Whether, for purpose of depreciation, wind electric generators are to be treated at par with wind mill - NO: ITAT

THE issues before the Bench are - Whether wind electric generators, for the purpose of depreciation, can be treated at par with Wind Mill; Whether wind electric generators are ancillary or an integral part of Wind mill; Whether is it required to see the rate of wear and tear for the rate of depreciation and Whether Functional Test is required to check for granting higher rate of depreciation. And the verdict goes in favour of the Revenue.

Facts of the case

The assessee had claimed 100% depreciation on wind electric generators, The CIT(Central) Hyderabad in its order u/s 263 of the Act had pointed out that the depreciation at 25% only was allowable on electrical equipment. Consequently, the Assessing Officer during the course of assessment proceedings found that the assessee had claimed 100% depreciation on wind electric generators. The Assessing Officer was of the view that the wind electric generators are in nature of electrical equipments and depreciation is allowable at 25% only but not at 100% as claimed by the assessee. Accordingly, the Assessing Officer calculated the depreciation at 25% and added back the balance as excess depreciation claimed by the assessee.

Before the CIT(A), the assessee stated that the assessee company is having wind mill power project situated at Chitradurga, Karnataka which was conceived by M/s Encon Services Ltd., Chennai Further, it was stated that later, Encon Services Ltd., Chennai was amalgamated with the assessee company i.e. Lanco Infratech Ltd., Hyderabad, It was submitted that the wind mill power project is eligible for higher rate of depreciation at 100% as per the provisions of the IT Act. Therefore, submitted that the assessee accordingly calculated and claimed depreciation on wind electric generators at 50% as used for less than 180 days during the FY.

The CIT(A) after considering the submissions of the assessee, directed the Assessing Officer to allow 100% depreciation on the electric wind generators as the same are eligible for higher rate of depreciation by observing as:The only point of contention is rate of depreciation on wind electrical generators. In this regard, the Rajasthan High Court in the case of CIT Vs. Agarwal Transformers have construed the word wind electric generators based on the principle of ejusdem generis and held that wind electric generators are eligible for the higher rate of depreciation. I am of the view that the wind electric generators are the part of the wind power projects. The wind power projects cannot be operational without the wind electric generators. The higher rate of depreciation is given to encourage more wind power projects.

After hearing both the parties the ITAT held that,

++ the emphasis for granting higher rate of depreciation as far as wind electric generators are concerned, the necessity is to examine the functional test of the said equipment. In the present appeal nothing is on record to establish that on the touchstone of functional test the wind electric generators are so designed that they can only be used for power generation as done by the wind mill and meant for no other use. There is nothing on record, such as a report from a qualified person to establish that the wind electric generators are designed in such a manner to facilitate the power generation and distribution from windmill;

++ when particular meaning is attached to a word as is given in an instrument is to be gathered from the context, the nature of the subject-matter, the purpose or the intention of the author and the effect of giving to them one or more other permissible meaning on the object to be achieved. Applying this test, we have to gather the meaning of the words such as ‘plant and machinery’. For interpreting the scheme of depreciation as prescribed under s. 32 it is not necessary that we should adopt a judge-sense meaning, which is sometimes artificial and imprecise in application by giving a meaning altogether different from the statutory provisions. The scheme of s. 32 unequivocally leads to the conclusion that on one hand "plant" and on the other hand "machinery" are to be treated as separate for the purpose of allowance of depreciation;

++ the scientific reason is often discussed as the period of diminution for tangible assets. If the period of diminution or wear-tear is very fast than higher rate of depreciation is granted. Naturally the speed with which wind mills get discarded due to wear and tear, the generator do not get wear and tear so fast;

++ "windmills and any specially designed devices which run on wind mills" are qualified for 100 per cent rate of depreciation. Since the generators are not specially designed devices hence in our considered opinion, as per the discussion made herein above, are not entitled for higher depreciation as claimed by the assessee.