IN HIGH COURT OF JUDICATURE AT MADRAS DATED : 11.07.2019 CORAM HON'BLE MR.JUSTICE T.S.SIVAGNANAM AND HON'BLE MRS.JUSTICE V.BHAVANI SUBBAROYAN Tax Case (Appeal) Nos.655, 656 and 657 of 2009 M/s.Tenzing Match Works Boopathy Buildings, Virudhunagar Road Sivakasi, PAN : AABFT5787A ... Appellant in all appeals - Vs - Deputy Commissioner of Income Tax Circle I, Virudhunagar ... Respondent in all appeals Prayer : Appeals under Section 260A of Income Tax Act, 1961, against common order dated 27.01.2009 passed by Income Tax Appellate Tribunal B Bench, Chennai in I.T.A.Nos.462/MDS/2008, 474/MDS/2008 and Cross Objection No.59/MDS/2008. For Appellant : M/s.A.S.Sriraman For Respondent : Ms.Premalatha, Junior Standing Counsel for M/s.M.Swaminathan C OM M ON JUDGMENT (Judgment of Court was delivered by T.S.SIVAGNANAM, J.) These appeals by assessee is filed under Section 26A of Income Tax Act, 1961 as directed against common order dated 27.01.2019 passed by Income Tax Appellate Tribunal, Chennai B Bench in I.T.A.Nos.462/MDS/2008, 474/MDS/2008 and Cross Objection No.59/MDS/2008 for assessment year 2005-06. appeals have been admitted by order dated 27.10.200 on following substantial questions of law. http://www.judis.nic.in 2 1. Whether Appellate Tribunal is correct in law in rejecting claim of deprecitation on wind mill even though said wind mill was commissioned as well as started generation of electricity based on materials placed on record? 2. Whether Appellate Tribunal is correct in law in sustaining action of respondent in rejecting claim of additional depreciation as consequence to rejection of depreciation on facts and in circumstances of case? 2. assessee is partnership firm engaged in business of manufacture of safety matches; it filed its return of income for Assessment Year under consideration 2005-06 on 31.03.2005, admitting total income of Rs.23,47,370/-. return was processed under Section 143(1) of Act and subsequently, case was selected for scrutiny and after discussion, assessment was completed under Section 143(3) of Act, by order dated 21.09.2007. Two issues arose in assessment proceedings, which were decided against assessee viz., claim for depreciation in respect of one wind mill established by assessee and claim for additional depreciation on very same wind mill. Assessing Officer was of view that assessee did not generate electricity before end of assessment year ie., on 31.03.2005 and what was generated was less than one unit and actual generation took place on 31.03.2004 and therefore, wind mill cannot be stated to have been used by assessee for purpose of business. Since claim for depreciation was rejected, claim for additional depreciation was also rejected. assessee preferred appeal before Commissioner of Income Tax (Appeals)- II, Madurai [hereinafter referred to as CIT (A)]. http://www.judis.nic.in 3 3. CIT(A), by order dated 27.12.2007 allowed appeal in part viz., that assessee is entitled for claim for depreciation, but rejected claim for additional depreciation, by relying upon decision of Chennai Tribunal in I.T.A.Nos.307/Mds/2000 dated 06.09.2005. assessee filed appeal as against that portion of order, which was decided in favour of revenue and Revenue filed appeal against that portion of order, which was decided in favour of assessee, and assessee also filed cross objection. tribunal, by impugned order, rejected case of assessee in its entirety ie., it rejected claim for depreciation and held that if claim for depreciation has been rejected, claim for additional depreciation should also be rejected. This is how assessee is before us by way of these appeals. 4. answer to substantial question of law No.1 hinges upon interpretation to be given to Section 32 (1)(iia). said provision states that in respect of depreciation of machinery or plant (other than ships and air crafts) owned wholly or partly by assessee and used for purpose of business, deduction shall be allowed. tribunal, by interpreting term used , relied upon decision in case of Deputy CIT -Vs- Yellamma Dasappa Hospital (2007 290 ITR 353 Kar), CIT -Vs- Maps Tours and Travels (2003 260 ITR 655 Mad), Dineshkumar Gulabchand Agrawal -Vs- CIT (2004) 267 ITR 768 (Bom) and B.Malini and Co., -Vs- CIT (1995) 214 ITR 192 (Bom). http://www.judis.nic.in 4 5. Before we consider applicability of these decisions, we need to take note of following facts, which is very relevant in instant case. As mentioned above, assessee established wind mill and it is case of assessee that electricity generation commenced from 31.03.2005. competent authority to certify this is Tamil Nadu Electricity Board, from whom assessee obtained certificate dated 02.04.2005, from Executive Engineer (M&O)(Wind Mill), Palladam. This certificate shows that assessee had effected supply of electricity to Board on 31.03.2005. Further, statement was recorded from Executive Engineer of Board under Section 133(b) of Act, wherein he appears to have stated, generation not started but work is over. Armed with this statement, assessing officer stated that production of electricity as on 31.3.2005 was less than one unit and at best could be treated as trial production and assessee having not produced electricity before 31.03.2005, cannot be stated to have put wind mill to use for purpose of business. It is not in dispute that certificate issued by competent authority states that electricity was generated on 31.3.2005, however amount of electricity which was generated was only 0.080 units. This, according to assessing officer, is insufficient as it can be considered only as trial run, but actual generation of electricity took place much after 31.3.2005. Tribunal concurred with findings of Assessing Officer, but had referred to aforementioned four decisions. In our considered opinion, all four decisions cannot be applied to facts of present case. http://www.judis.nic.in 5 6. In case of B.Malini and Co., -Vs- CIT (1995) 214 ITR 192 (Bom), there was gap of one clear previous year between installation of machinery and its usage and hence it was held that no depreciation can be claimed. In Deputy CIT -Vs- Yellamma Dasappa Hospital (2007 290 ITR 353 Kar), Court found that machinery has not been actually put to use. In Dineshkumar Gulabchand Agrawal -Vs- CIT (2004) 267 ITR 768 (Bom), assessee claimed depreciation upon machinery being kept ready for use and not put to use. In CIT -Vs- Maps Tours and Travels (2003 260 ITR 655 Mad), no evidence was placed by assessee before Tribunal that cars, which were purchased by them were used. Thus, we find that all four decisions are not applicable to present case and are on different set of facts and figures. 7. case of assessee before us strengthened in light of following decisions. In Principal CIT -Vs- Larsen & Toubro Ltd., 403 ITR 248 (Bom) , machinery for trial production was held to qualify for deduction as it would amount to using machinery for purpose of business. In CIT -Vs- Escorts Tractors Ltd 56 Taxmann.com 333(Delhi) , plant and machinery kept ready for use was held to be enough to grant depreciation. In CIT -Vs- Southern Petrochemical Industries Corporation Ltd 311 ITR 202 (Mad) , claim for depreciation on spare parts, which were stand-by items, was held permissible. In CIT -Vs- Geo Tech Construction 244 ITR 452 (Kerala) , it was held that asset can be said to be in use when it is kept ready for use. It is beneficial to refer to paragraph 5 of said judgment, which reads as follows. http://www.judis.nic.in 6 5.Section 32 of Act deals with depreciation. There is no requirement that assets should be used for whole of assessment year in question. term used in Section 32(1) is "owned by assessee", but that does not bring in requirement that assessee should have remained owner of asset in question for entire previous year in question. object of Legislature, in granting depreciation allowance under Section 32 of Act, is to give due allowance to assessee for wear and tear suffered by asset used by him in his business so that net income (total income) is duly arrived at. There is no factual dispute that assets in question were owned by assessee. In Machinery Manufacturers Cororation Ltd. v. CIT[1957] 31 ITR 203 (Bom), it was observed that expression "used" in Section 10(2)(vi) of Indian Income-tax Act, 1922 (hereinafter referred to as "the old Act") corresponding to Section 32 of Act has to be given wider meaning. expression includes passive as well as active user. In CIT v. Dalmia Cement Ltd. [1945] 13 ITR 415 (Patna) and CIT v. Viswanath Bhaskar Sathe [1937] 5 ITR 621 (Bom), it was observed that depreciation might be allowed in certain cases even though machinery was not in use or was kept idle. question whether word "used" would include both passive as well as active user was left open by apex court in Liquidators of Pursa Ltd. v. CIT [1954] 25 ITR 265. words "used for purposes of business" are capable of larger and narrower interpretation. If expression "used" is construed strictly, it can be taken as connoting or requiring active employment or actual working of machinery, plant or building in business. On other hand, wider meaning will include not only cases where machinery, plant, etc., are actively employed but also cases where there is, what may be described as passive user of same in business. asset can be said to be in use when it is kept ready for use. http://www.judis.nic.in 7 8. In CIT -Vs- Refrigeration & Allied Industries Ltd 323 ITR 672 , machineries were kept under good working condition so that it could be used at any moment, all expenses relating to said machinery (cold storage) were allowed to be claimed as depreciation. In CIT -Vs-Shahbad Co-op Sugar Mills Ltd 12 Taxmann.com 421 (Punjab & Haryana) , machinery which was kept ready for use was held to qualify for depreciation under Section 32 of Act. 9. above decisions will clearly show that even trial production machineries kept ready for use etc., were considered to be used for purpose of business to qualify for depreciation. In CIT -Vs- Geo Tech Construction 244 ITR 452 (Kerala) , machinery which was purchased by assess from Pondicherry was yet to reach work site at Kochi and were in transit, and Court held that it would amount to passive use and would qualify for depreciation. Thus, we are of considered view that Tribunal erred in reversing order passed by CIT (Appeals). For all above reasons, substantial question of law No.1 is answered in favour of assessee. 10. With regard to substantial question of law No.2, Ms.Premalatha, learned Standing Counsel for Revenue would submit that at relevant point of time Section 32(1)(iia), as it stood then relevant to assessment year 2005-06, generation of electricity was not forming part of Statute. However, as rightly pointed out by Mr.Sriraman, learned counsel for assessee, Section 32(1)(i) included generation or generation and distribution http://www.judis.nic.in 8 of power. tribunal rejected claim for additional depreciation on ground that assessee being not entitled for depreciation, question of claiming additional depreciation does not arise. CIT (Appeals) rejected claim of additional depreciation by relying upon order passed by Chennai Tribunal in I.T.A.Nos.307/Mds/2000 dated 06.09.2005. We are informed that said decision has been reversed by this Court. In any event, there was no adjudication into factual position as to whether assessee, who is engaged in business of generation of power, was entitled for additional depreciation. 11. Ms.Premalatha, learned Standing Counsel contended that line of business activity of assessee was manufacture of safety matches and establishing wind mill was new line of business. In fact, this cannot be ground to non suit assessee, as similar issue raised by Revenue in CIT -Vs- Hi Tech ARAI Ltd., (2010) 236 CTR 0321 , was rejected. Paragraph No.5 of judgment reads as follows. 5. In case on hand, assessee is stated to have set up two wind mills in addition to already existing four wind mills and thereby increased its power generation capacity by above 50%. It is true that assessee is company engaged in business of manufacture of oil seeds, moulded rubber parts, reed value assemblies apart from generation of power. After installation of additional wind mills, both prior to as well as after installation of additional wind mills, assessee was using wind energy for generating power for its capitative consumption apart from selling surplus power generated to Tamil Nadu Electricity Board. As far as application of Section 32(1)(iia) of Act, is concerned, what is required to be satisfied in order to claim additional depreciation is that setting up http://www.judis.nic.in 9 of new machinery or plant should have been acquired and installed after 31st March 2002 by assessee, who was already engaged in business of manufacture or production of any article or thing. said provision does not state that setting up of new machinery or plant, which was acquired and installed upto 31.03.2002 should have any operational connectivity to article or thing that was already being manufactured by assessee. Therefore, contention that setting up of wind mill has nothing to do with power industry, namely, manufacture of oil seeds etc. is totally not germane to specific provision contained in Section 32(1)(iia)of Act. 12. Therefore, said contention raised by Ms.Premalatha, learned Standing Counsel does not merit consideration. next aspect is whether generation of electricity would fall within ambit of business of manufacture or production of any article or not. This issue appears to be no longer res integra and decided in favour of assessee in CIT -Vs- NTPC (2019) 103 Taxmann.com 398 . In said case, assessee was engaged in production of thermal power and was held to be eligible to claim additional depreciation under Section 32(1)(iia). Court took into consideration decision of Constitution Bench of Honourable Supreme Court in State of A.P. -Vs- NTPC AIR 2002 SC 1895 , wherein Apex Court held electricity to be goods for purpose of sales tax. Thus, by referring to decision of Constitution Bench, it was pointed out that electricity is capable of abstraction, transmission, transfer, delivery, possession, consumption and use like any other movable property. Following same logic, to deny benefit of additional depreciation to generating entity on basis of electricity is not article or thing , is artificially restrictive meaning of provision and benefit of additional depreciation under Section 32(1)(iia) has to be granted to assessee. This decision will http://www.judis.nic.in 10 T.S.SIVAGNANAM, J. AND V.BHAVANI SUBBAROYAN, J. (kst) fully apply to facts of present case and consequently, it has to be held that assessee is entitled for additional depreciation as well. Accordingly, substantial question of law No.2 is also answered in favour of assessee. 13. In result, appeals are allowed and substantial questions of law are answered in favour of assessee. No costs. (T.S.S.J.) (V.B.S.J.) 11-07-2019 KST Index : Yes/No Internet : Yes/No Speaking Order / Non Speaking Order To 1. Deputy Commissioner of Income Tax Circle I, Virudhunagar. 2. Income Tax Appellate Tribunal B Bench, Chennai. T.C.(A) Nos.655, 656 and 657 /2009 Tenzing Match Works v. Deputy Commissioner of Income-tax, Circle-I, Virudhunagar