TaxTMI 
TaxTMI 
TaxTMI 
2025 (4) TMI 81
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....rovides for allowance for a company engaged in the business of manufacture or production of any article or thing. 3.The CIT(A) erred in noticing the provisions of Sec. 32(1)(iia) of the Income Tax Act, 1961 which provides for additional depreciation @35% for a company engaged in the business of manufacture or production of any article or thing. 4.The CIT(A) erred in extending the benefit of Investment Allowance U/ s. 32AC & u/ s. 32AD of the Act to power generating companies by inheriting the provisions U/s. 32(1)(iia) of the Act, which specifically provides additional depreciation to companies engaged in the business of power generation in addition to companies engaged in the business of manufacture or production of any article or thing, which is against law. 5.The CIT(A) erred in relying on the various judicial pronouncements on different contexts where as in order to find out whether any assessee is entitled for any particular deduction, each case is required to be examined in the light of facts and circumstances of that very case and the very provisions of the Act." 3. Facts of the case, in brief, are that the assessee is a limited company engaged in the business of powe....
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....y. In order to encourage substantial investment in plant or machinery, it is proposed to insert a new section 32AC in the Income Tax Act to provide that where an assessee, being a company, (a) is engaged in the business of manufacture of an article or thing; and (b) invests a sum of more than Rs. 100 crore in new assets (Plant or machinery) during the period beginning from 1st April, 2013 and ending on 31st March, 2015. In the said Memorandum, the power generating companies were not included. In the absence of specific inclusion of power generating units into the purview of section 32AC, the benefits mentioned in section 32(1)(ii) cannot be extended to power generation companies. Therefore, the case laws relied upon by the assessee, which were rendered in the context of 32(1)(lia) cannot be applied to provisions of section 32AC and accordingly, the claim of investment allowance claimed by the assessee at Rs. 358,44,95,902/ - is disallowed and added to the income returned. It can be observed from the above that the AO has categorically held that power generating units are excluded from the purview of section 32 AC of the Act. The Appellant has, however, submitted that it is entitl....
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....Section 32AC and as the assessee is not qualified for the investment allowance for not being in the business of manufacturing and production of any article or thing (as per detailed discussion in Para 6.01 to 6.07). Therefore, the claim of investment allowance u/s 32AD of Rs. 358,44,95,902/- is disallowed and added back to the income returned." I have already discussed in details at para 5.2. above that generation of power by the Appellant is akin to manufacture or production of any article or thing and, therefore, the Appellant is entitled to deduction claimed u/ s 32AD as well. Accordingly, I direct the AO to delete the addition of Rs. 358,44,95,902/- made in the assessment order by denying the benefits available to the Appellant u/s 32AD of the Act. The Ground is, thus, allowed. 5.4. Ground 4 Vide this ground of appeal, the Appellant has submitted that the AO has erred in restricting the claim of additional depreciation at a rate of 20 percent instead of 35 percent as claimed by the appellant u/ s 32 (1)(ila) of the Income Tax act and thus, adding back an amount of Rs. 271,70,42,063/ -. It is observed from the assessment order that the AO has restricted the claim of additi....
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....to deduction claimed under section 32AD of the Act as well. It was submitted that the Ld.CIT(A) had allowed the benefit of Section 32(1)(iia) of the Act, whereby the additional depreciation @ 20% was allowed. The CIT-DR for the purpose of proving the case of the assessee has submitted that the Assessing Officer while examining the case of the assessee has brought in various facts and the provision of law, which are available at paragraphs 6.00 to 8 of the assessment order, which is to the following effect : "6.00 Investment allowance u/s 32AC: The assessee claimed to have installed new machinery in new projects taken up at (i) Thermal Power Generation Plant, Visakhapatnam (Unit-1) installed new machinery costs exceeds 25 Crores on 11.01.2016 (ii). Boiler plant Visakhapatnam which is a backward area in the state of Andhra Pradesh, as per notification dated 28.09.2016 bearing No. SO 3075(E) (No. 85/2016) (F. No. 142/13/2015-TPL) On the said new machinery, the assessee claimed investment allowance u/s 32AC at Rs. 358,44,95,902/- being 15% of the new machinery installed during the year. 6.01 The assessee was asked to substantiate their entitlement to the said allowance u/ s 32AC. t....
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....red and income can be earned from sale of electricity (it does not matter it is tangible or intangible form of energy), generation of power can be treated as manufacture of an article or thing. In support, the assessee referring to the following case laws submitted as under: Further it is to bring to your kind notice that the issue as to whether the generation of power amounts to production of an articular or goods was examined by ITAT B-Bench, Kolkata in the case of M/s Damodar Valley Corporation v. DCIT Circle (9), Kolkata and held that generation and distribution of electricity is akin to the manufacturing and hence the assesseo is eligible for additional deprecation u/s 32(1)(ii) (a) of the Act. Commissioner of Sales Tax v. MP Electricity Board (AIR 1970 SC 732) State of AP v. National Thermal Power Corporation Ltd (127 STC 280 SC) In the above decisions it has been held by the Apex court that the generation of power amounts to production of 'goods'. Attention is specifically drawn to the decision of the Supreme Court in the case of Madhya Pradesh Electricity Board (Supra). In the decided case the State Electricity Board generated and distributed electricity ene....
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....e business of manufacture or production of any article or thing, and this section came into force vide Finance Act 2002. Though the proviso relating to allowing additional depreciation u/s 32(1)(ia) starts with the words 'engaged in the business of manufacture of an article or thing' akin to the proviso 32AC(1A) where an assessee, being a company, engaged in the business of manufacture or production of any article or thing the incentive of additional depreciation was not considered for power generation companies. However, the said incentive of additional depreciation was extended to the power generation companies by an amendment to the section 32(1)(ila) by including the power generation companies in the said proviso with effect from 01.04.2013 by the Finance Act, 2012. In the Memorandum to Finance Act, 2012, the reasons for extending the benefit of additional depreciation to power generation companies was spelt out as under. Under the existing provisions, the benefit of initial depreciation is not available on the new machinery or plant installed by an assessee engaged in the business of generation or generation and distribution of power. In order to encourage new investme....
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....assessee also claimed additional investment allowance of Rs. 358,44,95,902/- u/s 32AD of IT Act. As per Section 32AD provides: "Where an assessee, sets up an undertaking or enterprise for manufacture or production of any article or thing, on or after the 1st day of April, 2015 in any backward area notified by the Central Government in this behalf, in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal, and acquires and installs any new asset for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April; 2020 in the said backward area, then, there shall be allowed a deduction of a sum equal to fifteen per cent of the actual cost of such new assets for the assessment year relevant to the previous year in which such new asset is installed. The conditions laid down u/s 32AD is same as in the Section 32AC and as the assessee is not qualified for the investment allowance for not being in the business of manufacturing and production of any article or thing (as per detailed discussion in Para 6.01 to 6.07). Therefore, the claim of investment....
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....1)(iia) of the Act, as well as Sections 32AC and 32AD, need to be examined. For this purpose, he drew our attention to the bare provisions of the Act and the explanatory Memorandum of the Finance Bill, by virtue of which these provisions were inserted. It was submitted, if the Parliament deem it appropriate to extend the benefit of these provisions, to the "business of the generation, transmission and distribution of the power", then the legislature should have incorporated such assessee within the first proviso to Section 32(1)(iia), 32AC and 32AD of the Act. It was submitted that the "business of generation, transmission and distribution of the power" is conspicuously not appearing in either of the provisions to Section 32(1)(iia), 32AC and 32AD of the Act and therefore, these benefits as granted by the Ld.CIT(A) cannot be extended to the assessee. 8. Furthermore, the lower authorities and the jurisdictional Tribunal in the case of Telangana State Power Generation Vs ACIT (supra) has not examined the above said aspect and has merely given a finding relying upon the decision of hon'ble Supreme Court in the case of State of Andhra Pradesh Vs. NTPC (supra). Similarly, the decis....
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....e CIT-DR has also drawn our attention to the decision of hon'ble Supreme Court in the case of Commissioner of Sales Tax, Madhya Pradesh Vs. Madhya Pradesh Electricity Board, Jabalpur dated 26.11.1968 reported in 1920 AIR 732, wherein the Hon'ble Supreme Court had the occasion to decide the applicability of Goods and Sales Tax on the supply of electricity, and in that context, the hon'ble Supreme Court has decided the issue. It was submitted by the CIT-DR that the literal and strict interpretation is required to be applied for deduction expenditure of tax as held by the hon'ble Supreme Court in a catena of judgments, more particularly, in the case of (1) PCIT Vs. Wipro reported in 446 ITR 001. (2) Commissioner of Customs Vs. Dilip Kumar (2018) 5 SCC 1 and (3) CIT Vs. M/s. Calcutta Kintwears, Ludhiana reported in (2014) 6 SCC 444, are followed, then it is admittedly clear that the relief granted by the Ld. CIT(A) is in accordance with law and therefore, the appeal of the Revenue is required to be allowed. 10. Per contra, the ld.AR has submitted that the issue in the present case is covered in favour of the assessee and he has drawn our attention to the decision of th....
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....sions of section 32(1)(iia) to include the business of generation or generation and distribution of power, eligible for benefit under section 32(1)(iia). Although the said amendment is with effect from 1.4.2013 but it gives impetus to the view that generation of electricity is a manufacturing process and qualifies for the benefits under section 32(1)(iia). In view of the above, the order of the CIT(A) is upheld and the appeal of the Revenue is dismissed being devoid of merit. 7.2 As the issue in dispute is similar to the issue decided by the ITAT, Delhi in Vedanta Ltd. and the Chennai Bench has decided that generation of electricity is a manufacturing activity decision cited supra, The electricity can be transmitted, transferred, delivered, stored, possessed etc. The Hon'ble Supreme Court in the case of the CST Vs. Madhya Pradesh Electricity Board (supra) has held that electricity falls within the definition of goods under the provisions of Sale of Goods Act, 1930. Therefore, respectfully following the above judgements, we set aside the order of CIT(A) and direct the AO allow the assessee's claim of deduction u/s 32AC of the Act. Accordingly, the ground raised by the asse....
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....delivered, stored, possessed, etc. The hon'ble Supreme Court in the case of the Madhya Pradesh Electricity Board, (supra) has held that electricity falls within the definition of goods under the provisions of Sale of Goods Act, 1930. The Delhi Bench of the Tribunal in the case of National Thermal Power Corporation Ltd. (supra) after a detailed examination of several judgments, Acts, Constitution of India, has concluded that the process of generation of electricity is akin to manufacture of an article or thing. 10. In view of the above, we are of the considered opinion that generation of electricity is a manufacturing activity. The assessee is involved in the manufacturing activity and fulfils the conditions as laid down under section 32(1)(iia). The Government vide Finance Act, 2012 has amended the provisions of section 32(1)(iia) to include the business of generation or generation and distribution of power, eligible for benefit under section 32(1)(iia). Although the said amendment is with effect from April 1, 2013 but it gives impetus to the view that generation of electricity is a manufacturing process and qualifies for the benefits under section 32(1)(iia). In view of the ....
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....econd line of business. It is a product of the assessee company. It is covered under the words "article" or "thing", which is tradable/identifiable. In other words, the electricity falls within the definition of Sale of Goods Act, 1930, and process of generation of electricity is akin to manufacture or production of an "article" or "thing". The power generated need not necessarily be used in the production of assessee's own products namely mining and extraction of gold. The use of electricity in the manufacturing activity of the core business of the assessee is not a precondition for the grant of additional depreciation under the statute. Therefore, we do not see any merit in this appeal. Accordingly, this appeal is rejected. 4. However, we have not gone into the question of applicability of Section 32(1)(iia) of the Income Tax Act, 1961, and the question as to whether clarificatory or not is kept open to be decided at proper time." Although the Karnataka High Court held that it was not going into the question of Section 32(1)(iia) and the question of whether the subsequent amendment was clarificatory, the analysis of the Court is in our view also applicable to the interpre....
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....dgment of the Supreme Court to hold that electricity has all the necessary trappings of "articles" or "things" and the benefit of additional depreciation cannot be denied. 10. As held by the Constitution Bench, electricity is capable of abstraction, transmission, transfer, delivery, possession, consumption and use like any other movable property. Following the same logic, to deny the benefit of additional depreciation to a generating entity on the basis that electricity is not an "article" or "thing" is in our view an artificially restrictive meaning of the provision. The benefit of additional depreciation under Section 32(1)(iia) has, therefore, been rightly granted to the assessee by the concurrent judgments of the CIT(A) and the Tribunal. 11. We also note that, w.e.f. from 01.04.2013, the provision has been amended by the Finance Act, 2012 and assessees engaged in the generation of power have expressly been included in the ambit thereof. 12. For the above reasons, the Court is of the opinion that no substantial question of low arises. The oppeal is dismissed." 81. In light of the decision of the Hon'ble Supreme Court in the case of Sesa Goa and NTPC Sail Power Co. Pu....
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....gs, machinery, plant or furniture, being tangible assets; (ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible 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- 5[(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) 1[in the case of any block of assets, such percentage on the written down value thereof as may be prescribed:] 2* * * * * 3[Pro....
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....e expression "commercial vehicle" means "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle" and "medium passenger motor vehicle" but does not include "maxi-cab", "motor-cab", "tractor" and "road-roller"; (b) the expressions "heavy goods vehicle", "heavy passenger motor vehicle", "light motor vehicle", "medium goods vehicle", "medium passenger motor vehicle", "maxi-cab", "motor-cab", "tractor" and "road roller" shall have the meanings respectively as assigned to them in section 2 of the Motor Vehicles Act, 1988 (59 of 1988):] 1[Provided also that, in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1991, the deduction in relation to any block of assets under this clause shall, in the case of a company, be restricted to seventy-five per cent. of the amount calculated at the percentage, on the written down value of such assets, prescribed under this Act immediately before the commencement of the Taxation Laws (Amendment) Act, 1991 (2 of 1991):] 2[Provided also that the aggregate deduction, in respect of depreciation of buildings, machinery, plant or furniture, being tangible assets ....
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.... access thereto).] 1[Explanation 5 .- For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income;] 2[(iia) in the case of any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing 3[[or in the business of generation, transmission or distribution] of power], a further sum equal to twenty per cent. of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii): 5[Provided that where an assessee, sets up an undertaking or enterprise for manufacture or production of any article or thing, on or after the 1st day of April, 2015 in any backward area notified by the Central Government in this behalf, in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal, and acquires and installs any new machinery or plant (other than ships and aircraft) for the purposes of the said undertaking ....
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....he actual cost of the motor car to the assessee as it would have been computed before applying the said proviso; (2) "sold" includes a transfer by way of exchange or a compulsory acquisition under any law for the time being in force but does not include a transfer, in a scheme of amalgamation, of any asset by the amalgamating company to the amalgamated company where the amalgamated company is '[an Indian company or in a scheme of amalgamation of a banking company, as referred to in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949) with a banking institution as referred to in sub-section (15) of section 45 of the said Act, sanctioned and brought into force by the Central Government under sub-section (7) of section 45 of that Act of any asset by the banking company to the banking institution].] 2* * * * ....
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.... as reduced by the amount of deduction allowed, if any, under clause (a). [(1A) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new assets and the amount of actual cost of such new assets [acquired during any previous year exceeds twenty-five crore rupees and such assets are installed on or before the 31st day of March, 2017], then, there shall be allowed a deduction of a sum equal to fifteen per cent. of the actual cost of such new assets for the assessment year relevant to that previous year: [Provided that where the installation of the new assets are in a year other than the year of acquisition, the deduction under this sub-section shall be allowed in the year in which the new assets are installed:] [Provided further that] no deduction under this sub-section shall be allowed for the assessment year commencing on the 1st day of April, 2015 to the assessee, which is eligible to claim deduction under sub- section (1) for the said assessment year. (1B) No deduction under sub-section (1A) shall be allowed for any assessment year commencing on or after the 1st day of April, 2018.] (2) If an....
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....ard area, then, there shall be allowed a deduction of a sum equal to fifteen per cent. of the actual cost of such new asset for the assessment year relevant to the previous year in which such new asset is installed. (2) If any new asset acquired and installed by the assessee is sold or otherwise transferred, except in connection with the amalgamation or demerger or re-organisation of business referred to in clause (xiii) or clause (xiiib) or clause (xiv) of section 47, within a period of five years from the date of its installation, the amount of deduction allowed under sub- section (1) in respect of such new asset shall be deemed to be the income of the assessee chargeable under the head "Profits and gains of business or profession" of the previous year in which such new asset is sold or otherwise transferred, in addition to taxability of gains, arising on account of transfer of such new asset. (3) Where the new asset is sold or otherwise transferred in connection with the amalgamation or demerger or re-organisation of business referred to in clause (xiii) or clause (xiiib) or clause (xiv) of section 47 within a period of five years from the date of its installation, the provi....
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....2015. However, upon a closer scrutiny of the proviso to Section 32(1)(iia) and the main Section 32(1)(iia) of the Act, it is evident that "the business of generation, transmission, and distribution of power" has not been included within the scope of the enhanced benefit of 35%. The enhanced rate of depreciation was specifically restricted to undertakings or enterprises set up for the manufacturing or production of any article or thing in the specified states. 18. In light of the above, we are of the opinion that the language used in Section 32 is a plain, simple and unambiguous. Each word of the section is required to be given due interpretation and meaning. In our view, the proviso to Section 32(1)(iia) of the Act is conspicuously silent on including the "business of generation, transmission, and distribution of power" within the scope of the proviso, and such exclusion of Parliament cannot be ignored by including "business of generation, transmission, and distribution of power" by interpretation or by way of stretching the definition of 'manufacturing' or 'article' to include what is not explicitly included in the Proviso to Section 32(1)(iia) of the Act. 18.1 A....
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....tment. As a consequence of the aforesaid function of a true proviso certain rules follow. 18.3. From the reading of the above, it is clear that proviso to provision is restricting / qualifying the scope of the main Provision. In other words, proviso creates an exception to what is included in the main section. In the present case, the Section 32(1)(iia) of the Act is available for an assessee who has set up any new machinery or plant (other than ships and aircraft), which has been acquired and installed after the 31st day of March, 2005, by an assessee engaged in the business of manufacture or production of any article or thing or in the business of generation, transmission or distribution of power. However, the Proviso as only given the benefit to an assessee who sets up an undertaking or enterprise for manufacture or production of any article or thing, on or after the 1st day of April, 2015 in any backward area notified by the Central Government in this behalf, in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal. 18.4. Thus, the Proviso has restricted the grant of benefit of 35% only to an undertaking or enterprise....
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....ngaged in the "business of power generation, transmission and distribution". As held by us, that "business of power generation, transmission and distribution" is altogether a different class of assessee, for which the restrictive / limited benefit have been given by the Legislature. Quite contrary to this, the benefit under Proviso to Section 32(1)(iia), 32AC and 32AD of the Act has been given to the first class i.e., the assessee which are engaged in the business of manufacture of production of any article of thing acquires any new assets etc. In our view, the law is required to be read in context and is required to be applied for the purposes it was enacted. The Tribunal or the Court are not permitted to extend the benefit of this beneficial / deduction / exemption provision to the class of assessee which do not specifically fall in the specified category. Therefore, following the same logic and reasoning given hitherto while discussing the scope and ambit of Section 32(1)(iia) of the Act, we are of the opinion that the assessee which is engaged in the business of generation, transmission and distribution of power is not entitled to the benefit as available to other Sections 32AC....
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....e Revenue, furnishing of declaration under Section 10B (8) before the due date of filing original return of income is also mandatory. On the other hand, it is the case on behalf of the assessee, which has been accepted by the High Court, that the requirement of submission of declaration under Section 10B (8) is mandatory in nature, but the time limit within which the declaration is to be filed is directory in nature. While considering the issue involved, whether the time limit within which the declaration is to be filed as provided under Section 10B (8) is mandatory or directory, Section 10B (8) is required to be referred to, which reads as under: "10B (8) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date for furnishing the return of income under sub-section (1) of Section 139, furnishes to the Assessing Officer a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years." On a plain reading of Section 10B (8) of the IT Act as it is, i.e., "where the assessee, before the due date ....
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....ncome, the assessee cannot be permitted to substitute the original return of income filed under section 139(1) of the IT Act. Therefore, claiming benefit under section 10B (8) and furnishing the declaration as required under section 10B (8) in the revised return of income which was much after the due date of filing the original return of income under section 139(1) of the IT Act, cannot mean that the assessee has complied with the condition of furnishing the declaration before the due date of filing the original return of income under section 139(1) of the Act. As observed hereinabove, for claiming the benefit under section 10B (8), both the conditions of furnishing the declaration and to file the same before the due date of filing the original return of income are mandatory in nature. 10. Even the submission on behalf of the assessee that it was not necessary to exercise the option under section 10B (8) of the IT Act and even without filing the revised return of income, the assessee could have submitted the declaration in writing to the assessing officer during the assessment proceedings has no substance and the same cannot be accepted. Even the submission made on behalf of the ....
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....equirement." 25. Similarly, in the case of Commissioner of Customs Vs. Dilip Kumar (supra), the Hon'ble Supreme Court in paragraph 40 has held as under : "40. After considering the various authorities, some of which are adverted to above, we are compelled to observe how true it is to say that there exists unsatisfactory state of law in relation to interpretation of exemption clauses. Various Benches which decided the question of interpretation of taxing statute on one hand and exemption notification on the other, have broadly assumed (we are justified to say this) that the position is well settled in the interpretation of a taxing statute: It is the law that any ambiguity in a taxing statute should enure to the benefit of the subject/ assessee, but any ambiguity in the exemption clause of exemption notification must be conferred in favour of revenue - and such exemption should be allowed to be availed only to those subjects/ assesses who demonstrate that a case for exemption squarely falls within the parameters enumerated in the notification and that the claimants satisfy all the conditions precedent for availing exemption. Presumably for this reason the Bench which decided ....