TaxTMI 
TaxTMI 
2015 (3) TMI 263
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....hinery used for the generation of power cannot be said to be the assets of „an undertaking engaged in generation of power". 3. The plant and machinery used in generation of power herein are not the assets of such an undertaking as such, as the undertaking here is one of production and sale of sugar. The relevant expression in the above sub-clause (i) means a concern which is essentially engaged in generation of power and not to plant and machinery, producing power incidentally as a part of an undertaking, whose essential function is something different, as here, being production and sale of sugar. 4. Therefore, the rule applicable for allowing depreciation in this case will be the rule 5(1) of the Income Tax Rules 1962 and not Rule 5(1A). 5. In the alternative and without prejudice even if rule 5(1A) is attracted under the plea that sub-clause (1) u/s.32(1) applies, it should have been appreciated that the rule regarding option to be exercised as per second proviso u/s.5(1A) as regards the time limit for exercising such option is not mandatory but directory. 6. Claiming of depreciation on the basis of the WDV method as per Rule 5(1) of the Income Tax Rules 1962 while fili....
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....ption of the Assessee provided the option is exercised by the Assessee before the due date of filing of the return. According to the AO since the Assessee failed to exercise the option before the due date of filing of the return, therefore, depreciation is to be allowed to the Assessee not as per Appendix-1 but as per the rates prescribed in Rule 5(1A)(ii) proviso under Appendix-1A. The Assessee contended that Rule 5(1A) is applicable only to an Assessee engaged solely in the business of generation and distribution of power and not to any other Assessee also engaged in the business of power as is the case of the Assessee. The AO did not agree with the submission of the Assessee since the Assessee is also engaged in the production of sugar. The Assessee has also not exercised his option with regard to the availing depreciation as provided under Rule 5(1A) r.w.s. 32(1)(i) of the Income Tax Act. The AO, therefore, disallowed depreciation to the extent it was in excess. When the matter went before the CIT(A), CIT(A) confirmed the disallowance. Similarly, in A.Y 2010-11 the disallowance was made as depreciation was restricted in the A.Y 2009-10 @ 7.69% as per Rule 5(1A) Appendix-1A. Acc....
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.... for exercising the option in the Income Tax Rules. It was contended that even if the return has been filed u/s 139(4), it cannot be said that the Assessee has not exercised the option within the due date as prescribed under Rule 5(1A). Reliance was placed in this regard on the decision of the Hon'ble Karnataka High Court in ITA No. 435 of 2004 in the case of Fathima Bai vs. ITO. Our attention was also drawn towards the Income Tax (Amendment) Bill, 1998, statement of objects and reasons to stress that the objective was that there must be lower tax reimbursement by the State Electricity Boards. The Assessee is not supplying electricity to the State Electricity Board. Reliance was also placed on the decision of the Chennai Bench of the Tribunal in K.K.S.K. Leather Processors (P.) Ltd. vs. ITO, 126 ITD 215 for the proposition of law that option can be exercised by making claim in the return as no method for exercising the option has been prescribed. Reliance was also placed on the decision of the Chennai Bench of the Tribunal in K. Ravi vs. ACIT, (2010) 2 ITR (Trib) 752 (Chennai). Following decisions were also relied on : i) CIT vs. Kikani Exports P. Ltd., 369 ITR 500 (Mad) ii) ....
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....ibed; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed." "5(1A) The allowance under clause (i) of sub-section (1) of section 32 of the Act in respect of depreciation of assets acquired on or after 1st day of April, 1997 shall be calculated at the percentage specified in the second column of the Table in Appendix IA of these rules on the actual cost thereof to the assessee as are used for the purposes of the business of the assessee at any time during the previous year : Provided that the aggregate depreciation allowed in respect of any asset for different assessment years shall not exceed the actual cost of the said asset : Provided further that the undertaking specified in clause (i) of sub-section (1) of section 32 of the Act may, instead of the depreciation specified in Appendix IA, at its option, be allowed depreciation under sub-rule (1) read with Appendix I, if such option is exercised before the due date for furnishing the return of income under sub-section (1) of section 139 of the Act, (a) for the assessment year 1998-99, in the case of an undertaking which began to generate power prior to 1st day of April....
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....reciation as per Appendix-1. We noted from the provisions of Sec. 32(1)(i) that the Assessee is entitled to claim depreciation at such percentage on the actual cost of the assets as may be prescribed in case the Assessee is engaged in generation or generation and distribution of power. Clause (i) of Sec. 32(1) empowers the rule making authority to prescribe the percentage on the actual cost for allowing the depreciation. This clause, in our opinion, does not empower the rule making authority to put any other condition except prescribing the percentage at which the depreciation is to be allowed on actual cost to the Assessee. After going through Rule 5(1) & 5(1A), we noted that sub-clause (i) has been inserted u/s 32 w.e.f. 1.4.1998 while Rule 5(1A) has been inserted w.r.e.f. 2.4.1997 by the Income Tax (12th Amendment) Rules, 1997 when the provision of clause (i) were not in the present form. We noted that the first proviso as well as the impugned Rule 5(1A) prescribed the percentage on the actual cost at which the depreciation has to be allowed to the Assessee. It is only proviso (ii), we noted, which allows option to the Assessee to claim depreciation in accordance with Appendix-1....
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....Court vide order dt. 17.10.2008 with reference to the following question of law : "Whether the Tribunal justified in holding that the Deposit of Rs. 500000/- made by the Appellant in a bank Account before the due date for filing the return of income is not eligible for deduction under section 54 of the Act under the facts and circumstances of the Appellant‟s case ?" after discussing the provisions of Sec. 54(2) as well as provisions of Sec. 139 has held as under : "The Sec. 54(1) declares that when the assessee sells any long term capital asset, the assessee should purchase the building within one year before the transfer or within two years after the transfer by investing capital gains. In which event the assesee will not be liable for capital gain tax. The Sec.54(2) declares that within one year from the date of transfer if the capital gain is not invested in purchase of building, he should deposit the amount in the „Capital Gain Account Scheme‟ or else the assessee should invest the capital gains before filing of return within the permitted period u/s 139. In which event, the assessee will not be liable to pay capital gain tax. The Sec.139(4) declares that....
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.... date of filing return of income under section 139(1) for claiming higher rate of depreciation as provided in Appendix I to rule 5(1A), disallowed assessee‟s claim - He, thus, allowed depreciation only at 7.69 per cent of actual cost applying rule 5(1A), rate of depreciation admissible vide Appendix 1A - Whether since there is no specific form or method prescribed for exercising option, claim made in return of income as well as reflected from books of account and audit report filed along with return of income was more than exercise of option as required under second proviso to rule 5(1A) - Held, yes - Whether, therefore, assessee was entitled to depreciation on windmills at a higher rate - Held, yes." 12. The Hon'ble Madras High Court in the case of CIT vs. Kikani Exports P. Ltd., 369 ITR 500 (Mad) has held :- "Held accordingly, dismissing the appeals, that if the assesses exercised the option in terms of the second proviso to rule 5(1A) at the time of furnishing of return, it will suffice and no separate letter or request or intimation with regard to of exercise of option is required. Since the returns were filed in accordance with section 139(1) and the form prescribe....
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....gation as per Explanation 5 to sub-section (1) of section 32 of the Income-tax Act, so that the depreciation shall be allowed as per the option of the assessee and not at the discretion of the Assessing Officer. 6. In the case in hand, there is no dispute regarding entitlement of the assessee to higher rate of depreciation on wind mill as per Appendix I, but the Assessing Officer has disallowed the claim on the ground that the assessee in the earlier year, i.e., the assessment year 2005-06 did not exercise option within the due date of filing of return as per section 139(1) of the Income-tax Act. Thus on the merits there is no dispute about the entitlement of the assessee at 80 per cent. of depreciation on wind mill but due to technical defect in view of the Assessing Officer the assessee was denied the said claim. When there is no specific form or method prescribed for exercising the said option as per the second proviso to rule 5(1A), then the claim made in the return of income as well as reflected from the books of account and audit report is more than sufficient for exercising the option as required under the second proviso to rule 5(1A). It is an undisputed fact that the asse....
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....ned CIT(A) held that the assessee had not exercised his option and, therefore, the AO rightly calculated depreciation on straight line method. On consideration of the matter we find that as per second proviso to r. 5(1A), the assessee may, instead of the depreciation specified in Appen. IA on his option, be allowed depreciation under sub-r. (i) r/w Appen. I i.e. on WDV basis if such option was exercise by the assessee before the due date for furnishing the return of income under Section 139(1) of the Act for asst. yr. 1998-99 or for the assessment relevant to the previous year in which the assessee began to generate power, whichever is later. It is seen that no particular format or procedure has been laid down in the second proviso in relation to exercise of option by an assessee. Second proviso only says that option is to be exercised before the due date for furnishing the return of income under Section 139(1) for the asst. yr. 1998-99 in respect of power generating undertaking then existing and for the first assessment year in which a new undertaking begins to generate power. The case of the assessee is that it began to generate power during the previous year relevant to asst. yr....
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.... while interpreting the provisions of Sec. 54. The decision of the jurisdiction High Court is binding on us. No contrary decision was brought to our knowledge. Even otherwise also, it is a settled law that rule cannot supersede the Act. U/s 32 there is no specific provision of exercising of the option within a particular time, therefore, to that extent the condition imposed under Rule 5(1A) proviso (ii), in our opinion, is invalid. We, therefore, set aside the order of CIT(A) on this issue and direct the AO to allow the depreciation to the Assessee in accordance with Appendix-1 on the items which are mentioned under column 8(ix)(d) as per the rate specified therein. Thus, ground nos. 1 to 7 in A.Ys 2009-10 and 2010-11 are allowed. 16. Ground nos. 8 to 9 in A.Y 2010-11 relates to the claim of deduction by the Assessee u/s 43B in respect of Purchase Tax payable amounting to Rs. 4,62,04,825/-. The brief facts of these grounds are that the AO noted that the cane purchase tax claimed by the Assessee remains unpaid by the due date of filing the return. The Assessee claimed that since it is eligible for conversion of can purchase tax into loan as per the scheme of Karnataka Govt. as per ....
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....c) Repayment of the above loans will be in five annual installments from the sixth year. (d) The incentive will be available to the units covered under 2009-14 Industrial Policy. The terms and conditions will be issued separately with the approval of SLCC. This order is issued with the concurrence of Finance Department vide U.O." 19. The said Industrial Policy no doubt entitles the Assessee for availing of interest free loans to the extent of purchase tax to be paid on sugar cane during the first 5 years of its operations and in case of existing units, they also will be eligible for interest free loans during the first 5 years from completion of the expansion. The claim of the Assessee before us is that the purchase tax payable by it has been converted into interest free loan and therefore it is deemed to have been paid within the due date i.e. before filing of the return and the Assessee, therefore, be allowed deduction as per provisions of Sec. 43B. Reliance was placed on the CBDT Circular no. 674 dt. 29.12.1993. We noted that Circular no. 674 dt. 29.12.1993 relates to sales tax deferment scheme brought out by the various State Governments. In this regard, the Board in this C....