Unjust and unreasonable amendment vide notification dated 30.03.2012 withdrawing higher rate of depreciation for certain renewable energy machines to be installed on or after 01.04.2012. A request for reconsideration.

[C.A. DEV KUMAR KOTHARI]

Depreciation:

Higher rate of depreciation:

On many items of plant and machinery higher rate of depreciation is allowed. The purpose of higher deprecation is to achieve certain social-economic purposes like giving impetus to particular industry, providing incentives for saving of power , for restricting power  usages and wastage, pollution control etc. These incentives have been in force for considerable period of time. Considering the purpose the higher rates continued inspite of reducing general rate of depreciation on plant and machinery from 33.33%  to 25%  and then to 15%. In case  of some of special rate items rate was reduced from 100% to 80%, but fact remain that incentive by way of higher rate of depreciation continued.

Wind Mills and devices running on power generated by windmills:

From the Appendix to the Income Tax Rules which prescribes rate of deprecation we find that many plant and machinery  which are in nature of renewal energy devices are entitled to higher rate of depreciation. This also includes   wind Mills and devices running on power generated by windmills, electric generators and pumps. Besides we also find that there are items  of plant and machinery running on  solar power, bio-gas power plant and engines, agricultural and municipal waste conversion devices etc.

The relevant entry containing renewal energy devices is reproduced below with highlights of entries which have been amended:

III. MACHINERY AND PLANT

 (8) (xiii) Renewable energy devices being : 

(a)Flat plate solar collectors 

(b)Concentrating and pipe type solar collectors 

(c) Solar cookers 

(d)Solar water heaters and systems 

(e)Air/gas/fluid heating systems 

(f)Solar crop driers and systems  

(g)Solar refrigeration, cold storages and air conditioning systems 

(h)Solar steels and desalination systems

(i) Solar power generating systems

   (j)  Solar pumps based on solar-thermal and solar-photovoltaic conversion

  (k)  Solar-photovoltaic modules and panels for water pumping and other applications

(l) Wind mills and any specially designed devices which run on wind mills

(m) Any special devices including electric generators and pumps running on wind energy

  (n)  Biogas-plant and biogas-engines

  (o)  Electrically operated vehicles including battery powered or fuel-cell powered vehicles

  (p)  Agricultural and municipal waste conversion devices producing energy

  (q)  Equipment for utilising ocean waste and thermal energy

  (r)  Machinery and plant used in the manufacture of any of the above sub-items

An analysis:

We find that the entry is supposed to allow higher depreciation on (a) renewal energy devices, (b) other devices being run on  renewal energy saving devices  and also (c)  machinery and plant used in manufacture of any of items of nature .

To be specific, in relation to wind power we find the following entries .

      (l) Wind mills and any specially designed devices which run on wind mills

        (m) Any special devices including electric generators and pumps running on wind energy

            (r) Machinery and plant used in the manufacture of any of the above sub-items

Present amendment:

(a)        In clause (l), after the words, “which run on wind mills”, the words, figures and letters, “installed on or before 31st day of March, 2012”, shall be inserted ; and

(b)        In clause (m), after the words, “running on wind energy”, the words figures and letters, “installed on or before 31st day of March, 2012”, shall be inserted.

Therefore, the amendment is only in relation to items in (l) and (m). The item  (r ) is not amended, therefore machinery and plant used in the manufacture of Wind mills and any specially designed devices which run on wind mills and  any special devices including electric generators and pumps running on wind energy will continue to be eligible for higher rate of depreciation. There is no amendment about solar power devices,  devices to convert  certain type of wastage into power etc.

Why the amendment:

Author wonders why higher rate only for wind energy devices is being withdrawn? There is no apparent purpose for such a decision. We still need to explore more renewal energy devices, it is not a case that suddenly we have found lot of sources of energy. We are still having shortage of sources of energy and power is becoming not only  costlier but also scarce  day-by-day. Furthermore other form of renewal energy devices are not affected by the amendment. Therefore, there seems totally partiality and biased decision making.  

In relation to the amendment the following questions arises:

Why only certain type of wind power based devices will be denied higher rate?

What is the reason?

Whether , the purpose of allowing higher rate in respect of wind power devices have been fulfilled?

Why the projects under implementation stage are denied higher rate of deprecation merely because they will be completed by completing installation after 31.03.2012 ?

Whether suddenly withdrawing higher depreciation is unjust and unreasonable.? Particularly in view of commercial reality that wind power projects involves higher gestation period, and high capital cost.

Analysis of notification:

The relevant notification is reproduced below with high lights for analysis:

Notification No. 15/2012 [F.No.149/21/2010-SO(TPL)]

Dated 30-3-2012

S.O.694(E):- In exercise of the powers conferred by section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:-

1. (1) These rules may be called the Income-tax ( 4th Amendment) Rules, 2012.

(2) They shall come into force on the 1st day of April, 2012.

2. In the Income-tax Rules, 1962, in the Table, in the New Appendix I, in Part-A relating to Tangible Assets, under the heading “III. Machinery and Plant”, in item (8), in sub-item (xiii), -

(a)        In clause (l), after the words, “which run on wind mills”, the words, figures and letters, “installed on or before 31st day of March, 2012”, shall be inserted ; and

(b)        In clause (m), after the words, “running on wind energy”, the words figures and letters, “installed on or before 31st day of March, 2012”, shall be inserted.

On reading of the above notification we find that any reason has not been given. What are circumstances which have prompted the CBDT to issue and notify an amendment which withdraws  a big incentive which would have been allowed to many of projects under construction which would start after say even few days. A project of wind farm which is scheduled to start say (theoretically)  on  1^st April, 2012 is suddenly denied the benefit of higher depreciation merely because there is delay in installation of machines by few hours.

What is difference between two  wind mill project which started  implementation about three years ago say at difference of  few days or few months  or which completed installation on or before 31.03.2012 and after 31.03.2012. There is no intelligible differentiation.   Wind mill is not a case like just buy and plug-in equipment that can be started in few hours. Wind mill project involves long gestation period and high capital cost. Therefore, sudden denial of higher depreciation due to reason that an equipment is installed on or after 31.03.2012 is not at all justified.

The purpose of allowing higher rate of depreciation is still relevant. It is not case that now incentive has lost meaning. Incentive to other renewal energy devices and  power saving devices still continues.  The purpose of wind mills and related equipments is also same and similar. For that reason also denying higher rate of depreciation is not justified.

Reconsideration is required:

A reconsideration of the issue is desired. In view of purpose to be served, continuation of higher depreciation is required. In any case higher rate of depreciation should be allowed in relation to projects which have been conceived and are in stage of implementation because reduction of rate of deprecation will suddenly affect the whole economic viability of such projects.

Sudden withdrawal of higher rate is not justified because this in one sense is breach of promises made by government based on which wind mill projects were undertaken by entrepreneurs. The decision making should have reflection of long –term fiscal policies and should not reflect casual and whimsical approach of bureaucrats.