2019 (8) TMI 658 - HC - Income Tax

Additional depreciation claimed on plants and machinery installed in the Captive Power Plant u/s.32(1)(ii) - HELD THAT - The issue raised by the Revenue is no longer resintegra in view of a decision of the Delhi High Court in the case of Pr. CIT Vs. NTPC Sail Power Co. (P.) Ltd. 2019 (3) TMI 207 - DELHI HIGH COURT . High Court also took note of the fact that with effect from 01.04.2013, the provision i.e. Section 32 of the Act has been amended by the Finance Act, 2012 and the assessee engaged in the generation of power has expressly been included in the ambit thereof. The Delhi High Court by placing reliance on Supreme Court decision State of Andhra Pradesh Vs. NTPC Ltd 2002 (4) TMI 694 - SUPREME COURT ultimately took the view that the electricity has all the necessary trappings of articles or things and the benefit of additional depreciation cannot be denied. This Court in the case of CIT Vs. Diamines Chemicals Ltd. 2013 (12) TMI 373 - GUJARAT HIGH COURT held that what is required to be satisfied in order to claim additional depreciation is that the setting up of new machinery or plant should have been acquired and installed by an assessee, who was already engaged in the business of manufacture or production of any article or thing. In view of the aforesaid, no error not to speak of any error of law could be said to have been committed by the appellate tribunal in passing the impugned order - Decided against revenue.

Summary

Issues:
1. Disallowance of additional depreciation claimed by the assessee under section 32(1)(ii) of the Income Tax Act, 1961.

Analysis:
The tax appeal under Section 260A of the Income Tax Act, 1961 was filed by the Revenue against the order of the Income Tax Appellate Tribunal. The dispute arose from the disallowance of additional depreciation claimed by the assessee, engaged in power generation, on power plant and electric installations. The Assessing Officer denied the additional depreciation, contending that plants and machinery fell under section 32(1)(i) for normal depreciation, not under section 32(1)(ii) for additional depreciation. The CIT(A) upheld this decision, leading to an appeal before the ITAT, which ruled in favor of the assessee, allowing the additional depreciation on the Captive Power Plant machinery.

The ITAT's decision was based on the interpretation that electricity generation constitutes the production of an article or thing. Citing precedents, including the Supreme Court's ruling that electricity is 'goods,' the ITAT held that the generation of electricity is akin to manufacturing an article or thing. The ITAT also noted that the Finance Act of 2012 explicitly included entities engaged in power generation for claiming additional depreciation, further supporting the assessee's claim.

The Revenue challenged the ITAT's decision, raising the issue before the High Court. The High Court referred to a Delhi High Court decision in a similar case involving power generation, which relied on Supreme Court precedents to establish that electricity qualifies as an 'article' or 'thing,' making the assessee eligible for additional depreciation. The High Court also cited a Karnataka High Court judgment supporting the interpretation that electricity generation is akin to the production of an article or thing, emphasizing that the use of electricity in the assessee's core business is not a prerequisite for claiming additional depreciation.

Moreover, the High Court highlighted the Supreme Court's ruling that electricity is considered 'goods' for sales tax purposes, affirming that electricity possesses the characteristics of movable property. The High Court concluded that denying additional depreciation to a power generating entity based on the argument that electricity is not an article or thing would be unduly restrictive. The High Court upheld the ITAT's decision, emphasizing the legislative amendment in 2012 that explicitly included power generation entities for claiming additional depreciation.

In another case cited by the High Court, the ITAT's decision to allow additional depreciation on a Wind Electric Generator was upheld, emphasizing that the setting up of new machinery or plant by an entity already engaged in manufacturing or production qualifies for additional depreciation. The High Court dismissed the Revenue's appeal, affirming the eligibility of the assessee for additional depreciation on the Captive Power Plant machinery.