TaxTMI 
TaxTMI 
2014 (1) TMI 386
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....rom the profits of the normal business". 2. The brief facts of the case are that assessee company is manufacturing wind electric generator (WEG in India) for producing power from wind at different locations in India. It has filed its return of income on 29.10.2007 declaring an income of Rs.77,38,98,824. The case of the assessee was selected for scrutiny assessment and a notice under sec. 143(2) of the Act was issued and served upon the assessee on 22nd September, 2006. On an analysis of the accounts, it revealed to the Assessing Officer that assessee had made claim under sec. 80-IA of the Income-tax Act, 1961 at Rs.87,35,282. According to the assessee, it has 18 units of WEGs at different locations. It is claiming deduction in respect of profit generated by six eligible units as they are operating within the permissible period of ten years. On the other hand, 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 observe....
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....0IA is claimed is of Rs.164,07,430 which are less than the total depreciation and expenses deserves to be set off, hence the assessee is not entitled for any deduction. 3. On appeal, Learned CIT(Appeals) has observed that depreciation would be allocated at the rate at which expenses for maintenance etc. has been worked out by the Assessing Officer on proportionate basis. In other words, Learned Commissioner has allocated 0.2% of the total depreciation. Learned DR while impugning the order of the Learned CIT(Appeals) submitted that assessee is not maintaining separate accounts for its wind electric generation units, therefore, it was not possible for the Assessing Officer to work out the profit derived from WEG. He drew our attention towards the report submitted in Form No. 10CCB. The assessee has not specifically specified as to how expenses and the depreciation 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 beginn....
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.... from generation of electricity on wind electric generation is concerned, there is no dispute. In the other year, this contention of the assessee has been accepted. The next issue is about the computation of income. He pointed out that each WEG is a separate undertaking or enterprise. The assessee has been maintaining details of each unit and these details were submitted before the Assessing Officer. Assessing Officer reproduced the details pertaining to each unit on page 3 of the assessment order. Assessing Officer found that unabsorbed depreciation and current year depreciation is more than the income, therefore, assessee is not entitled for deduction, otherwise he has computed the deduction. Learned counsel took us through the details on page 3 of assessment order. 5. We have duly considered the rival contentions and gone through the record carefully. There 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 u....
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....s and managerial control with the main business of the production and assembly of WEGs. 7.That the principle of law is, that the expenditure exclusively relatable to the priority undertaking is required to be deducted against the income of the priority undertaking. The Supreme Court, and later on, the Rajasthan High Court have said that the dilution of priority profits is not permissible through the intermingling of expenses relating to the non-priority sector (reference was made to the case of CIT v. Canara Workshops (P.) Ltd. [1986] 161 ITR 320 (SC), CIT v. Sharda Gum & Chemicals [2007] 288 ITR 116 (Raj.). 8.That where in the case of an integrated business, expenses are incurred which relate to different businesses, then, the expenses need not be identified against the exempt income for allocation. It will suffice if the entirety of expenditure is 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 WE....
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....6 ITR 77 (SC). 15.That the Assessing Officer wrongly assumed that under section 80-IA(5), the claim could not be entertained. The purpose of this provision has been misinterpreted by the Assessing Officer. The provision in effect provides that for the purpose of determining the quantum of tax holiday profits under section 80-IA, the taxable income of the eligible business of the industrial undertaking is to be ascertained as if such undertaking were an independent unit owned by the assessee concerned, and the assessee had no other source of income. That was for relating to the priority income, the unabsorbed losses, unabsorbed depreciation etc., pertaining to that industry. Where in a case there were no such adjustments pending set-off, the section would have no application. (Please refer Pages 112-114 of the Paper Book). 16.The Assessing Officer 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. S....
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....P.) Ltd. v. CIT [2000] 243 ITR 26 (SC) has to be read in the context of facts as they stood therein, and the ratio stated in terms of those facts cannot be extended or interpolated to another fact situation dissimilar to that case. 19.That the Assessing Officer erroneously read a contradiction in the argument that the income from the priority industry was incidental to the main activity. Such is not a relevant criteria for the purpose of determination of priority income and allowance of priority relief. The Assessing Officer has needlessly confused the issue on this point. 20.That the Assessing Officer failed in his duty to identify the expenses relatable to the priority industry, and committed a double-fault by attributing expenses incurred on the non-priority undertaking on to that of the priority undertaking. Sub-section (4) of section 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 A....
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....te that the objective of setting up these 11 WEGs (13 in the next year) was for the purpose of increasing awareness as to this novel technology, and thus to give a possible boost to its sales. Naturally, all expenses relatable thereto, qualified for set- off against the business of selling of these WEGs. Such has not been repudiated by either of the authorities. 29.That the authorities below failed to reckon that the charges for electricity generation were received net of expenses and whatever expenses there be were on account of the purchaser of electricity, viz., Tamil Nadu State Electricity Board. 3. On the basis of the above submissions it was pleaded by the ld. AR that relief sought for should be granted to the assessee. 4. On the other hand, it was submitted by the ld. DR that the claim of assessee is contradictory. He contended 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 submissi....
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....allocating repair and maintenance expenses and depreciation relating to WEGs from which assessee had earned income from generation of electricity and thus Assessing Officer was right in reducing depreciation and repair and maintenance expenses. 7. He further referred to the decision of Hon'ble Supreme Court in the case of ITO v. Ch. Atchaiah [1996] 218 ITR 239 to contend that under section 4 of Income-tax Act Assessing Officer has got no option except to assess only the right person irrespective of consequences. He contended that as it is the contention of the assessee that the WEG used for the purpose of generation of electricity were relating to business activity of sales of WEG the assessee should not be held to be eligible for any deduction under section 80-IA as according to the provision of section 80-IA no such deduction 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....
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....or the purpose of demonstration related to the activity of sale of WEG. In this manner the assessee only tries to get the benefit of higher deduction under section 80-IA and such course is not available to the assessee particularly in view of sub-section (5) of section 80-IA. It will be relevant to reproduce relevant portion of section 80-IA :-- "80-IA. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business 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....
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....aimed by the assessee on the WEGs in its books of account but according to the case of assessee that depreciation does not pertain to the business of generation of electricity as these WEGs were installed for the purpose of demonstration to promote business activity of sales of WEG. We find no force in such submissions as the moment, from which the assessee started selling electricity, the installation of WEGs were no more for the purpose of business activity of selling WEGs as assessee intended to earn profit from sale of electricity as its business activity which makes entitle the assessee to claim deduction under section 80-IA. It is also for that reason the contention of assessee that at least there should be proportionate allocation of depreciation and expenses has to be rejected. WEGs from which the assessee has 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 ass....
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....n the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income." 10. A perusal of section 80-IA(1) makes it very clear that deduction is to be allowed on the profits and gains of the business of generation of power, viz., the eligible business. Provisions of section 80-IA(5) which has a non obstante clause even overriding the effect of provisions of section 80AB mandates that the profit of 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....
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....he profits derived from the eligible business. This would be against the decision of the Honourable Supreme Court in the case of Pandian Chemicals Ltd. (supra). The decisions relied upon by the ld. counsel for the assessee are on the point that while allowing deduction of expenses, the expenses cannot be bifurcated as between the exempt income and chargeable income and deduction of expenditure attributable to chargeable income cannot alone be allowed. These decisions are not applicable in the context of section 80-IA of the Act especially in view of the specific provisions of section 80-IA(5) of the Act. We also derive support for our conclusions from the decision in the case of Indian Rayan Corpn. Ltd. v. CIT [2003] 261 ITR 98 wherein the Hon'ble Bombay High Court has held that deduction 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 incom....
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....the profits of the other priority industry and reduced the deduction available under section 80E. Disapproving this action, the Supreme Court held the deduction envisaged by the section is in recognition of the efficient functioning of the industry, that it was never intended that the merit earned by such industry should be lost or diminished because of a loss suffered by another industry, whether it is a priority industry or not, that the co-existence of two industries in common ownership was not intended by Parliament to result in the misfortune of one being visited on the other and that the shifting of the focus from the industry to the assessee was not permissible. The ratio of this decision, in our humble opinion, applies to the present case. There are two activities, the main 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 exp....
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....m the order of the RRB Consultants & Engg. Pvt. Ltd. (supra). 9. On an analysis of all these three orders, we arrive at a conclusion that deduction under section 80-IA is to be computed after setting off the depreciation relatable to the wind mill against the income earned out of electricity generator which qualified for deduction under sec. 80-IA of the Act. 10. The next objection of the Learned DR was that Assessing Officer has disallowed the claim of assessee on the ground that deduction admissible under section 80-IA is admissible on an undertaking or an enterprises and it is available for 10 consecutive assessment years beginning from the first year of claim. According to the Learned DR, the first year of claim was in assessment year 1996-97 and 10 consecutive assessment years 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 statut....
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....No. 10-CCB in support of the claim. The only objection pointing out by the Assessing Officer is that all the employees are taking care of all the meters and WEGs. Thus, there is a common management for maintenance etc. In our opinion, it is one of the relevant factor to decide an issue whether all the meters are to be treated as a single unit or they are to be treated as a separate unit. In our opinion, this sole circumstance is not sufficient to ignore the other evidence and the contentions made by the assessee. The assessee has allocated the expenses in a logical way to each WEG. When an explanation of an assessee based on a number of facts supported by evidence and circumstances required consideration whether the explanation is sound or not must be determined not by considering 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 industri....
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....49. He allocated this depreciation of these two units against the receipt of all the units and then denied the deduction to the assessee. On the other hand, Learned CIT(Appeals) has observed that depreciation is to be disallowed by computing it @ 0.2% which was worked out by the Assessing Officer for computing the proportionate expenses required to be allocated. In our opinion, Learned First Appellate Authority has erred in giving this direction. The depreciation allowable to each unit whether unabsorbed or present year has to be allocated against the profit of that unit before computing the deduction admissible to the assessee under sec. 80-A. In assessment years, the ITAT has concluded in a similar way. Therefore, respectfully, following the order of the ITAT in earlier 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, th....
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....5885/Del/2010, we have considered a similar issue. In that case, the assessee had hired buses. Learned Assessing Officer construed that buses were taken on lease and such buses are to be construed as plant and machinery. 21. The discussion made by the ITAT in this case reads as under: "In brief, the solitary issue is whether assessee has to deduct TDS under sec. 194C or 194I of the Income-tax Act, 1961 on the payments made to the transporters who have plied their busses for transporting the employees and their wards to different destination as per the agreement between the assessee and the transporters. x x x x x x x x x x x x x x x x x x x x 4. Learned DR while impugning the order of the Learned CIT(Appeals) contended that assessee has taken the busses on hire. 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 Office....
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....High Court's decision, he pointed out that once specific provision has been provided then there is no need to apply section 194 I of the Act which is in relation to deduction of TDS on payment of rent. 5. We have duly considered the rival contentions and gone through the record carefully. The first disputed point is whether it is a payment being contract of service or a rent for hiring a plant. The emphasis of the Learned DR was that assessee has hired a bus which is akin to taking a plant on lease, therefore, the payment made by the assessee to the travel agency has to be construed as a rent paid for the bus. On the other hand, contention of the assessee is that it has availed the facility of transportation from the travel agency. It has not taken the bus in its 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 Is....