2010 (8) TMI 26 - HC - Income Tax

Depreciation effective ownership - assessee has set up a power plant in the premises of NTPC for its own captive consumption. Since the expenditure for creating some facilities such as coal handling water treatment etc. was very substantial assessee decided to use NTPC facilities for these purposes. Rs. 22.62 crores was paid by the respondent-assessee to the NTPC for this and capitalized in its books on which depreciation was claimed. - The Assessing Officer observed that since the effective ownership and control belonged to NTPC depreciation could not be allowed to the assessee Held that - we are of the view that as the Captive Power Plan is not owned by the respondent-assessee no fixed capital of enduring nature has come into existence. It is pertinent to mention that expenses were incurred wholly and exclusively for the purposes of business. Moreover as pointed out by the CIT(A) had the respondent-assessee not incurred the expenditure in question it would have to pay for use of the facilities and such payment would have been allowed as revenue expenditure. In the present case the advantage consists in facilitating the assessee s business and trading operations leaving the fixed capital untouched. Consequently in our view the expenditure will be on revenue account even though the advantage may endure for an indefinite future - though the expenditure had been loosely termed as depreciation it was revenue expenditure which was allowed every year at the rates on which depreciation had been allowed.

Summary

Issues:
1. Condonation of delay in re-filing the appeal.
2. Challenge to the order of the Income Tax Appellate Tribunal regarding depreciation on a Captive Power Plant.
3. Determination of whether the expenditure is capital or revenue in nature.

Issue 1: Condonation of Delay
The application for condonation of delay of 124 days in re-filing the appeal was considered by the High Court. After hearing both parties' counsels, the delay was condoned based on the sufficient cause shown in the application.

Issue 2: Challenge to ITAT Order
The appeal was filed under Section 260A of the Income Tax Act, 1961, challenging the ITAT's order regarding depreciation on a Captive Power Plant for the Assessment Year 2005-2006. The respondent-assessee, involved in Aluminium production, had paid Rs. 22.62 crores to NTPC for using their facilities. The Assessing Officer disallowed depreciation, but CIT(A) and ITAT deleted the disallowance based on previous judgments.

Issue 3: Expenditure Nature - Capital or Revenue
The appellant argued that depreciation on the Captive Power Plant should not have been allowed as the ownership condition under Section 32(1) of the Act was not satisfied. The respondent contended that the issue was settled by a Division Bench judgment dismissing similar appeals by the Revenue. Various legal principles were cited, including those from Supreme Court cases, to determine capital or revenue expenditure. The Court concluded that since the Captive Power Plant was not owned by the assessee, no fixed capital of enduring nature was created, and the expenditure was for facilitating business operations, thus being revenue in nature. The Court dismissed the appeal, stating no substantial question of law arose.

In conclusion, the High Court dismissed the appeal without any order as to costs, based on the finding that the expenditure was revenue in nature and no enduring fixed capital was created by the respondent-assessee.