(1)(iia) of the Act on the same windmill. The Revenue objected to this claim, arguing that the assessee was not engaged in manufacturing or production activities. The question of whether the assessee qualified for additional depreciation required consideration. The Tribunal admitted the Tax Appeal to address whether the disallowance of higher depreciation on interest on term loan and land application fees was justified, and whether the additional depreciation on the windmill purchase and installation was rightfully granted. The Tribunal's decision to confirm the CIT Appeals' order in granting additional depreciation was subject to further scrutiny.

In conclusion, the judgment analyzed the issues of depreciation claims on a windmill comprehensively, emphasizing the interconnection between the windmill, civil structure, and electrical fittings. The legal interpretation of the provisions governing depreciation rates and the eligibility criteria for additional depreciation under the Income Tax Act were central to the court's decision, ensuring a thorough examination of the facts and circumstances of the case.