2012 (11) TMI 215 - AT - Income Tax

Additional Depreciation on the windmill - disallowance as the assessee is not involved in manufacturing of any goods - Held that - As decided in N.T.P.C. Limited, Versus Deputy Commissioner of I.T. 2012 (5) TMI 127 - ITAT DELHI generation of electricity is akin to manufacturing of a new product. CST Vs. Madhya Pradesh Electricity Board 1968 (11) TMI 85 - SUPREME COURT OF INDIA as held that electricity falls within the definition of goods under the provisions of Sale of Goods Act, 1930. Thus the assessee is involved in the manufacturing activity and fulfills the conditions as laid down under section 32(1)(iia). The Government vide Finance Act, 2012 has amended the provisions of section 32(1)(iia) to include the business of generation or generation and distribution of power, eligible for benefit under section 32(1)(iia). Although the said amendment is with effect from 1.4.2013 but it gives impetus to the view that generation of electricity is a manufacturing process and qualifies for the benefits under section 32(1)(iia) - in favour of assessee.

Summary

Issues:
- Claim of additional depreciation on windmill installation
- Interpretation of manufacturing activity for eligibility of additional depreciation

Analysis:
1. Claim of Additional Depreciation on Windmill Installation:
The appellant, engaged in the sale of imported second-hand textile machinery and electricity generation through windmills, installed a second windmill in the current assessment year. The appellant claimed 100% depreciation for the second windmill under section 32(1) and Item xiii of New Appendix I. However, the Assessing Officer rejected the claim, stating the appellant was not entitled to additional depreciation as they were not involved in manufacturing any goods. The CIT(A) allowed the appeal, citing judgments of the Hon'ble Madras High Court in similar cases. The Revenue appealed this decision, arguing that the appellant, being a commission agent and not a manufacturer, should not receive additional depreciation.

2. Interpretation of Manufacturing Activity for Eligibility of Additional Depreciation:
The crux of the issue revolved around whether electricity generation through windmills constitutes manufacturing activity. The appellant contended that electricity production is akin to manufacturing, supported by the Supreme Court's ruling that electricity falls under the definition of goods. They further referenced a judgment stating that the process of electricity generation is similar to manufacturing. The appellant emphasized that production and manufacturing are interchangeable terms, with production having a broader meaning. The Tribunal concurred, stating that electricity generation qualifies as manufacturing activity under section 32(1)(iia), noting a subsequent amendment supporting this interpretation effective from 1.4.2013. Consequently, the CIT(A)'s decision was upheld, dismissing the Revenue's appeal for lacking merit.