Wednesday, 21 October 2015

Whether electricity generated by assessee amounts to production of an 'article or thing' within meaning of Sec 32(1)(iia) and therefore, assessee would be entitled for additional depreciation @ 20% - YES: ITAT

THE issue is - Whether the electricity generated by the assessee amounts to production of an "article or thing" within the meaning of section 32(1)(iia) and therefore, the assessee would be entitled for additional depreciation @ 20%. YES is the answer.
Facts of the case
The assessee was having a wind mill division. The claim of depreciation made by the assessee in the return of income included depreciation of wind mill @ 80% and additional depreciation @ 20% as per Section 32(1)(iia) of the Income Tax Act, 1961. The assessee's claim of additional depreciation was disallowed by the Assessing Officer on the ground that additional depreciation was allowable in the case of any new machinery or plant installed after 31st day of March, 2005, by the assessee in the business of manufacturing or production of any article or thing. As per A.O., the production of electricity by use of wind energy, could by no stretch of imagination be regarded as any "article or thing" within the meaning of the said section. The A.O. did not accept assessee's contention that electricity is produced and commercially tradable and therefore, it was "article or thing" within the meaning of section 32(1)(iia). He held that only material things can qualify for being "article or thing", it should be tangible. Electromagnetic field could not be said to be "article or thing" and that it should be capable of storage and the electricity could not be stored. He held that the wind mill could not be said to be indirectly used in manufacturing activity. Thus the windmill was not producing an "article or thing", either directly or indirectly. He, therefore, disallowed assessee's claim of additional depreciation amounting to Rs. 1,54,80,000/ - claimed u/s 32(1)(iia). On appeal before CIT(A), assessee explained that it had generated electricity by harnessing wind energy and earned income from sale of the electricity so generated, in the states of Maharashtra and Rajasthan. The electricity generated was measured and traded in units known as 'kilowatts'. The electricity is an actively traded good, and there was even an exchange specifically for this purpose. As regards the contention of A.O. that electricity was not an "article or thing" the assessee relied upon following decisions, to show that this contention was erroneous.
Having heard the matter, the Tribunal held that,
++ in our considered view also, the electricity generated by the appellant is an "article or thing" which can be traded, which can be measured and which can be stored and also it can be exchanged. In the case of Southern Petrochemical Industries Co. Ltd., the Supreme Court held that the electricity has to be considered as (goods) for the purpose of application of Sales Tax Laws. In the case of State of A.P. vs National Thermal Power Corporation Ltd. 2002-TIOL-107-SC-CT-LB, M. P. Cement Manufacturers Association vs. State of Madhya Pradesh (2004) 2 SCC 249 referred to in Tata Consultancy Services vs. State of A.P. 2004-TIOL-87-SC-CT-LB, it was held that the electricity was capable of abstraction, consumption and use which, if done dishonestly was punishable u/s 39 of the Indian Electricity Act, 1910. It was held that electric energy could be transmitted, transferred, delivered, stored and possessed, etc., in the same way as any other movable property. It was held that electricity was thus "goods" within the meaning of Sales Tax Act. Therefore, in view of the decisions relied upon by the Counsel, it can be said that the electricity generated by the assessee amounts to production of an "article or thing" within the meaning of section 32(1)(iia) and therefore, the assessee would be entitled for additional depreciation @ 20%;
++ it is further seen by us that AO himself has allowed this claim to the assessee in the assessment order passed by him for immediately preceding AY i.e. A.Y. 2006- 07 in the order dated 29.12.2011 u/s 143(3) r.w.s. 147. It was observed that the electricity generated by the assessee is an "article or thing" which can be traded, manufactured, stored and exchanged, relying upon the order in the case of Southern Petrochemical Industries Co. Ltd., the SC held that the electricity has to be considered as (goods) for the purpose of application of Sales Tax Laws. It was further held in the case of State of A.P. Vs. National Thermal Power Corporation Ltd. 2002-TIOL-107-SC-CT-LB, M.P. Cement Manufacturers Association vs. State of Madhya Pradesh (2004) 2 SSC 249 referred to in Tata Consultancy Services Vs. State of A.P. 2004-TIOL-87-SC-CT-LB, that the electricity was capable of abstraction, consumption and use which, if done dishonestly was punishable u/s. 39 of the Indian Electricity Act, 1910. It was held that electric energy could be transmitted, transferred, delivered, stored and possessed, etc. in the same way as any other movable property. It was held that electricity was thus "goods" within the meaning of Sales Tax Act. From the above judgement of SC electricity is an 'article or thing' for the purpose of sales tax. The same definition if applied to Income Tax makes the assessee eligible for its claim of depreciation u/s. 32(1)(iia). The submissions of assessee were found to be substantial to qualify production of electricity as manufacture or production of articles or things and hence is eligible for additional depreciation u/s.32(1)(iia). Further, it is observed by us that this issue has been decided in favour of assessee in many judgments passed by the Tribunal also, as were relied upon by the counsel, during course of hearing. We can take support from the judgments of ACIT vs. M. Satishkumar, wherein similar claim has been allowed by the Bench after considering the amendment made by Finance Act, 2012, which has been referred to in grounds of appeal filed by the Revenue. Similar view has been taken in another case by ITAT, Chennai Bench in case of ACIT vs. M/s. Mallow International in ITA No.152/MDS/2014 dated 19.12.2014 for A.Y. 2006-07. We find that the claim made by assessee on account of additional depreciation is allowable, no interference is called for in the order of CIT(A), and therefore same is upheld. The AO is directed to allow additional depreciation u/s 32(1)(iia). All of the grounds raised by Revenue are dismissed. As a result, the appeal filed by the Revenue is dismissed.

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