TaxTMI 
TaxTMI 
2014 (6) TMI 922
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.....w.s. 80IA(1) of the Income Tax Act, 1961 (Act), any profits and gains derived by an undertaking which is set up in any part of India for generation and distribution of power after 1.4.1999 will be entitled to a deduction of an amount equal to 100% of the profits and gains derived from such business for ten consecutive assessment years. The above provisions do not refer to the period from when the ten consecutive assessment years will commence for which the deduction will be allowed. Section 80IA(5) provides that the profits and gains of an eligible business shall be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year upto and including the assessment year for which the determination is to be made. 4. It is not in dispute that during the previous year there were three separate undertakings established by the assessee by installation of windmills for generation of power and both these units on their own were entitled to claim deduction u/s.80-IA(4)(iv)(a) of the Act. The first unit known as Unit-I was situated at Shivalinganahalli, Gujnur, Hoov....
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....taka) (Credited directly to partners accounts) Less: Expenses connected to windmill depreciation 63,33,476 18,90,00573 (18,26,67,097) Windmill income (windmill situated at Basavapatna site, Harihar District, Karnataka) Less: Expenses connected to windmill depreciation 1127 2,98,00,000 (2,97,98,873) (21,24,65,970) Gross Total Income 94,75,08,254 Total Income 94,75,08,254 6. It can be seen from the above computation of total income that income of Unit-I on which deduction u/s.80-IA(4)(iv)(a) of the act was claimed at Rs. 63,33,476 was arrived at without setting off the depreciation on windmills in respect of this unit of Rs. 18,90,00,573/. The Assessing Officer examined the aforesaid claim of the assessee and observed that as per the provisions of section 80IA(5) of the Act, the profit from the business of running windmill has to be computed as if such eligible business were the only source of income of the assessee during the previous year. The AO thereafter noticed that as per the computation of income, depreciation of Unit-I & Unit-II has to be set off and if done so, there would be ....
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....ssee and following the decision of the Tribunal in the case of Anil H. Lad (supra), held that the direction of the AO to carry forward the loss of Unit-I & Unit-II for setting off against the income of these units in the succeeding assessment years is not valid. 9. We may also clarify here that the computation of income for the A.Y. 2006-07 clearly shows that the unabsorbed depreciation in Unit-I & Unit-II had been fully set off against the income of the other business of the assessee and therefore the entire unabsorbed depreciation of Rs. 21,24,65,970 had been fully absorbed leaving behind nothing to be carried forward. 10. Aggrieved by the aforesaid direction of the CIT(Appeals), the revenue has preferred the present appeal before the Tribunal. 11. We have heard the submissions of the ld. DR, who relied on the order of the Assessing Officer. In our view, the issue is fully settled by the decision of the Hon'ble Karnataka High Court in the case of CIT v. Anil H. Lad in ITA No.176/2001 dated 5.2.2014 which is an appeal against the order of the Tribunal which was followed by the CIT(A) in giving relief to the Assessee. In this case before the Hon'ble High Court of Karnataka....
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....e considering the deduction u/s.80IA which is falling under Chapter VIA of the IT Act, 1961. Where the earlier depreciation and losses have already been set off, those loss and depreciation do not go to reduce the gross total income of an assessee within the meaning of section 80AB and therefore bringing the notional concept of carrying forward and set off will be contrary to the scheme of section 80AB and concept of gross total income. 28. Now it is clear as we find that this issue is squarely covered by the above discussed judgement of the Hon'ble Madras High Court in the case of Velayudhaswamy Spinning Mills P. Ltd. v. ACIT (38 DTR 57). Where such an overriding judgement of the constitutional court is governing the issue, we are not permitted to rely on the decision of the Special Bench of the Ahmedabad Tribunal. 29. Therefore, following the above judgement of the Hon'ble High Court of Madras, we accept the contention of the assessee and reverse the order of the Commissioner of Income-tax(A) on this point and direct the assessing authority to grant deduction to the assessee u/s. 80IA for the quantum claimed by the assessee without diluting the same by t....
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....he assessee even in respect of eligible business is setoff against income of the assessee or other source, the said loss or depreciation is already absolved, it does not exist. For the purpose of determining the quantum of deduction under sub-section (5) of Section 80IA, the revenue cannot take into consideration the loss and depreciation which is already setoff against the income of the assessee from other source and compute the profit under Section 80IA. Therefore, the approach of the Tribunal is in accordance with law. The Assessing Authority and the Commissioner committed a serious error in setting off the profit earned by the assessee under Section 80IA against the losses and depreciation of the eligible business which is already setoff from other source before such a claim is putforth. Thus, there is no error committed by the Tribunal in setting aside the order passed by the Assessing Authority as well as the lower Appellate Authority. The substantial question of law is answered in favour of the assessee and against the Revenue." 12. The sum and substance of the judgment of the Hon'ble Court was that Sec.80-IA(5) of the Act will begin to operate only when deductio....
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....IA(7) of the Act is also not attracted in this case as the necessary certificates had been duly filed by the assessee and furnished before the AO in the assessment proceedings. Therefore, ground No.2 by the revenue is dismissed. 15. As far as ground No.1 is concerned, the factual background is that, deduction u/s. 80IA had been claimed in respect of Unit-I. In respect of Unit-II and III, there was a loss and therefore no 80IA deduction was claimed. The following was the statement of total income from windmills for the A.Y. 2007-08:- Windmill - I Unit (Windmill situated at Shivalinganahalli, Nagatibassapur Huvinahadagali Taluka, Davangere, Karnataka) (Credited directly to partners accounts) Less: Expenses relating to Windmill 2,57,88,686 Interest on Windmill loan 1,17,69,2887 1,17,69,287 1,40,19,399 Income from Windmill quality for Exemption u/s 80IA 1,40,19,399 Windmill - II Unit (windmill situated at Basavapatna site, Harihar District, Karnataka) Less: Expenses relating to windmill 64,34,506 Insurance 1,05,087 Interest on Loan 22,57,662 Depreciat....
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....f Anil H. Lad (supra). We may also add that the losses of windmill Unit-II & Unit-III for the A.Y. 2007-08 had been fully set off against the other business income of the assessee and this is clear from the computation of total income for the A.Y. 2007-08 filed by the assessee before us in which the loss of Unit-II & Unit-III totaling Rs. 33,43,51,857 has been set off against the other income of the assessee from business of Rs. 128,80,97,475. We therefore dismiss ground No.1 raised by the revenue. 20. In the result, the appeal by the revenue is dismissed. ITA No.146/Bang/2013 (AY 2008-09) 21. The grounds raised by the revenue in this appeal for the A.Y. 2008- 09 reads as under:- "1. The learned CIT(A) erred in fact and in law in directing the Assessing Officer to allow the deduction under section 80IA of the Income Tax Act ignoring the provisions of sub-section (5) of section 80IA of the Income Tax Act. 2. The learned CIT(A) erred in fact and in law in directing the Assessing Officer to allow deduction u/s. 80IA of the Income Tax Act claimed by the assessee during the proceedings u/s. 153A of the Income Tax Act even though the conditions of section 80(IA....
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....983 Unit-II: Windmill at Basavapatna Site, Harihar District Net income for the year : Rs. 24,26,972 Notional B/F loss bf from AY 2007-08 : Rs. 2,57,28,243 Loss : (-) Rs. 2,33,01,271 Unit-III: Windmill at Kalakeri Village, Mundargi Taluk Net income for the year : Rs. 2,46,95,568 Notional B/F loss bf from AY 2007-08 : Rs. 30,86,23,614 Loss : (-) Rs. 28,39,29,046 Unit-IV: Windmill at Kolahalu Village, Chitradurga Taluk Net loss for the year : (-) Rs. 9,38,97,000 8.5 It is seen that there is no profit for the year from any of the units after set off of the notional loss brought forward from the preceding assessment year. Therefore there is no profit from the windmill sources eligible for deduction u/s. 80IA. Hence, no deduction u/s. 80IA is allowable in the case of he assessee. Therefore, no deduction u/s. 80IA of the Income Tax Act, 1961. The notional losses from these units are to be carried forward." 26. The CIT(Appeals), following the decision of the Tribunal in the case of Anil H. Lad (supra), directed the AO to allow the claim of deduction u/s. 80IA of the Act for Unit-I, Unit-II & Unit-III. He fur....
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....asehold rights over the land should also be considered as a payment made for acquisition of a plant. Alternatively, the assessee claimed that the expenditure in question is revenue expenditure and should be allowed as a deduction u/s. 37(1) of the Act. 28. According to the revenue, acquiring a right over the land and cost paid for such acquisition cannot be equated with the consideration paid for acquiring a plant. According to the revenue, acquiring leasehold rights over a land over a period of 30 years results in an enduring benefit to the assessee and therefore expenditure cannot be allowed as deduction u/s. 37(1) of the Act also. The quantum of lump sum consideration paid for acquiring leasehold rights are different in each of the assessment years. We need not make a reference to those payments as the issue to be decided by us is as to whether payment made for acquiring leasehold rights can be considered as cost of windmill (plant) for allowing depreciation; or whether alternative claim of the assessee to allow the said expenditure as revenue expenditure can be sustained. 29. Both the AO and the CIT(Appeals) decided the issue against the assessee giving rise to these appe....
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....he functional test and came to the conclusion that the building constituted a plant. Following observations were brought to our notice:- "Reference was made to an earlier judgment, where also the functional test approved by this court in several decisions was applied. It was held that if it was found that the building or structure constituted an apparatus or a tool of the taxpayer by means of which business activities were carried on, it amounted to a "plant"; but where the structure played no part in the carrying on of those activities but merely constituted a place wherein they were carried on, the building could not regarded as a plant. The Tribunal and the High Court in the instant case proceeded upon assumptions of what a nursing home should contain. This may not be altogether appropriate. What is to be determined is whether the particular nursing home building was equipped so as to enable the assessee to carry on the business of a nursing home therein or whether it is just any premises utilised for that object. We find from the order of the Tribunal as also the assessment order that the assessee's nursing home is equipped to enable the sterilization of surgical instr....
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....ourt held that while paying a lump sum premium to MIDC, the assessee was in effect paying future rents payable by it periodically. The Hon'ble High Court held that the expenditure was revenue in nature, as it merely facilitates the assessee's trading operations and the test of enduring benefit should not be applied. 35. The ld. DR relied on the order of the CIT(Appeals). 36. We have given a very careful consideration to the rival submissions. On the issue whether the payment for acquiring leasehold rights on the land on which windmills are erected could be treated as cost of plant on which depreciation can be allowed, we are of the view that the fact that the windmills need to be erected on a high terrain for effective generation of power cannot be the basis to conclude that rents paid for acquiring leasehold rights over the land as part of the cost of plant for the purpose of allowing depreciation. The argument of the ld. counsel for the assessee has been that requirement of erecting the windmill at mountain terrains at a high altitude is a technical requirement for generation of power. Though this contention has not bee disputed by the revenue, there is no evidence on re....
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....The only other issue that remains for consideration in assessee's appeal is ground No.2 in ITA No.20/Bang/2013, which reads as under:- "2. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in disallowing depreciation on Windmill installed at Kolahalu Village on the ground that the Windmill was not actually put to use." 39. The assessee in the previous year relevant to A.Y. 2008-09 had started Unit-IV at Kolahalu Village. The assessee claimed depreciation on windmill that was commissioned on 28.3.2008. It is not in dispute that the Executive Engineer (Electrical), KPTCL, Chitradurga certified the commissioning of windmill as on 28.3.2008. It is also not in dispute that though the windmill was commissioned and was ready for use, the same was not put to use on or before 31.3.2008. It is in this background that depreciation on the windmill commissioned was claimed. In this regard, the submission of the assessee was that Depreciation of Rs. 9,38,97,000/- was claimed on the windmill for Assessment 2008-2009, in respect of 2 windmills installed during the previous year at a cost of Rs. 18,77,94,000/-. The installation of Windmill was completed on ....
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....tituted. By the aforesaid amendment, the Hon'ble Court held that actual user is necessary for allowing depreciation. 41. On this issue, the CIT(Appeals) also concurred with the view of the Assessing Officer. Before the CIT(A), the decision of the Hon'ble High Court of Karnataka in the case of DCIT v. Yellamma Dasappa Hospital, 290 ITR 353 was relied upon by the revenue, whereas the assessee sought to place reliance on the decision of CIT v. Chamundeshwari Sugars Ltd., 309 ITR 326 (Karn). In Yellamma Dasappa Hospital's case, the Hon'ble High Court took a view that the fact that machinery was kept for ready for use, would alone not entitle the assessee to claim depreciation unless there was actual user of the machinery. This decision pertained to the A.Y. 1989-90. In the case of Chamundeshwari Sugars Ltd., the facts were that machinery was installed before the end of the previous year, but could not be used because it was defective. In such circumstances, the Hon'ble High Court of Karnataka took a view that the assessee was entitled to depreciation by applying the principle of 'machinery being ready to use' and the principle of 'passive user of the asset'. The Hon'ble High Court a....
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....y, by the assesses and used for the purposes of the business or profession, the following deductions shall be allowed - (i) ........ (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed." 46. Section 43(6) of the Act defines the expression "Written Down Value" and it reads as under:- (6) "written down value" means - ....... (c) in the case of any block of assets, - (i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted, - (A) by the increase by the actual cost of any asset falling within that block, acquired during the previous year; (B) by the reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased....
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....namely, building, machinery, plant and machinery." 49. The rationale and purpose for which the concept of block asset was introduced, as reflected in the CBDT's Circular dated 23.09.1988 is that once the various assets are clubbed together and become 'block asset' within the meaning of s. 2(11), it becomes one asset. Every time, a new asset is acquired, it is to be thrown into the common hotchpotch, i.e., block asset on meeting the requirement of depreciation being allowable at the same rate. Individual assets lose their identity and become an inseparable part of block asset in so far as calculation of depreciation is concerned. The merger of various assets into the block asset can be altered only when the eventuality contained in clause (c) of s. 43(6) takes place, viz., when a particular asset is sold, discarded or destroyed in the previous year (other than the previous year in which first brought in use). Even in that event, the amount by which the moneys payable in respect of that particular building, machinery, etc. together with the amount of scrap value is to be deducted from total written down value of the 'block asset'. It is thus clear from the aforesaid provisions tha....
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.... Act, in order to be entitled to claim depreciation, the asset is to be owned by the assessee and it is also to be used for the purpose of business or profession. However, the expression "used for the purpose of business", when applied to block asset, would mean use of block asset and not any specific building, machinery, plant or furniture in the said block asset as individual assets have lost their identity after becoming inseparable part of the block asset. That is the only manner in which various provisions can be harmonized. 33. Once we look into the provisions of this angle, answer to the argument of the learned counsel for the Revenue predicated on second proviso to s. 32 shall also be provided. It was her submission that if a particular asset is acquired after 30th September during the previous year and is put to use for a period of less than 180 days in the previous year, the deduction under sub-s. (1) of s. 32 is restricted to 50 per cent of amount admissible. On that basis, she had argued that requirement of user of individual asset remains intact. Answer to this argument is that this would be the position in the first year when the particular asset is acquired.....