2017 (3) TMI 894 - HC - Income Tax

Disallowance of additional depreciation at 10% of the cost of the windmill acquired and installed by the assessee - Held that - It appears that the assessee Company set up an industrial unit for production and manufacture of ceramic glaze tiles. The assessee also installed a windmill through which the production of electricity was done. It is not in dispute and cannot be disputed that as such the windmill installed by the assessee was in fact acquired and installed by the assessee for generation of electricity. It appears that out of the electricity generated, some electricity was used by GEB. For the aforesaid purpose control of plant and machinery was with the GEB. Merely because control of plant and machinery of the windmill was with GEB, it cannot be said that the assessee was not the owner of the windmill installed. The assessee shall not lose the character of owner solely on the ground that the plant and machinery of windmill was under the control of GEB. No error has been committed by the learned CIT(A), which has been confirmed by the learned tribunal, in allowing additional depreciation claimed by the assessee of ₹ 1,33,96,265/- at 10% of the cost of windmill installed by the assessee under Section 32(1)(iia) of the Act. - Decided n favour of assessee

Summary

Issues:
1. Additional depreciation claim under Section 32(1)(iia) of the Income Tax Act.
2. Ownership of the windmill for claiming additional depreciation.
3. Interpretation of the condition for additional depreciation eligibility.
4. Business activity relevance for claiming additional depreciation.

Detailed Analysis:
1. The issue in this case revolves around the additional depreciation claim under Section 32(1)(iia) of the Income Tax Act. The appellant contested the dismissal of their appeal by the Income Tax Appellate Tribunal, where the claim for additional depreciation was allowed by the Commissioner of Income Tax (Appeals). The main question of law proposed was whether the Tribunal erred in deleting the disallowance of additional depreciation amounting to ?1,33,96,265.

2. The crux of the matter was the ownership of the windmill for claiming additional depreciation. The Assessing Officer denied the claim stating that the plant and machinery of the windmill were controlled by the Gujarat Electricity Board (GEB), and therefore, not owned by the assessee. The appellant argued that the windmill was acquired and installed by them for electricity generation, even though GEB controlled the plant and machinery. The ownership aspect was crucial for eligibility under Section 32(1)(iia).

3. The interpretation of the condition for additional depreciation eligibility was a significant point of contention. The appellant's advocate argued that the windmill was indeed owned by the assessee, despite GEB's control over the plant and machinery. The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals) based on precedents and confirmed that the appellant was entitled to the additional depreciation claimed under Section 32(1)(iia) of the Act.

4. Another crucial aspect was the relevance of the appellant's business activity in claiming additional depreciation. The revenue contended that since the main business of the assessee was manufacturing ceramic glaze tiles, they were not engaged in electricity generation business. However, the court emphasized that the key factor for eligibility was the ownership and investment in the windmill, not the nature of the primary business activity. The court dismissed the appeal, stating that the appellant met the criteria for additional depreciation under Section 32(1)(iia) of the Act, and no substantial question of law arose in the case.