TaxTMI 
TaxTMI 
2017 (3) TMI 189
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....is appeal, the issue in controversy agitated on behalf of the assessee is disallowance of 'additional depreciation' on windmill quantified at Rs. 12,62,02,718/- relevant to assessment year 2011-12. 4. The relevant facts, in brief, are that the assessee is engaged in the business of water park and trading in goods. The assessee filed return of income declaring total income of Rs. 79,06,340/-. In the course of assessment proceedings, the Assessing Officer noticed that the assessee has purchased certain windmills to the tune of Rs. 1,17,33,88,103/- during the year on which normal depreciation allowance @ 80% was claimed under S. 32(1) of the Act. Besides, the assessee also claimed additional depreciation @ 20% ascribed under section 32(1)(iia) of the Act amounting to Rs. 12,62,02,718/- on the aforesaid acquisitions. The Assessing Officer show-caused the assessee to justify the eligibility of claim of additional depreciation under section 32(1)(iia) of the Act. The assessee canvassed before the Assessing Officer that electricity produced by the windmill is an "article or thing" within the meaning of section 32(1)(iia) of the Act. It was submitted that when the windmills so installed c....
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....sions cited by the assessee and observed that these decisions were rendered prior to amendment carried out in section 32(1)(iia) of the Act w.e.f. 1-4- 2013. The CIT(A) noted that specific amendment in section 32(1)(iia) was brought w.e.f. 1-4-2013 whereby benefit of additional allowance was extended to the business of generation or distribution of power. The CIT(A) also referred to the 'Explanatory Note' to the Finance Act, 2012 explaining the amendment and observed that the amendment carried out w.e.f. 1-4-2013 is not clarificatory or declaratory. The CIT(A) held that the amendment is prospective in nature and therefore the assessee is not eligible for additional depreciation for assessment years prior to assessment year 2013-14. The CIT(A) thereafter observed that accelerated depreciation of 80% is available to those wind mills which are installed before 31-03-2012. The accelerated depreciation allowance on wind mills has been brought down to ordinary rate by an amendment in the IT Rules 2012. Thus the rationale to provide additional deprecation to these wind mills installed after amendment in I T Rule 2012 was to compensate these wind mill owners by way of additional depreciati....
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....r the assessment years even prior to 01.04.2013 i.e. the date from which the amendment was stated to be made effective. In short, Dr. Pathak would submit that even without amendment, the activity of generation of electricity from windmills falls within the scope of existing expression 'manufacture or production of any article or thing'. 8.4 The Ld. Counsel further buttressed his contentions and submitted that in view of various case laws in the context of section 43B or section 40(a)(ia) of the Act, the amendment carried out in the provision of section 32(1)(iia) of the Act should be considered as retrospective in operation on the similar rationale. He, therefore, pleaded that the view taken by the CIT(A) is not in accordance with the provision of the Act. He thus pleaded for reversal of the order of CIT(A) and urged for restoration of additional depreciation as claimed. 9. The Ld. Departmental Representative (DR) appearing for Revenue, on the other hand, relied upon the order of the CIT(A). The Ld. DR referred to para no.8.2.3 of the order of the CIT(A) and submitted that the legislative intend behind the amendment is quite clear from the 'Explanatory Note' which has explained t....
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....ial rights of similar nature, being intanqible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed- (i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed; (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed : Provided............... (a)................... (b)................... Provided further that where an asset referred to in clause (i) or clause (ii) or clause (iia), as the case may be, is acquired by the assessee during the previous year and is put to use for the purposes of business or profession for a period of less than one hundred and eighty days in that previous year, the deduction under this subsection in respect of such asset shall be restricted to fifty per cent of the amount calculated at the percentage prescribed for an asset under clause (i) or clause (ii) 1 or clause (iia), as the case may be: Provided also............
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....tion to the assessment year 2013-14 and subsequent assessment years. [Clause 7]" 14. A bare reading of the Explanatory Memorandum amply spells out the intention of the legislature in no uncertain terms. The Act was amended to grant additional depreciation to an assessee engaged in the business of generation of power which was hitherto not available as understood by legislature. It is also apparent from the Explanatory Note that S. 32(1)(iia) has been prospectively amended by Finance Act, 2012 with effect from 1-4-2013 to include the generation or generation and distribution of power within its ambit. With this amendment, the additional deprecation which was hitherto available on acquisition of plant and machinery engaged in the business of manufacture or production of article or thing as per clause (ii) of section 32(1) is now also extended to generation of power. As a necessary concomitant to this insertion w.e.f. 1-4-2103, the paramount inference to be drawn is that expression 'manufacture or production of any article or thing' did not include 'generation and distribution of power'. The Explanatory Note explains the existing provision of S. 32(1)(iia) prior to amendment and th....
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....ciation to the assessee and is thus a substantive section. The substantive nature is also evident from the fact that deprecation allowance is mandatory and its claim is not left to the option of the assessee. Notably, S. 32(iia) grants vested right to claim depreciation over and above normal depreciation. Thus, general rule of prospective application as applicable to a substantive section should apply. It is a trite that a substantive provision in general has no retrospective effect. The transforming amendments of substantive sections are prima facie prospective in nature except where they are made retrospective in operation by specific statement or by necessary implication. Law of prospective application of amendments in statute as noted above is founded on long line of judicial precedents. Some of the decisions noted are Commissioner of Income-tax I, Ahmedabad v. Gold Coin Health Food Private Limited, [2008] 304 ITR 308 ; J.K. Synthetics Ltd. vs. CTO 119 CTR (SC) 222 ; Padmsundara Rao vs. State of Tamilnadu 255 ITR 147 (SC); Reliance Jute & Industries Ltd. vs. CIT (1979) 120 ITR 921 (SC). 18. In view of the subsequent amendment carried out which explicitly expresses the intentio....
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....tted that as per the aforesaid decision, the power generation and distribution activity tantamounts to manufacture or production of article or thing. Hence, the assessee is entitled to depreciation even under the existing provisions applicable to the relevant assessment years in question. He submitted that the amendment brought by Finance Act 2012 has only removed the ambiguity. On careful perusal, we find that the ITAT in NTPC case(supra) was called upon to decide the validity of action by Commissioner under S. 263 of the Act wherein the additional deprecation claimed was sought to be withdrawn by exercising revisionary powers by the Commissioner concerned. The scope of determination of issue was thus from a very different perspective. Besides, the coordinate bench was examining the issue with reference to first year of insertion of section 32(iia) of the Act. The ITAT referred to several decision of the apex court to hold that the production of power / energy has all the trappings of articles or goods. The process of its generation is akin to manufacture or production. Interestingly, the ITAT finally concluded that additional depreciation cannot be denied to the assessee merely o....
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.... categorical Explanatory Note explaining the purport of amendment. In the wake of aforesaid discussion, it is difficult to perpetuate the findings given in these decisions. Reliance placed on the decision of Jurisdictional High Court in United Western Bank case (supra) is totally in a different context. Reference to Supreme Court decision in the case of Madurai Mills was referred to in that case. It was observed in that case that Explanatory clause was clarificatory in the context of that case. It was observed in that case that deletion of certain exclusionary clause is only clarificatory since the substantive section of S. 2(7) of the Interest Tax Act was not amended. The situation is converse here. In the instant case, the substantive section has been amended and with prospective effect. The rationale of amendment is quite clear. Thus, the amendment of substantive section in the wake of categorical legislative intent as available cannot be branded to be of clarificatory nature or retrospective. The submission of the AR with reference to decisions rendered in the context of S. 43B and 40(a)(ia) wherein the amendment were considered to be clarificatory and thus retrospective is als....
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.... ITA No.1469/PN/2015, A.Y. 2011 -12 (By Revenue) : 26. The solitary issue raised by the Revenue in its appeal is disallowance of depreciation on costs incurred in relation to installation of windmills to the tune of Rs. 2,78,43,463/- made by the Assessing Officer. 27. Briefly stated, the relevant facts concerning the issue raised by the Revenue are that as per the assessment order the Assessing Officer disallowed depreciation at higher rate on the civil and electrical work done with installation of the windmills. The assessee made the following submissions before the Assessing Officer in this regard :- "4.1] In this year, the assessee had acquired windmills and claimed depreciation @ 80%. The learned A.O. has held that electrical items and other civil work is not part of windmill and therefore, the assessee is not entitled to claim higher depreciation on the same. The assessee would like to submit that other civil work includes expenditure on fencing, development of approach road and certain other items. While electrical work include items like transformers, wiring etc. in relation to the windmills installed during the year. The assessee contended that these items are a part a....
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....s been rightly included in the cost of windmills and thus, the depreciation @ 80% is allowable in respect of the said items. The assessee submits that this issue has been decided in favour of the assessee by ITAT Pune in the case of Poonawalla Finvest Pvt. Ltd. Hence, the assessee submits that the disallowance made by the learned A.O. on electrical items may kindly be deleted." 28. The CIT(A) following the decisions of his predecessor in assessee's own case and also the order of the Pune Bench of the Tribunal in the case of Poonawala Finvest & Agro Pvt. Ltd. vs. ACIT, (2008) 118 TTJ 68 (Pune) decided the issue in favour of the assessee and directed the Assessing Officer to delete the impugned disallowance. 29. Aggrieved by the order of the CIT(A), the Revenue is in appeal before the Tribunal. 30. The Ld. Departmental Representative for the Revenue relied upon the order of the Assessing Officer. 31. We find that the controversy in the present case is squarely covered by the recent decision of the Pune Bench of the Tribunal in the case of Shreem Electric Limited vs. JCIT in ITA No.2107/PN/2013, order dated 30.11.2015 wherein the Tribunal has decided the issue in favour of the ass....
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....pugned disallowance of depreciation." 32. We also find that decision of Pune Bench of the Tribunal in the case of Poonawala Finvest and Agro Pvt. Ltd. (supra) relied upon by Assessing Officer infact supports the case of assessee. 33. In the light of the aforesaid precedents on the issue, we find no merit in the Grounds raised by the Revenue. Thus, Revenue fails on its Grounds. 34. In the result, the appeal of the Revenue in ITA No.1469/PN/2015 relevant to assessment year 2011-12 is dismissed. ITA No.1470/PN/2015, A.Y. 2012 -13 (By Revenue) : 35. The Revenue has raised identical grievance in its appeal in ITA No.1470/PN/2015 relevant to assessment year 2012-13. The facts and issue in this appeal are identical to facts and issue in ITA No.1469/PN/2015. Thus, our decision in ITA No.1469/PN/2015 shall apply mutatis-mutandis to ITA No.1470/PN/2015. 36. In the result, the appeal of the Revenue in ITA No.14 70/PN/2015 relevant to assessment year 2012-13 is also dismissed. 37. Resultantly, the aforesaid captioned appeals of the assessee as well as appeals of the Revenue are dismissed. PER SUSHMA CHOWLA, JM: I have carefully gone through the proposed order of learned Brother and I ....
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....ed, etc. that the business of generation of power has been included in the section as new class of business, separate and distinct from the business of manufacture or production of an 'article' or 'thing'. He further pointed out that accelerated depreciation being allowed @ 80% was restricted to windmills installed prior to 31.03.2012 by an amendment in the IT Rules, 2012 and hence, the rationale for the amendment in section 32(1)(iia) of the Act. Since the accelerated depreciation was taken away by the amendment, there was need to holding them as eligible business for claiming additional depreciation, was the rationale of CIT(A) in denying the deduction. 4. The learned Authorized Representative for the assessee has stressed that the issue raised in the present appeal is covered by various decisions of Tribunal. Further, it was pointed out by the learned Authorized Representative for the assessee that where it is a case of interpretation of provision, then the amendment is clarificatory in nature, which view had been accepted by the Tribunal in the case of ACIT Vs. M. Satish Kumar in ITA No.718/Mds/2012, relating to assessment year 2008-09, order dated 28.09.2012 and DCIT Vs. Hutt....
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....Goods Act, 1930. 6. The Delhi Bench of Tribunal in NTPC Vs. DCIT in ITA No.1438/Del/2009, relating to assessment year 2005-06, order dated 30.04.2012, copy of which is filed on record, while applying the ratio laid down in the aforesaid two decisions by the Hon'ble Supreme Court observed that the expression 'article, thing or goods' was not defined in the Income Tax Act, but in case the above said propositions are applied, then it would suggest that electric energy had all trappings of article or goods. The Tribunal further held that the process of its generation is also akin to manufacture or production of an article or thing. Applying the said ratios, the Delhi Bench of Tribunal held that the admissibility of additional depreciation could not be denied to the assessee merely on the ground that the electricity was not an article or thing. In the facts of the case before the Delhi Bench of Tribunal, the Commissioner while exercising his powers under section 263 of the Act, had denied the additional depreciation to the assessee on the ground that it was not engaged in the manufacture of any article or thing. The said order of the Commissioner was reversed by the Tribunal and the di....
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....production and generation' could be used interchangeably in the case of electricity and generation of electricity can also be termed as production of electricity. Further, reference was made to the judgment in the case of India Cine Agencies Vs. CIT (2009) 308 ITR 98 (SC), wherein it is held that the term production and manufacture signifies the same meaning, rather the word 'production' has wider connotation than the word 'manufacture'. The Tribunal vide para 9 in view of the judgments observed that generation of electricity was akin to manufacturing of new product. In line with the other decisions of Tribunal and in view of the propositions laid down by the Hon'ble Supreme Court in CST Vs. Madhya Pradesh Electricity Board (supra), the Tribunal held that the generation of electricity was a manufacturing activity and since the assessee was involved in the manufacturing activity, fulfils the conditions as laid down under section 32(1)(iia) of the Act. The Tribunal vide para 10 noted that the Government vide Finance Act, 2012 had amended the provisions of section 32(1)(iia) of the Act to include business of generation or generation and distribution of power, eligible for the benefit ....
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.... D.J. Malpani Vs. ACIT in ITA Nos.1148 to 1154/PN/2013, relating to assessment years 2004-05 to 2010-11 and cross appeals filed by the Revenue in ITA Nos.1183 to 1188/PN/2013, relating to assessment years 2005-06 to 2010-11, order dated 30.10.2015, wherein in ITA No.1184/PN/2013, relating to assessment year 2006-07 in an appeal filed by the Revenue, the issue regarding claim of additional depreciation arose before the Tribunal. The first objection of the assessee was that no such disallowance was warranted since no incriminating material was found during the course of search or post search enquiries. The Tribunal upheld the order of CIT(A) in this regard. Further, the Tribunal also considered the issue on merits and held that the said issue is decided in favour of the assessee by the Hon'ble Madras High Court in CIT Vs. VTM Limited (2009) 319 ITR 336 (Mad). Further, reliance was placed on the decision of Chennai Bench of Tribunal in ACIT Vs. M. Satish Kumar (supra). Reference was also made to the ratio laid down by the Hon'ble Supreme Court in CIT Vs. Madhya Pradesh Electricity Board (supra) and the decision of Delhi Bench of Tribunal in the case of NTPC (supra), wherein it is held....
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....amendment is clarificatory in nature. 12. Both these decisions of Chennai Bench of Tribunal and Bangalore Bench of Tribunal were pronounced after considering the amendment and merely because they do not refer to Memorandum explaining the clauses of Finance Act, 2012 does not imply that the same has not been considered, where the amendment by the Finance Act, 2012 to section 32(1)(iia) of the Act provides that the aforesaid additional depreciation is available to persons who are engaged in the business of generation or generation and distribution of power in addition to the persons who are engaged in the business of manufacture or production of any 'article' or 'thing'. The insertion made by the Finance Act, 2012 to the existing provisions of section 32(1)(iia) of the Act are clarificatory and it is wrong to say that the assessee would be entitled to claim the said additional depreciation in respect of windmills only after insertion made by the Finance Act, 2012 w.e.f. 01.04.2013. The view of the Hon'ble Madras High Court in CIT Vs. Hi Tech Arai Ltd. (supra) and the CIT Vs. Texmo Precision Castings (supra) was to allow the additional depreciation on the ground that electricity gene....
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....nd our orders are subject to appeals to the Supreme Court. However, for the purposes of certainty, fairness and uniformity of law, all authorities within the State are bound to follow the orders passed by us in all like matters, which by itself implies that if there are some distinguishing features in the matter before the Tribunal and, therefore, unlike, then the Tribunal is free to decide on the basis of the facts put before it. However till such time as the decision of this court stands it is not open to the Tribunal or any other Authority in the State of Maharashtra to disregard it while considering alike issue. In case we are wrong, the aggrieved party can certainly take it up to the Supreme Court and have it set aside and/or corrected or where the same issue arises in a subsequent case the issue may be reurged before the court to impress upon it that the decision rendered earlier, requires reconsideration. It is not open to the Tribunal to sit in appeal from the orders of this court and not follow it. In case the doctrine of precedent is not strictly followed there would be complete confusion and uncertainty. The victim of such arbitrary action would be the Rule of law of whi....
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....morandum explaining the amendment by the Finance Act, 2012. Where the issue is covered by the decision of Pune Bench of Tribunal as well as other Benches i.e. Chennai, Bangalore and Delhi, which have been relied upon by the assessee and in the absence of any adverse decisions by the Tribunal or any ratio laid down by any higher forum, the decisions of coordinate Bench are binding and judicial propriety demands that the same is to be followed. Accordingly, I hold that the assessee is entitled to claim additional depreciation under section 32(1)(iia) of the Act. The thrust has been placed on the amendment to clause (ii) of section 32(1)(iia) of the Act, which is misplaced. Accordingly, the grounds of appeal No.1 to 3 raised by the assessee merits to be allowed. 15. Before parting, I may also address the proposition of learned Accountant Member to the extent as to the effect of amendment to section 32(1)(iia) of the Act, which is prospectively amended by the Finance Act, 2012 w.e.f. 01.04.2013. In the paras hereinabove, I have already held that the said amendment is clarificatory in nature and it gave impetus to the view already established that the persons who are engaged in the bus....
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....f Indian Income Tax Act, 1922. The apex court held that the proviso was only introduced by the Parliament by way of abundant caution. Applying the said proposition, the Hon'ble Bombay High Court in CIT Vs. United Western Bank Ltd. (supra) held that under the main section 2(7) of the Interest Tax Act, 1974, the word interest meant interest on loans and advances and not interest on securities / debentures and therefore, deletion of exclusionary clause by the Finance (No.2) Act, 1991 had no consequences on the main section 2(7) of the Interest Tax Act. The exclusionary clause which existed prior to October, 1991 provided that the interest on securities was to be excluded. The case of the Revenue before the Hon'ble Bombay High Court was that once the exclusionary clause was deleted, it indicates that the intention of Legislature was to tax interest on securities. The Hon'ble Bombay High Court in such scenario held that the exclusionary clause which existed prior to October, 1991 was only clarificatory in nature and the same was introduced out of abundant caution and its deletion had no effect to section 2(7) of the Act. Applying the said ratio to the facts of the present case, I hold t....
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....ed to the claim of additional depreciation under section 32(1)(iia) of the I.T. Act, in view of amendment by Finance Act, 2012 for assessment years 2011 -12 & 2012-13" Reference under Section 255(4) of the Income Tax Act, 1961 In my humble opinion, following questions are pertinent to be referred to Hon'ble Third Member in terms of S. 255(4) of the Act for esteemed opinion on subject matter of appeals. 1. Whether generation of power through wind mill assets acquired by the Assessee falls within the connotations of expression 'manufacture or production of any article or thing' as provided under S. 32(1)(iia) for the relevant assessment years namely AY 2011-12 & AY 2012 -13 in view of express legislative insertions made by Finance Act 2012 to extend & include activity of generation of power with effect from 1-4-2013 relevant to AY 2013-14 onwards. 2. In view of the express legislative intention spelt out in the Explanatory Memorandum to Finance Bill, 2012 with reference to proposed legislative alterations in S. 32(1)(iia), whether the benefit of initial depreciation/ additional depreciation under S. 32(1)(iia) could be extended to assets acquired towards activity of generation ....
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....fit of S. 32(1)(iia) hitherto not available with a prospective date. 10. Whether in the totality of facts and the circumstances of the case and in law, the Assessee is entitled to benefit of additional deprecation under S. 32(1)(iia) on the activities concerning generation of power through wind mills for the AY 2011 -12 & AY 2012 -13. Statement under section 255(4) of the Income Tax Act, 1961 "Whether in the facts and circumstances of the case assessee is entitled to the claim of additional depreciation under section 32(1)(iia) of the Income Tax Act, 1961." THIRD MEMBER ORDER: Justice (Retd.) Dev Darshan Sud, President (As Third Member): This reference under section 255(4) of the Income Tax Act, 1961, was put up before me for adjudication on two different set of questions- one framed by the learned Judicial Member and the other by the learned Accountant Member. 2. The first set of questions framed by the Hon'ble JM read as under:- "1. In the facts and circumstances of the case, whether the issue of claim of additional depreciation under section 32(1)(iia) of the I.T. Act is settled and covered in favour of the assessee and hence, the same is to be applied for deciding t....
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....tions relied upon to include generation of power within the ambit of 'manufacture or production of any article or thing' per se even without the aid of subsequent insertions made to this effect stands contrast to the understanding of legislature in the light of subsequent amendment and if yes, whether legislative intention as spelt in Explanatory Memorandum will take precedence over the judicial interpretation so made without reference to Explanatory Memorandum? 7. Whether benefit of additional depreciation is restricted to assets referred to in clause (ii) of S. 32(1) in exclusion to assets referred to in clause (i) prior to express inclusion of power sector in S. 32(1)(iia) itself with effect from AY 2013-14. 8. Whether the judicial decisions rendered without deliberation on the effect of clause (ii) on allowability of deduction under S. 32(1)(iia) can be viewed as sub-silentio and consequently not a binding precedent ? 9. Whether reduction of depreciation allowance eligible to wind mill assets to bring these assets at par in the realm of normal rate by I T Rules 1962 for assets installed in FY 2012-13 onwards and simultaneous & corresponding grant of additional depreciatio....
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.... (Commissioner of Income-tax v. Hi Tech Arai Ltd.). 7. Accordingly, following the above-said decision of the Court, we find no infirmity in the order passed by the Tribunal. We, therefore, do not find any question of law much less substantial question of law to entertain these appeals." (page 417) 6. The question before the Hon'ble Court was - "Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the generation of electricity by windmill amounts to production of an article or thing and consequently holding that the assessee is entitled for additional depreciation as per Section 32(1)(iia)?" 7. The learned Departmental Representative submitted that such benefit should not be allowed because of specific amendment have been enacted subsequent to the year in question. In view of the decision of the Hon'ble High Court, I do not find it necessary to consider the other decisions of various benches of this Tribunal. 8. I do not find this to be a legitimate argument in view of what the Hon'ble High Court of Madras decides. The case is therefore answered in the affirmative that the assessee is entitled to claim additional benefit of depreci....