Windmill depreciation and 80IA deduction must be computed unit-wise, with installation-linked costs treated as part of the windmill.

Foundation, erection and commissioning costs directly connected with a windmill's installation were treated as integral to the windmill and qualified for depreciation at the higher rate, while civil work remained depreciable only at the lower rate applicable to civil construction. Section 80IA deduction was held to be undertaking-specific: each windmill unit had to be considered separately for computing eligible profit, and losses of one unit could not be set off against profits of another unit for that purpose. The unit-wise computation approach was upheld, and the contrary revenue position was rejected.

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Issues: (i) Whether the cost of windmill foundation, erection and commissioning formed an integral part of the windmill eligible for depreciation at the higher rate. (ii) Whether deduction under section 80IA had to be computed unit-wise for each windmill undertaking or by aggregating losses and profits of all windmill units.

Issue (i): Whether the cost of windmill foundation, erection and commissioning formed an integral part of the windmill eligible for depreciation at the higher rate.

Analysis: The expenditure on foundation and on erection and commissioning was held to be integral to the installation and working of the windmill, and therefore eligible for depreciation at the rate applicable to the windmill itself. However, the civil work cost having no such integral nexus was treated separately and depreciation thereon was restricted to the lower rate applicable to civil work.

Conclusion: The claim succeeded in part. Depreciation at the higher rate was allowed on foundation and erection and commissioning costs, while depreciation on civil work was upheld at 10%.

Issue (ii): Whether deduction under section 80IA had to be computed unit-wise for each windmill undertaking or by aggregating losses and profits of all windmill units.

Analysis: The deduction under section 80IA was treated as undertaking-specific and not business-wide for all windmill units taken together. The expression "eligible business" in section 80IA(5) was construed harmoniously with section 80IA(2) so that each independently operating windmill undertaking had to be considered separately for the initial assessment year and for computation of eligible profit. Losses of one unit were not permitted to be set off against profits of another unit for the purpose of the deduction.

Conclusion: The deduction was to be computed separately for each windmill undertaking, and the Revenue's objection to unit-wise computation was rejected.

Final Conclusion: The appeals of the assessee succeeded to the extent of higher depreciation on windmill foundation and erection and commissioning, and the Revenue's appeals failed. The deduction under section 80IA was upheld on a unit-wise basis.

Ratio Decidendi: For a windmill undertaking, foundation and erection and commissioning costs directly connected with installation form part of the windmill for depreciation purposes, and section 80IA deduction is to be computed undertaking-wise where each unit is separately operated and accounts are maintained separately.

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