COMMISSIONER OF INCOME TAX-I LUDHIANA V. M/S EASTMAN IMPEX

ITA/350/2013

AI Insights

The case revolves around the classification and depreciation rate applicable to the power evacuation infrastructure associated with wind mills, which are considered renewable energy devices. The Commissioner of Income Tax-I, Ludhiana, contested the decisions of the CIT(A) and the ITAT, which had allowed higher depreciation rates for these infrastructures, arguing that they should be treated separately and qualify only for normal depreciation rates. The High Court examined the integration of these infrastructures with wind mills and referenced judgments from other High Courts and the ITAT to conclude that such infrastructures are integral to the wind mills and should be eligible for higher depreciation rates.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 703286 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 18-12-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax Vs. K.K. Enterprises, Trumac Engineering Co. Pvt. Ltd. Vs. Income Tax Officer, Ward 2(3)(3), Mumbai, CIT Vs. Parry Engineering & Electronics (P) Ltd.
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: PRERNA; S K MUKHI
• Assessee Lawyers: RAJESH KATOCH
• Keywords: Depreciation; Renewable Energy Device; Wind Mill; Power evacuation infrastructure

Judgement Text

"ITA No. 350 of 2013 ITA No. 350 of 2013 ITA No. 350 of 2013 ITA No. 350 of 2013 1 IN THE HIGH COURT OF PUNJAB AND HARYANA IN THE HIGH COURT OF PUNJAB AND HARYANA IN THE HIGH COURT OF PUNJAB AND HARYANA IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH AT CHANDIGARH AT CHANDIGARH AT CHANDIGARH ITA No. 350 of 2013. ITA No. 350 of 2013. ITA No. 350 of 2013. ITA No. 350 of 2013. Date of Decision : 18.12.2014. Date of Decision : 18.12.2014. Date of Decision : 18.12.2014. Date of Decision : 18.12.2014. Commissioner of Income Tax-I, Ludhiana Commissioner of Income Tax-I, Ludhiana Commissioner of Income Tax-I, Ludhiana Commissioner of Income Tax-I, Ludhiana ...Appellant ...Appellant ...Appellant ...Appellant Versus Versus Versus Versus M/s Eastman Impex M/s Eastman Impex M/s Eastman Impex M/s Eastman Impex ...Respondent ...Respondent ...Respondent ...Respondent CORAM: CORAM: CORAM: CORAM: HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE RAJIVE BHALLA HON'BLE MR. JUSTICE B.S. WALIA HON'BLE MR. JUSTICE B.S. WALIA HON'BLE MR. JUSTICE B.S. WALIA HON'BLE MR. JUSTICE B.S. WALIA Present: Mr. Rajesh Katoch, Advocate for the appellant. Ms. Prerna, Advocate and Mr. S.K. Mukhi, Advocate for the respondent. *** Rajive Bhalla, J. Rajive Bhalla, J. Rajive Bhalla, J. Rajive Bhalla, J. By way of this order, we shall dispose of ITA No. 350 of 2013 (Commissioner of Income Tax-I, Ludhiana Vs. M/s Eastman Impex), ITA No. 349 of 2013 (Commissioner of Income Tax-I, Ludhiana Vs. M/s Eastman Impex), ITA No. 98 of 2014 (Commissioner of Income Tax-I, Ludhiana Vs. M/s Eastman International), ITA No. 99 of 2014 (Commissioner of Income Tax-I, Ludhiana Vs. M/s Eastman International) and ITA No. 167 of 2014 (Commissioner of Income Tax-I, Ludhiana Vs. M/s Maxwell Inc.) pertaining to differently worded substantial questions of law but relating to the same questions. The substantial questions of law framed in ITA No. 350 of 2013 are as follows :- “i) Whether on the facts and circumstances of the case, the Hon'ble ITAT was justified in law, in upholding the order of the Ld. CIT(A) wherein disallowance of higher depreciation @ 80% on account of expenditure on installation of electrical line for power transmission and metering treated as not part of wind mill by the A.O., was deleted by the CIT(A)., ii) Whether on the facts and circumstances of the case KANCHAN 2015.01.06 16:04 I attest to the accuracy and authenticity of this document Chandigarh ITA No. 350 of 2013 ITA No. 350 of 2013 ITA No. 350 of 2013 ITA No. 350 of 2013 2 and in law, the Hon'ble ITAT was right in treating the Power evacuation infrastructure as part of wind mill and as Renewable Energy Device whereas the AO has brought on record sufficient material to prove that same was in fact not a Renewable Energy Device. iii) Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT was right in treating the electrical lines for power transmission and metering as part of Renewable Energy Device eligible for depreciation @ 80% whereas the A.O. has brought on record sufficient material to prove that the transmission and distribution network was actually Plant and Machinery which is eligible only for normal rates of depreciation @ 15%. It is by no stretch of imagination a part of the power generation Wind Mill Device. It's only function is the transmission of the generated power to the common grid.” Counsel for the revenue submits that by treating power of evacuation infrastructure as part of wind mill a renewable energy device, the Tribunal has ignored the material collected and referred to by the Assessing Officer which clearly proves that power evacuation infrastructure like electricity lines etc. are not part of the wind mill and, therefore, should invite depreciation @15%. Counsel for the revenue further submits that though it is true that if power transmission lines etc. are part of a renewable energy device they as eligible to depreciation @ 80% but there is no evidence on record that transmission and distribution network etc. are an integral part of the wind mill. The Tribunal has erred in granting depreciation @ 80%. Counsel for the assessee, however, submits that power of evacuation infrastructure like electric lines etc. are specifically dedicated to the wind mill and cannot be used for any other purpose. The power evacuation infrastructure being integral and necessary for the wind mill to transmit electricity are integral to the renewable energy device and, therefore, depreciation @ 80% has been rightly allowed by the Income Tax Appellate Tribunal as well as by the CIT(A). Counsel for the assessee relies upon a judgment of the Rajasthan High Court in Commissioner of Income Tax Commissioner of Income Tax Commissioner of Income Tax Commissioner of Income Tax Vs. Vs. Vs. Vs. K.K. Enterprises K.K. Enterprises K.K. Enterprises K.K. Enterprises, (2014) 108 DTR (2014) 108 DTR (2014) 108 DTR (2014) 108 DTR KANCHAN 2015.01.06 16:04 I attest to the accuracy and authenticity of this document Chandigarh ITA No. 350 of 2013 ITA No. 350 of 2013 ITA No. 350 of 2013 ITA No. 350 of 2013 3 Judgments 109 Judgments 109 Judgments 109 Judgments 109, and a judgment of the Income Tax Appellate Tribunal, Bombay Bench in Trumac Engineering Co. Pvt. Ltd., Mumbai Trumac Engineering Co. Pvt. Ltd., Mumbai Trumac Engineering Co. Pvt. Ltd., Mumbai Trumac Engineering Co. Pvt. Ltd., Mumbai Vs. Vs. Vs. Vs. Income Tax Officer, Ward 2(3)(3), Mumbai Income Tax Officer, Ward 2(3)(3), Mumbai Income Tax Officer, Ward 2(3)(3), Mumbai Income Tax Officer, Ward 2(3)(3), Mumbai. We have heard counsel for the parties, perused the entire paper book including orders passed by the Assessing Officer, CIT(A) and the ITAT (B), Chandigarh. The dispute that has given rise to these substantial questions of law is the nature of power evacuation infrastructure attached to a wind mill, a renewable energy device and whether this infrastructure would be eligible for depreciation @ 80% or 15%. The Assessing Officer after a laboured attempt to separate the renewable energy devices, in the case a wind mill for the power evacuation infrastructure referred to the nature of renewable energy, wind mills etc. and held that power evacuation infrastructure is not an integral part of a renewable energy devices and, therefore, proceeded to hold that depreciation shall be calculated at 15%. The CIT(A) set-aside this order and by holding that the power evacuation infrastructure is an integral part of the renewable energy devices and allowed depreciation @ 80%. The ITAT has considered the matter in its entirety and after placing reliance upon a judgment of the ITAT, Mumbai Bench, affirmed the order passed by the CIT(A) by holding as follows :- “10. We have considered the submissions of both the parties and gone through the material available on record. In the present case it is noticed that the facts of the present case are similar to the facts involved in the case of Trumac Engineering Co. Pvt. Ltd. Mumbai Vs. ITO (supra) wherein vide order dated 27.6.2008 relevant finding given by the ITAT, Mumbai Bench \"I\" in para 21 to 24 read as under: \"21. Coming to the next item, i.e. disallowance of depreciation of Rs. 42,50,000/_ in respect of contribution made to GEDA, Id. counsel reiterated the KANCHAN 2015.01.06 16:04 I attest to the accuracy and authenticity of this document Chandigarh ITA No. 350 of 2013 ITA No. 350 of 2013 ITA No. 350 of 2013 ITA No. 350 of 2013 4 submissions made before the revenue authorities and submitted that the power generated from the wind mill farm at Navadra/Bhogat site is delivered to the substation of GEDA through HT lines. This power in turn is transferred to GEDA for further transmission. For this purpose, connection of grid at substation is required. The contribution information available. In fact, subsequently, assessee received confirmation, as stated in the preceding Para, from GEDA, for fixing the contribution of Rs.35,60,862.75 out of Rs.42,50, 000/- for formation of substation and the balance, it was intimated, will be utilized towards running and maintenance of substation . 22. In the alternate, learned counsel submitted that the payment made to GEDA atleast to be treated as revenue expenditure. If the revenue treats this as not something owned by the assessee (substation), then it naturally follows that assessee contributed the above amount for creation. of substation, which is the property of GEDA. In that case, learned counsel submitted, the decision of the Hon'ble Calcutta High Court in the case of CIT vs. Birla Jute Manufacturing Ltd., reported in 182 ITR 497 (Cal) is clearly applicable: Learned counsel submitted, the same view has been taken by the Hon'ble Bombay High Court in the case of CIT vs. Excel Industries Ltd., reported in 122 ITR 995 (Bom). 23. Learned DR, on the other hand, submitted that the assessee is now improving the method of transaction by installing new machineries, without which also the windmill will continue to operate. This cannot be treated as an integral part of the windmill as such. This has independent standing. Assessee's windmill worked even without these machineries. As such Id. D.R. for the revenue submitted that the orders of the revenue authorities may be upheld. 24. Considering the rival submissions, we are of the view that the assessee's appeal is to be allowed on merit. Firstly, it is to be seen that these macineries KANCHAN 2015.01.06 16:04 I attest to the accuracy and authenticity of this document Chandigarh ITA No. 350 of 2013 ITA No. 350 of 2013 ITA No. 350 of 2013 ITA No. 350 of 2013 5 had no independent functioning as such. Merely because it improves the working system or controlling/ monitoring system, it cannot be treated as an independent machinery and not part of the integrated machinery. The submission of the learned counsel is that if the machinery installed at the first stage of installing the windmill itself, the claim of the assessee: would have been allowed, Merely because for some reason or other it was subsequently installed, does not mean that it is not a part of the machinery as such. Since the machinery had no independent functioning, we are of the view that the decision of the Hon'ble Calcutta High Court in the case of Birla Jute Manufacturing; Ltd. (supra) is clearly applicable. In the case of Excel Industries Ltd. (supra), the Hon'ble Bombay High Court held : payment made for overhead service line, which remained the property of Electricity Board, is allowable as revenue expenditure: On facts, in the instant case of the assessee, the payment to GEDA is to be allowed in the light of this decision of the jurisdictional High Court. Hence, appeal by the assessee with regard to Ground No.1, 2, 3 and 4 are allowed.\" Since the facts of the present case are similar to the facts involved in the aforesaid referred to case of Trumac Engineering Co. Pvt. Ltd. Mumbai Vs. ITO (supra), so, respectfully following the aforesaid referred to decisions dated 27.6.2008 of ITAT, Mumbai Bench 'I', we do not see any valid ground to interfere with the findings of the Ld. IT (A). 11. For assessment year 2009-10 in ITA No. 820/Chd/2012 the facts are identical as in ITA No. 819/CHD/2012 for the assessment year 2008-09, therefore, our findings given in the former part of this order shall apply mutatis mutandis.” To a specific query whether the revenue has filed an appeal against the order passed by ITAT, Mumbai Bench, counsel for the revenue fairly states that the revenue has not filed an appeal. Apart from the aforesaid, a similar controversy came up before the High Court KANCHAN 2015.01.06 16:04 I attest to the accuracy and authenticity of this document Chandigarh ITA No. 350 of 2013 ITA No. 350 of 2013 ITA No. 350 of 2013 ITA No. 350 of 2013 6 of Rajasthan in Commissioner of Income Tax Vs. K.K. Enterprises. After considering the matter in its entirety, it was held as follows :- “5. We do not find any merit in the argument advanced. The issue involved in these appeals has been considered by the Hon'ble Gujarat High Court in Tax Appeal No. 604 of 2012, decided on 29th Jan., 2013, in CIT Vs. Parry Engineering & Electronics (P) Ltd. In the case aforesaid, Hon'ble Gujarat High Court held that “Windmill would require a scientifically designed machinery in order to harness the wind energy to the maximum potential. Such device has to be fitted and mounted on a civil construction, equipped with electric fittings in order to transmit the electricity so generated. Such civil structure and electric fittings, therefore, it can be well imagined, would be highly specialized. Thus, such civil construction and electric fitting would have no use other than for the purpose of functioning of the windmill. On the other hand, it can be easily imagined that windmill cannot function without appropriate installation and electrification. In other words, the installation of windmill and the civil structure and the electric fittings are so closely interconnected and linked as to form the common plant. As already noted, the legislature has provided for higher rate of depreciation of 80 per cent on renewable energy devices including windmill and any specially designed devise, which runs on windmill. The civil structure and the electric fitting, equipments are part and parcel of the windmill and cannot be separated from the same. The assessees claim for higher depreciation no such investment was, therefore, rightly allowed.” A perusal of the aforesaid judgment reveals that the Rajasthan High Court placed reliance upon a judgment of the Gujarat High Court in Tax Appeal No. 604 of 2012, decided on 29.01.2013 titled as CIT Vs. Parry Engineering & Electronics (P) Ltd. We have perused the opinion recorded by the Rajasthan High Court and find no reason to record an opinion to the contrary. A wind mill, which is admittedly a source of renewable energy, cannot KANCHAN 2015.01.06 16:04 I attest to the accuracy and authenticity of this document Chandigarh ITA No. 350 of 2013 ITA No. 350 of 2013 ITA No. 350 of 2013 ITA No. 350 of 2013 7 possibly function without power evacuation infrastructure and, therefore, to hold that it is not integral to a wind mill would be travestying of facts and justice. It would be necessary to clarify that we are not dealing with an ordinary device, where transmission lines and electricity generation devices are involved but a wind mill, which obviously cannot supply electricity without power evacuation infrastructure as integral to its very functioning and user. Consequently, we answer questions of law against the revenue and dismiss the appeals accordingly. (RAJIVE BHALLA) (RAJIVE BHALLA) (RAJIVE BHALLA) (RAJIVE BHALLA) JUDGE JUDGE JUDGE JUDGE (B.S. WALIA) (B.S. WALIA) (B.S. WALIA) (B.S. WALIA) JUDGE JUDGE JUDGE JUDGE December 18, 2014. December 18, 2014. December 18, 2014. December 18, 2014. kanchan KANCHAN 2015.01.06 16:04 I attest to the accuracy and authenticity of this document Chandigarh "