2021 (3) TMI 972 - HC - Income Tax

Additional depreciation on windmill u/s 32(1)(ii)(a) - AO denied the benefit on the ground that the primary business of the assessee does not include generation of wind energy generation of sale of energy is not the primary business of the assessee company - ITAT allowed the deduction - As per revenue amended provision under Section 32(1)(ii)(a) permits for additional depreciation of actual cost of any new machinery or plant (other than ships and aircraft) acquired and installed only after 31st day of March 2012 to an assessee engaged in the business of generation and distribution of power? - HELD THAT - Though the term Capital Consumption is used by the assessee it does not mean that whatever electricity energy generated by the assessee with their wind mills is directly fed into their system for being used for manufacture of Pet Bottles. If this is to be the opinion then it will fall fowl of the regulations under which wind energy is being regulated in the State. The assessee who owns the wind mill if engaged in the generation of power is mandated to feed the same into the grid of the Tamilnadu Electricity Board and pursuant to the agreement between the assessee and the Board a grid is given to the generator. Therefore going with scheme of things it is undoubtedly clear that the assessee is into the generation of power which is being fed into the grid of the Tamilnadu Electricity Board to be distributed. Identical issues was considered by this Court in M/S. VTM LIMITED 2009 (9) TMI 35 - MADRAS HIGH COURT wherein held what is required to be satisfied in order to claim the additional depreciation is that the setting up of a new machinery or plaint 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. The said provision does not state that the setting up of a new machinery or plant which was acquired and installed upto 31.03.2002 should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore the contention that the setting up of a wind mill has nothing to do with the power industry namely manufacture of oil seeds etc. is totally not germane to the specific provision contained in Section 32(1)(iia) . Also see TEXMO PRECISION CASTINGS 2009 (10) TMI 140 - MADRAS HIGH COURT and M/S. HI TECH ARAI LIMITED 2009 (9) TMI 60 - MADRAS HIGH COURT - Decided against revenue.

Summary

Issues:
1. Entitlement for additional depreciation under Section 32(1)(iia) of the Income Tax Act, 1961.

Analysis:
The appeal before the High Court of Madras concerned the entitlement of the assessee for additional depreciation under Section 32(1)(iia) of the Income Tax Act, 1961. The Revenue raised substantial questions of law regarding the correctness of allowing additional depreciation on windmills under Section 32(1)(ii)(a) of the Act for the assessment year 2012-13. The primary issue revolved around whether the assessee was entitled to claim additional depreciation for windmills under the said provision.

The Assessing Officer initially denied the additional depreciation, stating that the primary business of the assessee did not involve the generation of wind energy. However, the assessee contended that their business of manufacturing and selling Pet Bottles was power-intensive and that the windmills were installed to enable captive consumption of energy. The assessee argued that the generation of electricity by the windmills was intricately linked to their business operations. The Commissioner of Income Tax (Appeals) accepted the assessee's contentions, emphasizing that there was no requirement for windmills to be the primary business of the assessee to claim additional depreciation.

The High Court considered the arguments and referred to relevant case law, including the decision in CIT Vs. Atlas Export Enterprise, to support the assessee's position. The Court highlighted that the nature of the transaction between the assessee and the Tamilnadu Electricity Board indicated the generation of power by the assessee, which was then fed into the grid for distribution. The Court also cited the judgment in the case of Commissioner of Income Tax, Madurai Vs. VTM Ltd., which clarified that operational connectivity to the existing business was not a prerequisite for claiming additional depreciation under Section 32(1)(iia) of the Act.

In light of the legal precedents and the arguments presented, the High Court dismissed the tax case appeal, ruling in favor of the assessee and answering the substantial questions of law against the Revenue. The Court held that the assessee was entitled to claim additional depreciation for the windmills, as the generation of power was intricately linked to their business operations.