2025 (4) TMI 81 - AT - Income Tax

Investment allowance u/s. 32AC u/s 32AD and excess additional depreciation u/s 32(1)(iia) - HELD THAT - For claim u/s 32(1)(iia) the language used in Section 32 is a plain simple and unambiguous. Each word of the section is required to be given due interpretation and meaning. In our view the proviso to Section 32(1)(iia) of the Act is conspicuously silent on including the business of generation transmission and distribution of power within the scope of the proviso and such exclusion of Parliament cannot be ignored by including business of generation transmission and distribution of power by interpretation or by way of stretching the definition of manufacturing or article to include what is not explicitly included in the Proviso to Section 32(1)(iia) of the Act. Proviso to provision is restricting / qualifying the scope of the main Provision. In other words proviso creates an exception to what is included in the main section. In the present case the Section 32(1)(iia) of the Act is available for an assessee who has set up any new machinery or plant (other than ships and aircraft) which has been acquired and installed after the 31st day of March 2005 by an assessee engaged in the business of manufacture or production of any article or thing or in the business of generation transmission or distribution of power. However the Proviso as only given the benefit to an assessee who sets up an undertaking or enterprise for manufacture or production of any article or thing on or after the 1st day of April 2015 in any backward area notified by the Central Government in this behalf in the State of Andhra Pradesh or in the State of Bihar or in the State of Telangana or in the State of West Bengal. Thus the Proviso has restricted the grant of benefit of 35% only to an undertaking or enterprise for manufacture or production of any article or thing whereas in the main Provision the benefit of 20% was available to business of manufacture or production of any article or thing or in the business of generation transmission or distribution of power. In the present case the assessee is engaged in the business of generation transmission and distribution of power. Consequently it does not qualify for the enhanced additional depreciation of 35% under the proviso to Section 32(1)(iia). The assessee is entitled only to the additional depreciation of 20% as specified in the main provision of Section 32(1)(iia). Argument raised by the Revenue is valid and the appeal on this ground is required to be allowed. Deduction claimed u/s 32AC and 32AD - The law is required to be read in context and is required to be applied for the purposes it was enacted. The Tribunal or the Court are not permitted to extend the benefit of this beneficial / deduction / exemption provision to the class of assessee which do not specifically fall in the specified category. Therefore following the same logic and reasoning given hitherto while discussing the scope and ambit of Section 32(1)(iia) of the Act we are of the opinion that the assessee which is engaged in the business of generation transmission and distribution of power is not entitled to the benefit as available to other Sections 32AC and 32AD of the Act. The Hon ble Supreme Court in the cases of Commissioner of Customs Vs. Dilip Kumar 2018 (7) TMI 1826 - SUPREME COURT (LB) and PCIT Vs. Wipro 2022 (7) TMI 560 - SUPREME COURT had held that for an assessee seeking exemption deduction or additional benefits the conditions prescribed by the statute must be fulfilled fully and completely in their entirety and the deduction or additional benefit cannot be granted based merely on interpretation. The Legislature has inserted the words in the business of generation transmission or distribution of power for a purpose and the legislative intention is that every part of the statute should be given effect and no part of it can be surplusage or in vain. The exclusion of business of generation transmission or distribution of power from the Proviso to Section 32(1)(iia) 32AC and 32AD were not mere surplusage but carved out and exclusion for the purposes of restricting the benefit only for a limited class of eligible assessee. In light of the above the grounds raised by the Revenue are allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issues considered in the judgment were:

1. Whether the assessee, a power generation company, is entitled to the investment allowance under Section 32AC of the Income Tax Act, 1961, which is typically available to companies engaged in the manufacture or production of any article or thing.

2. Whether the assessee is eligible for the investment allowance under Section 32AD, which is also meant for companies engaged in manufacturing or production activities.

3. Whether the assessee is entitled to claim additional depreciation at 35% under Section 32(1)(iia) for new machinery used in power generation, or if it should be limited to 20% as determined by the Assessing Officer.

ISSUE-WISE DETAILED ANALYSIS

1. Investment Allowance under Section 32AC

- Relevant Legal Framework and Precedents: Section 32AC provides investment allowance for companies engaged in manufacturing or production of any article or thing. The assessee argued that power generation qualifies as manufacturing, citing precedents including the Supreme Court decision in State of Andhra Pradesh v. NTPC Ltd.

- Court's Interpretation and Reasoning: The Tribunal noted that previous decisions, including those of the Supreme Court, have recognized electricity as "goods" and power generation as akin to manufacturing. However, the Tribunal emphasized that Section 32AC does not explicitly include power generation companies, which was a deliberate legislative choice.

- Key Evidence and Findings: The Tribunal examined the legislative history and intent behind Section 32AC and found no indication that power generation was intended to be included.

- Application of Law to Facts: The Tribunal concluded that the assessee, being a power generation company, does not fall within the ambit of Section 32AC and thus is not entitled to the investment allowance.

- Treatment of Competing Arguments: The Tribunal acknowledged the assessee's reliance on judicial precedents but highlighted the need for strict interpretation of tax exemption provisions.

- Conclusions: The Tribunal ruled against extending the benefits of Section 32AC to the assessee.

2. Investment Allowance under Section 32AD

- Relevant Legal Framework and Precedents: Similar to Section 32AC, Section 32AD provides investment allowance for manufacturing or production activities in specified backward areas.

- Court's Interpretation and Reasoning: The Tribunal applied the same reasoning as for Section 32AC, emphasizing the absence of explicit inclusion of power generation in Section 32AD.

- Key Evidence and Findings: The Tribunal found no legislative intent to include power generation within Section 32AD.

- Application of Law to Facts: The Tribunal concluded that the assessee is not entitled to benefits under Section 32AD.

- Treatment of Competing Arguments: The Tribunal reiterated the necessity of strict statutory interpretation.

- Conclusions: The Tribunal denied the investment allowance under Section 32AD to the assessee.

3. Additional Depreciation under Section 32(1)(iia)

- Relevant Legal Framework and Precedents: Section 32(1)(iia) allows additional depreciation for manufacturing or production activities, with a higher rate for specified backward areas.

- Court's Interpretation and Reasoning: The Tribunal recognized that the main provision of Section 32(1)(iia) includes power generation for a 20% depreciation rate but excludes it from the enhanced 35% rate in backward areas.

- Key Evidence and Findings: The Tribunal examined the statutory language and legislative amendments, noting the deliberate exclusion of power generation from the enhanced rate.

- Application of Law to Facts: The Tribunal agreed with the Assessing Officer's limitation of additional depreciation to 20% for the assessee.

- Treatment of Competing Arguments: The Tribunal emphasized the importance of adhering to the statutory framework and legislative intent.

- Conclusions: The Tribunal upheld the restriction of additional depreciation to 20% for the assessee.

SIGNIFICANT HOLDINGS

- The Tribunal held that the benefits of Sections 32AC and 32AD are not available to power generation companies, as these sections specifically target manufacturing or production of tangible articles or things.

- It reiterated that the legislative intent and statutory language must be strictly adhered to, especially in the context of tax exemptions and deductions.

- The Tribunal emphasized that any ambiguity in tax exemption provisions should be resolved in favor of the revenue, not the taxpayer.

- The Tribunal concluded that the assessee is entitled to additional depreciation at the standard rate of 20% under Section 32(1)(iia), as the enhanced rate of 35% is not applicable to power generation activities.