2015 (3) TMI 846 - HC - Income Tax

Entitlement to additional depreciation as per Section 32(1)(iia) - generation of electricity by wind mill amounts - ITAT allowed depreciation - Held that - In the present case, the core business of the assessee is manufacturing and export of textile goods. During the assessment year 2006-07, the assessee had entered into the business of generation of power and installed one wind mill. The assessee maintained separate books of accounts for export division and the wind mill division. Since the assessee has treated the windmill division as separate business, the claim of additional depreciation has to be seen in the context of generation of power through windmill only and the production of textiles and its export has nothing to do with the generation of power for the purpose of considering additional depreciation. Further as rightly held by the Tribunal, the Revenue has not brought in any new or contra material to differ from the view of this Court in the decision of COMMISSIONER OF INCOME-TAX v. HI TECH ARAI LTD.(2009 (9) TMI 60 - MADRAS HIGH COURT) as it cannot be said that setting up of a wind mill will not fall within the expression setting up of a new machinery or plant - Decided in favour of assessee.

Summary

Issues:
1. Interpretation of Section 32(1)(iia) of the Income Tax Act regarding additional depreciation on windmill generation.

Analysis:
The High Court of Madras addressed the issue of whether the generation of electricity by a windmill constitutes the production of an article or thing, thereby entitling the assessee to claim additional depreciation under Section 32(1)(iia) of the Income Tax Act for the assessment years 2005-06 and 2006-07. The assessee, a partnership firm engaged in textiles and power generation, claimed additional depreciation on a windmill. The Assessing Officer disallowed the claim, stating that the production of electricity through a windmill did not qualify as the production of an article or thing. The Commissioner of Income Tax (Appeals) allowed the appeal, citing precedents. The Income Tax Appellate Tribunal upheld this decision, noting that the Supreme Court had not modified or reversed the relevant precedents. The Revenue challenged this before the High Court.

The High Court considered the scope of Section 32(1)(iia) based on previous judgments. Referring to the decision in Commissioner of Income-Tax v. Hi Tech Arai Ltd., the Court emphasized that the setting up of new machinery or plant after March 31, 2002, by an entity engaged in manufacturing or production qualifies for additional depreciation, regardless of operational connectivity to existing products. The Court rejected the Revenue's argument against the windmill setup, affirming the Tribunal's decision. The Court found no error in treating the windmill division as a separate business for depreciation purposes, distinct from the textile manufacturing and export division.

In conclusion, the High Court upheld the Tribunal's decision, stating that the facts aligned with precedent. The Court reiterated that the generation of power through a windmill, treated as a separate business, qualifies for additional depreciation under Section 32(1)(iia). As the Revenue failed to present new evidence contradicting established case law, the appeals were dismissed, affirming the Tribunal's order.