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TMI Blog2014 (1) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... efore computing the deduction admissible to the assessee under sec. 80-A the issue remitted back to the Assessing Officer for recomputation of deduction admissible under section 80-IA of the Act - the deduction should not exceed the ceiling of gross total income Decided in favour of Revenue. Deletion u/s 40(a)(ia) of the Act Applicability of Section 194 C of the Act - Nature of Payment Contract of service OR Rent for hiring a plant Held that:- Following Commissioner of Income-Tax Versus Prasar Bharti (Broadcasting Corporation of India) [2006 (11) TMI 159 - DELHI High Court ] - According to the contract, the travel agency has to ply the bus for a fixed number of hours - Thus, it is a simplicitor service contract for transportation of the passengers and it falls within the ambit of clause (c), Sr. No.(IV) of explanation appended to sec. 194C - assessee has just hired the transportation facilities which is akin to hiring of a taxi though on regular basis for a fixed number of hours As per Boards Circular No. 558 dated 28.3.1990, where a vehicle is given on hire along with provisions of a driver for use of carrying of the passengers for fixed hours than it is a service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, Assessing Officer has observed that the assessee has ten units of WEG installed at different locations. However, learned Assessing Officer has reproduced the details in respect of six units where assessee has claimed deduction, such details are available on page 3 of the assessment order. Learned Assessing Officer has observed that deduction under sec. 80IA is available to an undertaking or an enterprises engaged in the business eligible for such deduction. It is available for ten consecutive assessment years beginning from the first year of the claim. He observed that assessee claimed the deduction first time in assessment year 1996-97. The ten consecutive years of the assessee lapsed in assessment year 2005-06, thus, in this assessment year it is not entitled for any deduction. However, without prejudice to the above conclusion, he proceeded to compute the eligible deduction admissible to the assessee. Assessing Officer has observed that there are six units bearing No.292/1, 298/1, 394/1, 393/1, 616/1 and Poona Malle. The first year of the power generation in these units are 1998-99, 1998-99, 2002-03, 2005-06 and 2006-07 respectively. According to the Assessing Officer, the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the power generation income has been debited or set off against such income. He also relied upon the order of the Assessing Officer that deduction under sec. 80IA is admissible on an enterprises which is engaged in the business eligible for such deduction and it is available for ten consecutive assessment years beginning from the first year of the claim. The ten years have expired in the case of the assessee, therefore, it is not entitled for deduction. Apart from all these objections, he pointed out that the issue in respect of setting off the depreciation on these units before computing deduction under sec. 80-IA first time travelled up to the ITAT in assessment year 1996-97 and the order of the ITAT is reported in 1 SOT 13. He placed on record the order of the ITAT and pointed out that the ITAT has held that depreciation has to be set off against the power generation income of the assessee and, thereafter, such deduction is to be computed. He further pointed out that again this issue has been considered elaborately by the ITAT in assessment years 2000-01 and 2002-03. The ITAT again held that repair and maintenance expenses as well as depreciation are to be reduced out of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no dispute with regard to the fact that assessee company is manufacturing wind electrical generator. It had installed the various WEG at different locations for demonstration purposes, however, the electricity generated from these units had been sold to the Tamilnadu Electricity Board. The assessee has claimed deduction under sec. 80IA of the Income-tax Act, 1961 on generation of electricity. In the past, it has raised various arguments for opposing the stand of the Assessing Officer that depreciation has to be allocated on these units before computing admissible deduction under sec. 80IA of the Act. There is no change with regard to those aspects and the arguments have been noted by the ITAT extensively in assessment years 2001-02 and 2002-03. They read as under: "2.submissions made before the Assessing Officer and CIT(A) were reiterated before us. The main ground on which such action of Assessing Officer has been agitated by ld. counsel of the assessee can be summarized as below:-- 1.That the Appellant falls within the parameters of sub-section (1) to section 80-IA, in that the gross total income includes profits and gains derived from any business of an industrial undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set off against the taxable income. On the same principle, the expenditure on repair maintenance and depreciation would have to be allocated to the relevant business, i.e., demonstration of WEGs in the scheme of their sales. 9.That the onus was on the Assessing Officer to establish that the entirety of the depreciation on the 11 WEGs (13 in the later year) pertained wholly and exclusively to the business of power generation. This, the Assessing Officer has completely failed to discharge. 10.That the depreciation which has been deducted from the power generation income does not pertain to it at all. Such is directly and incontrovertibly referable to the WEGs erected and retained for demonstration purposes only. 11.That the WEGs operate and generate electricity entirely out of wind power which is entirely due to nature's bounty. That involves no visible or invisible expenditure at all, and in that situation, the act of the Assessing Officer in loading on to this activity, the expenditure on repair and maintenance and depreciation, was totally fallacious and entirely uncalled for. 12.That the expenses on account of repair maintenance and depreciation were most unambiguousl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer wrongly interpreted the term 'profit'. Though such has to be interpreted in commercial terms as the excess of receipts over expenditure, yet, where there are no receipts and only expenditure that is a case of absolute loss. And for the converse situation, where there is only receipt and no expenditure, it is a case of absolute profits. Such situations are not ruled out by any of the provisions of the Income-tax Act. The Assessing Officer's interpretation of profit is, therefore, misconceived and anomalous. 17.That the Assessing Officer wrongly read the explanatory note to Finance Act (No. 2) of 1980 with regard to the insertion of section 80-AB. The explanatory note only goes to support the contentions of the appellant insofar as the deductions are required to be calculated with reference to the net income. Where there is no expenditure, the gross income becomes the net income. A situation of this type has not been barred by the said explanatory note. The Assessing Officer has proceeded entirely on conjectures. The Assessing Officer has also misread the Supreme Court's decision in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84. The second cri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80-IA does not envisage a condition of an income arising from a main activity or an incidental activity for providing the priority deduction. So long as power is generated, irrespective of the stature or status of the activity, the incentive is required to be granted to the assessee. 21.That despite the statute being clear on the subject, the Assessing Officer has tried to befuddle the issue by reading into the facts, case laws which have no application to the facts of the case. The Assessing Officer has simply tried to interpret the provisions in a manner so as to take away a benefit which the statute otherwise entitles the assessee to the ratio of the decision in the case of CIT v. Vasavi Pratap Chand [2002] 255 ITR 517 (Delhi) is relied upon in this regard. 22.That the Assessing Officer has merely picked and chosen from various stray provisions of the statute rather than reading the statute as a whole, in order to understand the harmonious implication of the provisions. 23.That the Assessing Officer has tried to interpret the provisions of law in disregard to the object and purport of the exemption as visualized under the statute. 24.That the CIT(A) read a dichotomy in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontended that according to the provisions of section 80-IA deduction is eligible to an undertaking or an enterprise from any business referred to in sub-section (4). He contended that if assessee claims that generation of electricity was not its business then assessee is not entitled at all to claim deduction under section 80-IA as according to the submissions of the assessee the generation of electricity was only incidental and WEG were installed for demonstration to promote the sale of WEG. He contended that it has been submitted by the ld. AR that production of electricity was ancillary and thus keeping in view that submission the assessee should not be held to be eligible for deduction under section 80-IA as claimed by it as according to the requirement of section 80-IA eligible income must arise from the business carried on in respect of specified activities. He further submitted that according to section 80- IA(5) the income of the business in respect of which such deduction is claimed should be computed as if the said business was the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on can be allowed if the assessee is not engaged in the business of such activity. He contended that it is within the power of Tribunal to hold that assessee is not eligible for deduction under section 80-IA as per decision of Delhi High Court decision in the case of Indian Management Advisors Leasing (P.) Ltd. v. CIT [2007] 289 ITR 179 . 8. Thus he pleaded that assessee should not be held to be entitled for deduction under section 80-IA at the first place and if it is held that assessee is entitled for deduction under section 80-IA then order of Assessing Officer and CIT(A) should be confirmed. 9. In the rejoinder the ld. AR reiterated the submissions made. He contended that assessee cannot be made worse off by accepting the contention of ld. DR that it is not eligible at all for deduction under section 80-IA as the appellant in the present case is the assessee. 10. We have, carefully considered the rival submissions in the light of material placed before us. The Assessing Officer himself has held that assessee is entitled for deduction under section 80-IA as it is earning income from generation of electricity which is one of the eligible activity of business to be entitle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness for ten consecutive assessment years. ****** (4)This section applies to-- ****** (5)Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made." 11. It is clear from the language of section 80-IA(1) that the assessee will be entitled for deduction only if the profit and gains are derived from any business referred to in sub-section (4). It has already been pointed out that the activity carried on by the assessee of generation of electricity was a business carried on by it. There is no material on record to suggest that the generation and supply of electricity was not a business activity of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s earned income from generation of electricity cannot be said to be for the purpose of demonstration for promotion of sale of WEGs as demonstration became ancillary object at the point of time when assessee started selling electricity. Assessee has earned substantial receipts from generation of electricity. All the receipts cannot be considered to be net gain of the assessee as depreciation relating thereto has necessarily to be held pertaining to the activity of generation of electricity. The repair and maintenance also has to be held to be exclusively for the purpose of generation of electricity. Thus keeping in view the mandate of sections 80-IA(1), (4) (5), we are of the opinion that the action of the Assessing Officer in reducing the depreciation and repair and maintenance expenses out of gross receipts of sale of electricity to arrive at eligible profit was quite in order and has rightly been upheld by CIT(A)" 6. Similarly, this issue was considered in assessment year 1996-97 also and the findings of the ITAT read as under: "8. We have considered the rival submissions. To appreciate the rival contentions we have to necessarily make a reference to the relevant provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the eligible business be computed as if it were the only source of income of the assessee. In the present case, the assessee maintains a single set of books of account. The order of the Assessing Officer is silent on the other common expenses. Perusal of the profit and loss account, a copy of which is placed at page 14 of the assessee's paper book would show that there are other common expenses also. To quote a few, Audit fee, fee for tax matters, rent, rates and taxes etc. The gross receipts from power generation is shown in the profit and loss account at Rs. 22,92,245. We shall now confine ourselves to the depreciation expenses which was in controversy before the revenue authorities. It cannot be disputed that even going by the provisions of section 80-IA(5), that the expenditure incurred in earning the income from the eligible business has to be deducted and only on the net income, deduction under section 80-IA has to be allowed. The case of the assessee that the Wind turbines (wind mill) through which it generated and sold electricity was not primarily meant for such purpose and it was primarily meant only for the purpose of demonstrating to the prospective buyers of power turb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction under chapter VI-A has to be allowed only on the gross total income and therefore one cannot exclude depreciation allowance while computing profits derived from newly established undertaking for computing deduction under Chapter VI-A. 12. For the reasons given above, we are of the view that the Assessing Officer was justified in treating depreciation on wind turbines as a deduction from the income of power generation and on that basis holding that there was no income from the eligible business on which deduction under section 80-IA was to be allowed. The CIT(A) in our view erred in accepting the computation as adopted by the assessee which in our view is against the provisions of section 80-IA and the law laid down by the Honourable Supreme Court in the case of Pandian Chemicals Ltd. (supra). The appeal of the revenue is allowed and the order of the CIT(A) is reversed and that of the Assessing Officer restored. 13. In the result, the appeal of the revenue is allowed". 7. The learned counsel for the assessee put reliance upon the order of the ITAT in assessment year 2000-01 wherein according to the assessee, the ITAT upheld the exclusion of common expenses from the prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain activity being that of consultancy and the incidental activity being that of power generation. The windmills are required in connection with the main activity and they incidentally produce income for the assessee by generating power. The expenditure on repairs,maintenance and insurance of the windmills is in any case allowable against the consultancy income. It cannot be pinpointed that a part of the expenditure was incurred for earning the income from power generation except by an artificial or presumptive approach. Had the power generation activity not been eligible for the deduction under section 80IA there would have been no occasion or warrant for apportioning a part of the expenditure towards the said activity. We do not see how such apportionment can be made merely because the income from the said activity is eligible for the deduction. The provisions of sec.80AB cannot be understood as authorizing an estimated or artificial apportionment of the expenditure; they apply only when the expenditure can be pin-pointed to have been incurred for the purpose of earning the profits from the eligible industry. 8. For the above reasons we hold that the income-tax authorities were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of the assessee lapses assessment year 2005-06. 11. We have duly considered this aspect and found that assessee has been treating each WEG as a separate unit and claiming the deduction. In the case of Dalmia Cement in ITA No.4342/Del/06, an identical argument arose in that case. The ITAT has noticed the contentions of the learned counsel for the assessee as under: "After appraising us with the statutory provisions, he pointed out that each WEGs installed by the assessee company is a "stand alone" piece of plant capable of generating electrical energy and is liable to be treated as a separate undertaking set up for the generation of power, the power generated by each of them is capable of being measured individually. The assessee for convenience of operation had attached more than one WEG to a meter and is computing the profit based on the meter reading of each of the outgoing meter connected to the grid feeding the electrical sub-station of T EB. Thus, according to the learned counsel for the assessee, the AO has erred in holding that activity of electricity generation in each WEG is to be considered as a common activity and cannot be bifurcated on the basis of meter. He p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the weight to be attached to each single fact in isolation but by assessing the cumulative effect of all the facts in their setting as a whole. The decision of Hon'ble Kerala High Court in the case of Pariyar Chemicals referred by the Assessing Officer is not applicable on the facts of the present case because in that case a common boiler and pipeline were being used by the old as well as the new industrial unit and in such circumstances Hon'ble High Court treated the functioning of both the units as common. In the assessee's case stoppage of one WEG would not affect the generation of powers by the other WEGs". 13. We further find that in the Commentary of Sampath Iyengar's, comments have been made on an identical issue and the comments of the learned author read as under: (9th Edition Vol.(4) page 7022) "68. Whether each unit (say a windmill) can be separate.- If the assessee operates more than one unit (say more than one windmill) as a separate undertaking with each such unit satisfying the requirements of sec. 80-IA, there is no reason at all why it should not treat each such unit as separate undertaking, each eligible for relief for the period available for it under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years, we allow these grounds of appeal and remit the issue to the Assessing Officer for recomputation of deduction admissible under section 80-IA of the Act. Learned Assessing Officer shall determine the profit earned by the assessee from each unit on the basis of material available to him and thereafter he will allocate the depreciation against each unit and then compute the admissible deduction. In any case, the deduction would not exceed the ceiling of gross total income. With the above observations, ground Nos. 1 to 3 are allowed for statistical purposes. 16. In ground No.4, the grievance of revenue is that Learned CIT(Appeals) has erred in deleting the addition of Rs.123,35,991 which was added by the Assessing Officer with the aid of section 40(a)(ia) of the Income-tax Act, 1961. 17. The brief facts of the case are that assessee had debited a sum of Rs.138,60,661 under the head "hire charges". Learned Assessing Officer on an analysis of the TDS details, found that the assessee had deducted the TDS under sec. 194C of the Act @ 2.2%. These payments have been made by the assessee towards crane hire charges. Assessing Officer has harbored a belief that assessee has taken a ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire. It means that the buses were taken on lease and such buses are to be construed as plant. Since the lease payment was made for the hiring of the plant, its case comes within the ambit of explanation appended to sec. 194 I of the Act. It provides that any rent paid for plant or machinery or equipment then TDS is to be deducted at 10%. The learned counsel for the assessee on the other hand, submitted that Assessing Officer has misconstrued the provisions. The assessee has not taken the buses on lease. It had entered into a contract of service whereby the travel agencies were required to supply the buses for transportation of the passengers. The buses were to be plied for a fixed number of hours. The vehicles would remain in the possession of the travel agency. The agency would provide its driver and also maintain the vehicle in good shape. In other words, all responsibility for plying the vehicles is of the transporters. Thus, according to the assessee, it was a service contract of transporting the passengers. It has not taken the buss on lease and used them as plant in business. The learned counsel for the assessee further contended that a similar issue in somewhat different con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts possession. According to the contract, the travel agency has to ply the bus for a fixed number of hours. Thus, it is a simplicitor service contract for transportation of the passengers and it falls within the ambit of clause (c), Sr. No.(IV) of explanation appended to sec. 194C. The assessee has placed on record copy of a letter of award for hiring of busses. It has also placed on record copy of the contract entered on Ist of February 2008. On perusal of these documents, it reveals that assessee has just hired the transportation facilities which is akin to hiring of a taxi though on regular basis for a fixed number of hours. Before the Learned First Appellate Authority, assessee has made a reference to Circular No. 558 dated 28.3.1990 issued by the CBDT. In the circular, board has considered this aspect and was of the view that where a vehicle is given on hire along with provisions of a driver for use of carrying of the passengers for fixed hours than it is a service contract for carrying out the work. It will be covered under sec. 194C of the Act because the vehicle has been made available as a matter of service. Learned First Appellate Authority has considered this aspect whil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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