2017 (8) TMI 611 - HC - Income Tax

Additional depreciation of 20% on windmills u/s 32(1)(iia) - whether windmills have not connection with the business activity of the assessee? - Held that - The only requirement under Section 32(1)(iia) of the Act is that the assessee should be engaged in the business of manufacture or production of article or thing to claim additional depreciation on installing of plant or machinery on or after the cut off date i.e. 31.03.2002. The setting up of new plant and or machinery need not have the operational connectivity to the article or thing which has been manufactured by the assessee. The further contention on behalf of the Revenue that the respondent assessee is not in the business of generation of power and therefore not entitled to the benefit of additional depreciation completely overlooks the order of the Assessing Officer which clearly records that the assessee is in the business of wind power energy. This fact is not disputed either by the Commissioner of Income Tax or the Tribunal. Therefore the question as framed that the windmills have no connection with the business activity of the assessee is factually incorrect. In view of the fact that Madras Gujarat and Karnataka High Courts have taken a view that additional depreciation on windmills acquired and installed prior to 31.03.2002 is available under Section 32(1)(iia) of the Act. All that is required for allowing additional depreciation is that the assessee must be engaged in the manufacture or production of any article or thing and such an assessee would on the setting up of a new machinery or plant would be entitled to additional depreciation on the new plant and or machinery under Section 32(1)(iia) of the Act. There is no requirement in Section 32(1) (iia) of the Act that additional depreciation on the new plant or machinery would be available only if the plant or machinery has some nexus/connection with the article or thing being manufactured by the respondent-assessee. To accept the Revenue s contention would require reading words into Section 32(1)(iia) of the Act which is not permissible. - Decided in favour of assessee

Summary

Issues:
Appeal challenging the order of the Income Tax Appellate Tribunal regarding additional depreciation on windmills under Section 32(1)(iia) of the Income Tax Act, 1961 for Assessment Years 2006-2007 and 2007-2008.

Analysis:

1. Substantial Questions of Law:
The appeals raised questions regarding the entitlement of additional depreciation on windmills under Section 32(1)(iia) of the Act, the jurisdiction of the Commissioner of Income Tax under Section 263, and the role of the Assessing Officer in conducting proper inquiries before granting additional depreciation.

2. Factual Background:
The respondent-assessee, engaged in wind power energy and iron ore manufacturing, claimed additional depreciation on windmills. The Commissioner of Income Tax set aside the Assessing Officer's order, leading to an appeal to the Tribunal.

3. Legal Interpretation - Additional Depreciation:
The Tribunal upheld the respondent's claim based on the decision of the Madras High Court, emphasizing that operational connectivity of windmills to the business activity was not a prerequisite for claiming additional depreciation under Section 32(1)(iia).

4. Judicial Precedents and Interpretation of Section 32(1)(iia):
The judgment cited decisions of various High Courts supporting the interpretation that the assessee only needs to be engaged in manufacturing or production to claim additional depreciation, irrespective of the operational nexus of the new machinery or plant.

5. Dismissal of Appeal and Conclusion:
The Court affirmed the respondent's entitlement to additional depreciation, dismissing the appeal. The questions regarding the Commissioner's jurisdiction under Section 263 became academic due to the favorable ruling on the main issue.

6. Final Verdict:
The Court ruled in favor of the respondent-assessee, upholding their entitlement to additional depreciation on windmills installed after 31.03.2002, irrespective of operational connectivity, as per Section 32(1)(iia) of the Act.

7. Conclusion:
The appeal was dismissed, and no costs were awarded. The judgment clarified the interpretation of Section 32(1)(iia) and upheld the respondent's right to claim additional depreciation on windmills, setting aside the Commissioner's order under Section 263.