2019 (3) TMI 207 - HC - Income Tax

Additional depreciation u/s 32(1)(iia) - electricity is not an article or thing - assessee is a joint venture company of two public sector undertakings and is engaged in the production of thermal power - additional depreciation in respect of an entity engaged in the business of generation and distribution of power - HELD THAT - Electricity has been held to be goods for the purposes of sales tax in the Constitution Bench judgment of the Supreme Court in State of Andhra Pradesh vs. NTPC Ltd. 2002 (4) TMI 694 - SUPREME COURT OF INDIA . Electricity has all the necessary trappings of articles or things and the benefit of additional depreciation cannot be denied. As held by the Constitution Bench, electricity is capable of abstraction, transmission, transfer, delivery, possession, consumption and use like any other movable property. Following the same logic, to deny the benefit of additional depreciation to a generating entity on the basis that electricity is not an article or thing is in our view an artificially restrictive meaning of the provision. The benefit of additional depreciation under Section 32(1)(iia) has, therefore, been rightly granted to the assessee by the concurrent judgments of the CIT(A) and the Tribunal. We also note that, w.e.f. from 01.04.2013, the provision has been amended by the Finance Act, 2012 and assessee engaged in the generation of power have expressly been included in the ambit thereof. No substantial question of law arises

Summary

Issues:
1. Disallowance of additional depreciation claimed by the respondent/assessee for Assessment Year 2011-2012.

Detailed Analysis:

1. The appeal by the Revenue under Section 260A of the Income Tax Act, 1961 was against the order of the Income Tax Appellate Tribunal dismissing the Revenue's appeal regarding the disallowance of additional depreciation claimed by the respondent/assessee for Assessment Year 2011-2012.

2. The Assessing Officer raised a query regarding the assessee's claim for additional depreciation under Section 32(1)(iia) of the Act, contending that such deduction was permissible only if the assessee was engaged in the production of any article or thing which, according to the AO, did not include the generation of power.

3. The Assessing Officer disallowed the additional depreciation, stating that it could be claimed only by an assessee producing something tangible or movable. The CIT(A) allowed the assessee's appeal, following a Tribunal order in a similar case.

4. The Karnataka High Court's judgment in a related case highlighted that electricity generated by the assessee company falls within the definition of an article or thing, making it eligible for additional depreciation. The Supreme Court's judgment also recognized electricity as goods for the purposes of sales tax.

5. The Tribunal's judgment in another case confirmed that electricity has the necessary attributes of articles or things, justifying the grant of additional depreciation to generating entities. The Court agreed that denying the benefit based on electricity not being an article or thing was restrictive.

6. The Court noted that an amendment from 01.04.2013 expressly included assessees engaged in power generation under Section 32(1)(iia). Consequently, the Court found no substantial question of law and dismissed the appeal by the Revenue.

7. In conclusion, the Court upheld the grant of additional depreciation to the assessee, emphasizing that electricity's characteristics align with those of movable property, making it eligible for the benefit under Section 32(1)(iia) of the Income Tax Act, 1961.