IN THE ITAT CHENNAI BENCH ‘D’
Shiva Cargo Movers Ltd.
Deputy Commissioner of Income-tax
IT APPEAL NO. 742 (MDS.) OF 2012
[ASSESSMENT YEAR 2005-06]
JUNE 15, 2012
Abraham P. George, Accountant Member
In this appeal filed by the Assessee, its grievance is that additional depreciation claimed by it under Section 32(1)(iia) of the Income Tax Act, 1961 (in short ‘the Act’) on the wind mill installed and used by it during the relevant previous year was not allowed to it.
2. Short facts apropos are that assessee engaged in the business of transport of spirit and Molasses had acquired a new wind mill during the previous year. The total cost of the wind mill was Rs. 1,58,00,000/- and it was commissioned on 27.03.2005. Since wind mill was used for less than 180 days, depreciation was claimed at 50% of the normal rate. Assessee also claimed additional depreciation under Section 32(1)(iia) of Rs. 11,85,000/- on such wind mill. However, Assessing Officer was of the opinion that such additional depreciation could not be allowed since wind energy undertaking of the assessee could not be treated as an undertaking engaged in manufacture of article or thing. Further, as per the Assessing Officer original business of the assessee was not manufacturing or producing any article or thing, but only transporting spirit and molasses. In this view of the matter, he denied additional depreciation claimed by the assessee.
3. Before Commissioner of Income-tax (A), argument of assessee was that wind mill constituted an industrial undertaking and assessee had commenced production of wind electricity. There need not be pre-existing industrial undertaking to enable the assessee to claim additional depreciation in respect of its first industrial undertaking. Therefore, according to assessee, it was eligible for additional depreciation. Commissioner of Income-tax (Appeals) was of the opinion that the claim of additional depreciation could be accepted only if the assessee was engaged in the business of manufacture or production of article or thing. Here, the assessee was having a wind mill, which constituted a standalone industrial undertaking. Prior to this, assessee was not engaged in the business of production of any article or thing. He, therefore, held that Assessing Officer was justified in disallowing the claim of additional depreciation.
4. Now before us, Authorised Representative of the assessee strongly assailing the orders of the authorities below submitted that manufacture or production of any article or thing had to be given a common understanding and accordingly it will include production of electricity. In support, he relied on the decision of Delhi Bench of this Tribunal in the case of N.T.P.C. Limited v. DCIT in ITA No. 1438/Del./2009 dated 30.04.12. Further according to him it was not necessary that the assessee should have been already in the line of production or manufacturing for claiming such a benefit. This was available even for an undertaking which had newly started production. Even otherwise assessee was already in business, though it was transportation of spirit and molasses. Reliance was placed on the decision of coordinate Bench of Tribunal in the case of M/s. Sheela Clinic in ITA No. 480/Mds./2011 dated 30.05.2011 in support of this contention.
5. Per contra, Departmental Representative submitted that assessee had to be engaged in the business of manufacture or production of any thing or article and in the course of such business, it should have acquired machinery and plant for being eligible for additional depreciation on such new plant or machinery. Here, assessee was doing only transportation of spirit and molasses and this will not amount to manufacture or production of any article or thing. Wind mill was the first industrial undertaking and additional depreciation thereon could not be given, in view of clear wordings in section 32(1)(iia).
6. We have perused the orders of the authorities below and heard the rival contentions. The fact is not in dispute that prior to the installation of the wind mill, assessee was doing only the business of transportation of spirit and molassess. In our opinion, there can be no quarrel with the submission of the Authorised Representative that production of electricity will amount to manufacture or production of any article or thing. No doubt the Assessing Officer, took a view that electricity cannot be considered as article or thing resulting out of manufacture or production. We are of the opinion that this view cannot be accepted since it will be a narrow interpretation not warranted by the wordings of the provision. Hon’ble Supreme Court in the case of CST v. M.P. Electricity Board, AIR 1970 SC 732 and in the case of State of A.P. v. NTPC 127 STC 280 held that power/electricity generated by an assessee was an article or goods. Taking note of these decisions, the Co-ordinate Bench of this Tribunal in the case of N.T.P.C. Limited (supra) had held that wind mill had to be considered as an industrial undertaking.
7. The question now thus boils down to whether the assessee, which was not in a business of manufacture or production, would still be eligible for additional depreciation on a new industrial undertaking established by it. Undisputedly, the wind mill, which was newly erected, had started production of electricity only during the relevant previous year. To resolve the question whether it is necessary that an assessee must be engaged in a business of manufacture or production when making a claim for additional depreciation on new machinery and/or new industrial undertaking, we have to make a careful analysis of Sec. 32(1)(iia) prior to its substitution by Finance Act 2005 with effect from 01.04.06. The said clause stood as under there:-
‘(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2002, by an assessee engaged in the business of manufacture or production of any article or thing, a further sum equal to fifteen per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii):
Provided that such further deduction of fifteen per cent shall be allowed to-
(A) a new industrial undertaking during any previous year in which such undertaking begins to manufacture or produce any article or thing on or after the 1st day of April, 2002; or
(B) any industrial undertaking existing before the 1st day of April, 2002, during any previous year in which it achieves the substantial expansion by way of increase in installed capacity by not less than ten per cent.
Provided further that no deduction shall be allowed in respect of-
(a) any machinery or plant which, before its installation by the assessee, was used either within or outside India by any other person; or
(b) any machinery or plant installed in any office premises or any residential accommodation, including accommodation in the nature of a guest-house; or
(c) any office appliances or road transport vehicles; or
(d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any one previous year;]
Provided that no deduction shall be allowed under clause (A) or, as the case may be, clause (B) of the first proviso unless the assessee furnishes the details of machinery or plant and increase in the installed capacity of production in such form, a may be prescribed along with the return of income and the report of an accountant, as defined in the Explanation below sub-section (2) of section 288 certifying that the deduction has been correctly claimed in accordance with the provisions of this clause.
Explanation – For the purposes of this clause,-
(1) “new industrial undertaking” means an undertaking which is not formed,-
(a) by the splitting up, or the reconstruction, of a business already in existence; or
(b) by the transfer to a new business of machinery or plant previously used for any purpose;
(2) “installed capacity” means the capacity of production as existing On the 31st day of March, 2002;”
It is clearly mentioned in the enacting part that new machinery or plant has to be acquired by an assessee engaged in the business of manufacture or production. No doubt first proviso mentions that such additional depreciation shall be allowed to a new industrial undertaking in the year in which it begins to manufacture or begins production. If we apply the enacting part in the restricted sense as done by the lower authorities the benefit will be available only to an existing unit, which is engaged in the business of manufacture or production. Question now is whether in such a situation proviso (A) would become otiose. Addition of plant and machinery in an already existing unit, for claiming additional depreciation would have to result in substantial expansion of the installed capacity by not less than ten per cent as per proviso (B). The condition regarding existence of a business of manufacture or production of any article or thing will be ordinarily relevant and applicable only where additional depreciation claim is for plant and machinery resulting in substantial expansion of capacity. To bring in a harmonious interpretation, the only sense in which Proviso (A) can be understood is that as a result of new plant and machinery being installed by an assessee, who is already engaged in manufacture or production, a new industrial undertaking itself should have come into existence. Or in other words, in addition to the already existing line of manufacture or production of an article or thing, a new industrial undertaking should have resulted from the acquisition of plant and machinery. In such a case, Proviso (B) which stipulate substantial expansion by way of increase in capacity will not be applicable. Legislature thus envisaged two situations. One where the addition of plant and machinery resulted in an altogether new line of business, than one already carried on by the assessee, where Proviso (A) is applicable, and the second where on account of addition of plant and machinery, production capacity increased in same line of business as already carried on by the assessee, where Proviso (B) is applicable. To give a different interpretation as suggested by Authorised Representative of the assessee, will be to derive from the enacting part of the Section, something which falls outside it, by implication from a proviso. On a fair construction when the principle provision is clear, a proviso cannot expand or limit it as held by the Hon’ble Apex Court in the case of Devarka Prasad v. Devarka Das Saraf AIR 197R SC 1758.
8. Jurisdictional High Court in the case of C.I.T v. VTM Ltd. in 319 ITR 336, where the questions raised were whether generation of power by windmill would amount to manufacture or production of any article or thing and whether Tribunal was right in allowing the claim of additional depreciation on windmill, held as under at para 5 of the judgment:-
“5. In the case on hand, the assessee is stated to have set up a windmill at a cost of Rs. 5,85,60,000. It is true that the assessee is a company engaged in the business of manufacture of textile goods. As far as application of s. 32(1)(iia) of the Act, is concerned, what is required to be satisfied in order to claim the additional depreciation is that the setting up of a new machinery or plant should have been acquired and installed after 31st March, 2002 by an assessee, who was already engaged in the business of manufacture or production of any article or thing. The said provision does not state that the setting up of a new machinery or plant, which was acquired and installed upto 31st March, 2002 should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore, the contention that the setting up of a windmill has nothing to do with the power industry, namely, manufacture of oil seeds etc. is totally not gemane to the specific provision contained in s. 32(1)(iia) of the Act.”
The judgment will clearly imply that assessee necessarily had to have a line of manufacturing or production, though operational connectivity was not required. Here, the assessee was not into any business of manufacture or production but only transportation of molasses and spirit. Thus, the first condition in the enacting provision, that assessee has to be engaged in the business of manufacture or production of an article or thing is not satisfied. The progress stops there. The application stops there. As for the decision of Co-ordinate Bench in the case of M/s. Sheela Clinic (supra) there it was held the assessee was already running a hospital and claim of additional depreciation on windmill was indeed allowed. What would have weighed with the Co-ordinate Bench might be that a hospital could be considered as an industrial undertaking engaged in some manufacture or production of article or thing. Here the assessee was only doing transport of spirit and molasses and therefore, that case will not in any way help its cause. We therefore, are of the considered opinion that assessee was not eligible for claiming additional depreciation under Section 32(1)(iia) of the Act. Lower authorities were correct in taking this view.
9. In result, the appeal of the assessee is dismissed.