2015 (2) TMI 508 - HC - Income Tax

Depreciation claim - cost incurred in civil work and foundation, electrical items, components in installation and common power evacuation while installing windmills - Held that - Civil construction and electric fittings, which have no use other than for the purpose of the functioning of the windmill would become closely interconnected and are part and parcel of the windmill and, therefore, liable for depreciation. 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. See CIT AHMEDABAD III Versus PARRY ENGINEERING AND ELECTRONICS P. LTD. 2014 (12) TMI 752 - GUJARAT HIGH COURT - Decided in favour of assessee.

Summary

Issues:
Whether the assessees are entitled to depreciation as per Appendix-1 to the Income Tax Rules, 1962 for costs incurred in civil work, foundation, electrical items, components in installation, and common power evacuation while installing windmills.

Analysis:
The Assessing Officer disallowed depreciation for various costs incurred during the installation of windmills, stating that these items were not covered within the term "windmills and specially designed devises which run on windmills." The CIT(A) accepted the challenge by the assessee, emphasizing that all the items in question are integral parts of a windmill. The civil work and foundation are essential for a strong foundation, without which a windmill cannot be installed. Similarly, the electrical items, components, and common power evacuation are crucial for the windmill's operation. The ITAT upheld the CIT(A)'s decision, stating that without the civil construction work, electrical items, and components, it would not be possible for the windmill to function and produce electricity.

The revenue argued that as per Appendix-1(iii)(8)(xiii), depreciation is allowed only for windmills and specially designed devices running on windmills, not for other attached items. However, the court found no merit in this argument. Citing a judgment from the Hon'ble Gujarat High Court, the court highlighted that the civil structure and electric fittings are highly specialized and integral to the functioning of a windmill. The Gujarat High Court emphasized that the civil structure and electric fittings are part and parcel of the windmill, forming a common plant that cannot be separated. As the legislature provides for higher depreciation on renewable energy devices, including windmills, the court agreed with the Gujarat High Court's reasoning and dismissed the appeals based on the same principles.

In conclusion, the High Court dismissed the revenue's appeals, aligning with the Gujarat High Court's interpretation that the civil structure, electric fittings, and other associated items are essential components of a windmill, eligible for depreciation under the relevant provisions.