ACIT, Trichy V. M/s. Amaravathy Textiles, Karur

ITA 165/CHNY/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5302 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 03-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation
• Section: 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI (BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER) .. I.T.A. NOS. 164 & 165/MDS/2011 ASSESSMENT YEARS : 2006-07 & 2007-08 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE II, RANGE II, 44, WILLIAMS ROAD, TRICHY-1. (APPELLANT) V. M/S AMARAVATHY TEXTILES, 9-D/5, RAMAKRISHNAPURAM, KARUR. PAN : AAFFA9673E (RESPONDENT) APPELLANT BY : SHRI SHAJI P. JACOB RESPONDENT BY : NONE O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER : THESE APPEALS, PERTAINING TO ASSESSMENT YEARS 2006 -07 AND 2007-08, ARE PREFERRED BY THE REVENUE AGAINST THE D IFFERENT ORDERS OF LD. COMMISSIONER OF INCOME TAX (APPEALS), TIRUCHIRA PALLI. IN BOTH THESE APPEALS, EXACTLY IDENTICAL ISSUES ARE INVOLVE D, THEREFORE, WE PROCEED TO DECIDE THEM BY THIS COMMON ORDER. 2. THE COMMON ISSUE INVOLVED IN THESE APPEALS IS RE GARDING TREATMENT OF ELECTRICAL INSTALLATIONS AND CIVIL WOR K CONSTRUCTION DONE TO I.T.A. NOS.164 & 165/MDS/11 2 SUPPORT THE INFRASTRUCTURE TO INSTALL THE WINDMILL. THE A.O. HAS CONSIDERED THE WINDMILL AS DIFFERENT EQUIPMENT SEPA RATELY FROM CIVIL WORK CONSTRUCTION AND HAS HELD THAT THE AMOUNT SPEN T IN CIVIL WORK DONE FOR THE INSTALLATION OF WINDMILL SHOULD NOT BE TAKEN AS A COST TO CLAIM HIGHER DEPRECIATION. SIMILAR VIEW WAS TAKEN BY HIM REGARDING ELECTRICAL FITTINGS AND OTHER ELECTRICAL EQUIPMENTS ATTACHED TO THE WINDMILL. AS AGAINST THE ABOVE, THE LD. CIT(APPEAL S) HAS TAKEN A CONTRARY VIEW AND HAS FOLLOWED THE ORDER OF ITAT, C HENNAI BENCH, RENDERED IN I.T.A. NO. 2291/MDS/2008 IN THE CASE OF ASIAN HANDLOOMS AND IN I.T.A. NO. 26/MDS/2009 IN THE CASE OF MEENAKSHI SUNDARAM IN WHICH THE FINDING IN NUTSHELL IS THAT T HE CIVIL WORK EXECUTED FOR THE SAKE OF WINDMILL IS NOT AN ORDINAR Y CIVIL WORK BUT SPECIFICALLY DESIGNED AND EXECUTED SO THAT IT COULD WITHHOLD AND WITHSTAND THE WINDMILL AND POWERFUL THRUST OF AIR I N THE FUNCTIONING THEREOF. SIMILARLY, REGARDING ELECTRICAL WORK, IT HAS BEEN HELD THAT THE ELECTRICAL WORK, INCLUDING TRANSFORMERS AND HIGH TE NSION WIRES, ARE ALSO SPECIALIZED WORK FOR THE REQUIREMENT OF WINDMI LL PLANT. THUS, DEPRECIATION AT THE RATE OF 80% HAS BEEN ALLOWED IN BOTH THESE CASES. I.T.A. NOS.164 & 165/MDS/11 3 3. BEFORE US, THE REVENUE HAS TAKEN FOLLOWING GROUN DS WHICH ARE COMMON FOR BOTH THE YEARS. FOR READY REFERENCE, WE EXTRACT GROUNDS TAKEN IN 2006-07 AS UNDER:- 2. THE LEARNED CIT(APPEALS) HAS ERRED IN ALLOWING T HE DEPRECIATION ON THE CIVIL WORK AND ELECTRICAL ACCES SORIES OF THE WINDMILL AT THE RATE OF THE DEPRECIATION ALLOWABLE FOR WINDMILL TREATING THE CIVIL WORK AND ELECTRICAL ACCESSORIES AS PART OF THE WINDMILL. 2.1) THE LEARNED CIT(APPEALS) HAS FAILED TO APPRECI ATE THAT WINDMILL IS A SEPARATE UNIT. THE TRANSFORMER THAT IS ERECTED IS A SEPARATE UNIT. THE TRANSFORMER STEP UP THE ENERG Y RECEIVED FROM THE WINDMILL AND IS FED TO THE MAIN GRID. ELE CTRICITY INSTALLATION ARE MEANT FOR CIVIL CONSTRUCTION IN THE FORM OF SMALL OFFICE NEAR WINDMILL AS WELL AS FOR TRANSMITT ING ELECTRICITY PRODUCED TO THE ELECTRICAL GRID OF TNEB. THE ELECT RICAL INSTALLATIONS ARE THEREFORE, NOT AN INTEGRAL PART O F WINDMILL AND THE A.O. HAS CORRECTLY WORKED OUT THE DEPRECIATION @ 15%. THE LEARNED CIT(A) HAS MISDIRECTED HIMSELF BY THE ARGUM ENT OF THE ASSESSEE THAT THE TRANSFORMER AND ELECTRICAL FITTIN GS FOR MEASURING THE OUTPUT OF THE WINDMILL AS PART AND PA RCEL OF THE WINDMILL. 2.2) THE LEARNED CIT(APPEALS) HAS FAILED TO FOLLOW THE RATIO OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS POPULAR BORE WELL SERVICE AND OTHERS REPORTE D IN (1991) 194 ITR 12 (MAD) WHEREIN THE HON'BLE HIGH COURT OF MADRAS WHILE ANSWERING THE QUESTION WHETHER RIGS A ND COMPRESSORS MOUNTED ON LORRIES WOULD BE ENTITLED TO DEPRECIATION AS APPLICABLE TO LORRIES HAD ANSWERED IN THE NEGATIVE. IN COMING TO THIS DECISION THE HON'BLE C OURT, INTER ALIA, OBSERVED THE DRILLING RIGS AND COMPRESSOR ARE INDEPENDENT ITEMS OF MACHINERIES. A RIG CAN EXIST WITHOUT BEIN G PLACED ON A LORRY. IT CAN, FOR INSTANCE, BE PLACED ON THE GROUN D. THE SAME IS TRUE OF A COMPRESSOR ALSO. THE RIGS AND COMPRES SOR DO NOT I.T.A. NOS.164 & 165/MDS/11 4 FORM AN INTEGRAL PART OF THE MOTOR LORRY. THE LEARN ED CIT(A) HAS FAILED TO APPRECIATE THAT IN THE SAME WAY, IN TH E CASE OF ELECTRICAL FITTINGS AND INSTALLATIONS IT CANNOT BE CLAIMED AS AN INTEGRAL PART OF A WINDMILL. AN ELECTRICAL INSTALL ATION AND FITTINGS AND A WINDMILL ARE DEPENDENT OF EACH OTHER . 3. THE LEARNED CIT(A) HAS FAILED TO FOLLOW THE RATI O OF THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CA SE OF CIT VS J.K.K. TEXTILE PROCESSING MILLS (1998) 242 ITR 165 WHEREIN IT WAS HELD BY THE HON'BLE HIGH COURT THAT THE ELECT RICAL TRANSFORMERS INSTALLED IN THE TEXTILE PROCESSING MI LL OF ASSESSEE COULD NOT BE CONSIDERED AS AN INTEGRAL PART OF THE TEXTILE PROCESSING MACHINERY OF THE ASSESSEE, THAT THE ELECT RICAL TRANSFORMERS ARE INDEPENDENT INSTRUMENTS BY THEMSELV ES AND ACCORDINGLY CONCLUDED THAT THE TRANSFORMERS WOULD NO T QUALIFY FOR ANY EXTRA SHIFT ALLOWANCE AND ONLY THE GENERAL R ATE OF DEPRECIATION WILL BE PERMISSIBLE FOR THE TRANSFORME RS. THE LEARNED CIT(A) HAS FAILED TO APPRECIATE THAT THE SA ME ANALOGY ALSO APPLIES TO THE PRESENT CASE. 4. NONE APPEARED ON BEHALF OF ASSESSEE DESPITE NOTI CE HAVING BEEN DULY SERVED. THEREFORE, WE HEARD THE APPEAL E X PARTE. WE HAVE HEARD LEARNED D.R. WE ARE QUITE SATISFIED THA T LD. CIT(APPEALS) HAS SIMPLY FOLLOWED THE VIEW TAKEN BY THIS VERY BEN CH IN THE ABOVE CASES. IT WOULD BE APT TO EXTRACT PARA NO.11 OF CI T(APPEALS)S ORDER WHICH WOULD ALSO GIVE VALID REASONING FOR ARRIVING AT OUR ABOVE CONCLUSION. PARA 11 OF CIT(APPEALS)S ORDER FOR AS SESSMENT YEAR 2006-07 READS AS UNDER:- 11. IN ITS ORDER IN THE CASE OF ASIAN HANDLOOMS, T HE HON'BLE ITAT HAVE BEEN HELD:- I.T.A. NOS.164 & 165/MDS/11 5 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E ORDER. THERE CAN BE NO DISPUTE THAT A WIND MILL IS AN APPARATUS THAT HARNESSES WIND POWER, FOR A VARIETY O F USES LIKE PUMPING WATER, OF SAW MILL GRINDING CONE AND / OR DRIVING ELECTRICAL TURBINES. A TYPICAL WIND MILL, A S INSTALLED BY THE ASSESSEE, WHICH IS OF SUZLON CORPORATION AND VESTOS RRB, WOULD CONSIST OF A SPECIALIZED FOUNDATION, ON WHICH THE WIND BLADES ARE ATTACHED THROUGH A POST. THE B LADES CONNECTED IN THE TOP IS A REVOLVING APPARATUS TO WH ICH DIFFERENT NUMBERS OF ARMS ARE ATTACHED. WHEN IT IS USED FOR PRODUCING ELECTRICITY, THESE ARE CALLED WIND TUR BINES AND SERVES AS A SIGNIFICANT SOURCE OF ELECTRICAL EN ERGY. BEING A NON-CONVENTIONAL SOURCE OF ENERGY WITH RENEW ABLE INPUTS AND WHICH IS NATURE FRIENDLY, WORLD OVER, WIN D MILLS HAVE BEEN GIVEN SPECIAL STATUS IMPORTANCE AND ENCOURAGEMENT. THERE IS NO DOUBT THAT FOR A WIND M ILL TO BE SUSTAINABLE, IT HAS TO BE ERECTED IN A PLACE WHE RE SUSTAINABLE WIND FLOW IS AVAILABLE, ON A LAND SUITA BLE TO A FOUNDATION ON WHICH, A STRUCTURE STRONG ENOUGH TO WITHSTAND A POWERFUL THRUST OF AIR AT ANY POINT OF T IME CAN BE SET UP. SPECIALIZED FOUNDATION AND SPECIALIZED AREA SPECIFICALLY EAR MARKED TO FACILITATE A FLOW OF WIND WITHOUT HINDRANCE, AND SPECIALIZED ELECTRICAL FITTINGS AND HIGH TENSION LINES ARE ALL BASIC REQUIREMENTS FOR A WIND MILL PLANT. NONE OF THESE REQUIREMENTS INCLUDING THE PR EMISES CAN BE DETACHED FROM WHAT IS CALLED A WIND MILL S INCE A WIND MILL TO WORK, THESE ARE ESSENTIAL. ALL THESE NECESSARY INPUTS GOING INTO THE ULTIMATE COST OF SUCH WIND MI LL. THE FOUNDATION STRUCTURE OR THE SPECIALLY DEMARCATED LAN D APPURTENANT THERETO CANNOT BE CONSIDERED AS EQUIVAL ENT TO A HOTEL OR CINEMA BUILDING WHICH IS ADJUNCT TO CARR YING ON A HOTEL BUSINESS OR THEATRE BUSINESS. ON THE OTHER H AND THESE CAN BE DEEMED ONLY AS A PART OF WINDMILL FOR HARNESSING WIND ENERGY. IN COMING TO THIS CONCLUSIO N WE ARE FORTIFIED BY DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS KARNATAKA POWER CORPORATION [ 247 ITR 268] WHERE IT WAS HELD THAT WHETHER A BUILDING CAN BE TREATED AS A PLANT WAS A QUESTION OF FACT THAT THE BUILDING I.T.A. NOS.164 & 165/MDS/11 6 HAS BEEN SO PLANNED AND CONSTRUCTED AS TO SERVE THE ASSESSEES SPECIAL TECHNICAL REQUIREMENTS, IT WOULD QUALIFY TO BE TREATED AS A PLANT. IN OUR OPINION, THE EXPE NSES RELATING TO THE LAND AND FOUNDATION SPECIALLY INCURR ED WITH A VIEW TO SERVE THE TECHNICAL REQUIREMENTS WOULD AL SO BECOME PART OF THE PLANT IN A CASE THAT OF A WIND M ILL. IF WE LOOK AT APPENDIX I TO THE INCOME-TAX RULES, PRES CRIBING THE RATES OF DEPRECIATION, IT CAN BE SEEN THAT LEGI SLATURE HAS GIVEN HIGHER DEPRECIATION RATE OF 80% OF ANTI-P OLLUTION DEVICES, ENERGY SAVING DEVICES. APPARENTLY, THESE HI GHER RATES HAVE BEEN GIVEN NOT SOLELY FOR SETTING OFF THE IMPAIRMENT IN VALUE OF SUCH ASSETS ON ACCOUNT OF US E, BUT ALSO TO ENCOURAGE SUCH ENTREPRENEURIAL VENTURES WHI CH RESULT IN ENERGY SAVINGS OR UTILIZATION OF RENEWABLE ENERGY SOURCES, OR PREVENTION OF POLLUTION. IF A VERY LIMI TED MEANING IS GIVEN TO THESE TERMS USED IN APPENDIX-I OF THE IT RULES, IT WOULD DEFEAT THE VERY PURPOSE FOR WHICH SUCH ENHANCED DEPRECIATION WAS PROVIDED FOR. THEREFORE, IN OUR OPINION, ASSESSEES CLAIM FOR DEPRECIATION SHOULD N OT BE RESTRICTED IN THE MANNER MADE BY THE ASSESSING OFFIC ER . 5. IT IS CLEAR THAT THE LD. CIT(APPEALS) HAS FOLLOW ED CHENNAI BENCH DECISIONS TO ARRIVE AT HIS CONCLUSION. THEREFORE, BY RESPECTFULLY FOLLOWING THE ABOVE MENTIONED DECISIONS OF THE TRIB UNAL, WE UPHOLD THE VIEW TAKEN BY THE LD. CIT(APPEALS) AND DO NOT F IND ANY REASON TO INTERFERE THEREIN. ACCORDINGLY, WE DISMISS BOTH TH E APPEALS OF THE REVENUE. 6. IN THE RESULT, BOTH THE APPEALS FILED BY THE REV ENUE STAND DISMISSED. I.T.A. NOS.164 & 165/MDS/11 7 ORDER PRONOUNCED IN THE OPEN COURT AFTER CONCLUSION OF HEARING ON THE FOURTH DAY OF APRIL, 2011. SD/- SD/- (DR. O.K. NARAYANAN) (HARI OM MARATHA) VICE PRESIDENT JUDICIAL MEMBER CHENNAI, DATED THE 4 TH APRIL, 2011. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A), TIRUCHIRAPALLI (4) CIT-I, TRICHY (5) D.R. (6) GUARD FILE