2013 (5) TMI 353 - AT - Income Tax

Windmill electricity deemed goods; denied depreciation. Appeal dismissed, income upheld.

The Tribunal concluded that electricity generated by the windmill constitutes an article or goods, allowing the appellant's claim on this part. However, ... Additional depreciation on windmill - As per revenue the provisions of Section 32(1)(iia) of the Act refers to the expression 'engaged in the business of manufacture and production of any article or thing' and mentioned that the assessee who is only engaged in the construction business is in the past, undisputedly not engaged in the business of manufacturing and production of electricity i.e. any article or a thing. Held that:- The specific interpretation given by the cited decisions of Honble High Court of Madras in CIT v. VTM Ltd. [2009 (9) TMI 35 - MADRAS HIGH COURT] or the Chennai Bench of the Tribunal in Shiva Cargo Movers Ltd. [2012 (7) TMI 429 - ITAT CHENNAI] to the expression 'engaged in the business of manufacture or production of any article or things' used in the said clause (iia) to section 32(1) of the Act remain unchanged. The provisions of section 32(1)(iia) of the Act have been interpreted by the Chennai Bench of the Tribunal to hold that the assessee who is already engaged in the business of production or manufacture of an article or a thing or good in the past alone is entitled to the claim of additional depreciation. There is no other contrary decision in existence on the issue. Further, the assessee is not engaged in the business of manufacture or production of an article or thing prior to the manufacture of the electricity using the impugned 'windmill'. Thus, assessee is not entitled to the claim of additional depreciation according for the above said decisions. - Decided against the assessee. Issues Involved:1. Confirmation of income assessed by the AO.2. Denial of additional depreciation under Section 32(1)(iia) of the Act on windmills.3. Determination of whether electricity generated by windmills constitutes an article or goods.4. Applicability of Section 2(29BA) of the Act to the AY 2007-08.Detailed Analysis:1. Confirmation of Income Assessed by the AO:The appellant contested the CIT(A)'s decision to confirm the income assessed by the AO at Rs. 1,67,43,760/- instead of Rs. 90,03,758/- as returned by the appellant. The CIT(A) upheld the AO's assessment, leading to the appellant's appeal.2. Denial of Additional Depreciation on Windmills:The appellant claimed additional depreciation on windmills under Section 32(1)(iia) of the Act. The AO denied this claim, stating the appellant failed to provide necessary details. The CIT(A) upheld the AO's decision, reasoning that electricity generation does not constitute manufacturing or production of any article or thing under the newly inserted Section 2(29BA) of the Act. The appellant argued that the definition of manufacturing in Section 2(29BA) was not applicable to AY 2007-08 and that electricity should be considered an article or goods.3. Determination of Whether Electricity is an Article or Goods:The core issue was whether electricity generated by the windmill constitutes an article or goods. The appellant relied on the Tribunal's decision in the case of Shiva Cargo Movers Ltd. and the Supreme Court's judgment in CST Vs. M.P. Electricity Board, which held that electricity is an article or goods. The Tribunal agreed with the appellant, stating that electricity is indeed an article or goods within the meaning of Section 32(1)(iia) of the Act.4. Applicability of Section 2(29BA) to AY 2007-08:The CIT(A) applied Section 2(29BA) retrospectively to deny the additional depreciation claim. However, the Tribunal noted that these provisions were not applicable to AY 2007-08, as they were introduced with effect from 01.04.2009. Thus, the CIT(A) erred in applying these provisions to the current assessment year.Tribunal's Decision:The Tribunal concluded that electricity generated by the windmill constitutes an article or goods, thereby allowing the appellant's claim on this part. However, regarding the appellant's eligibility for additional depreciation, the Tribunal referred to the Chennai Bench's decision in Shiva Cargo Movers Ltd., which stated that additional depreciation is allowable only if the assessee was already engaged in the business of manufacturing or production of an article or thing. Since the appellant was engaged in construction and not in manufacturing or production prior to the installation of the windmill, the Tribunal upheld the CIT(A)'s decision to deny the additional depreciation.Conclusion:The Tribunal dismissed the appeal, confirming the CIT(A)'s decision to deny additional depreciation on the windmill and uphold the income assessed by the AO. The Tribunal pronounced the order on May 1, 2013.