TMI Blog2010 (3) TMI 940X X X X Extracts X X X X X X X X Extracts X X X X ..... n the course of scrutiny assessment, the Assessing Officer noticed that the assessee has claimed depreciation of Rs. 41,83,360 on a windmill established by it. The windmill during the relevant assessment year was entitled for 100 per cent. depreciation. The assessee has claimed depreciation at half of the normal quantum as the windmill as claimed by the assessee has worked for a period of less than six months. The details of the windmill were called for by the assessing authority. He found that the assessee has set up wind-electric generator of 315 KVA in Munduvelampatti village, Dharmapuram Taluk in the State of Tamil Nadu. The assessee was asked to furnish the date of commissioning of the generator and details of the electricity generated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the claim of depreciation on windmill and determined a total income of Rs. 46,84,565. The matter was taken in the first appeal. The Commissioner of Incometax (Appeals) relied on the following cases and held that the assessee had made the windmill system "ready to use" and therefore, the benefit of the doctrine of "passive use" must be extended to the assessee and therefore, depreciation has to be legitimately allowed : (i) CIT v. Refrigeration and Allied Industries Ltd. [2001] 247 ITR 12 (Delhi) ; (ii) Asst. CIT v. Ashima Syntex Ltd. [2001] 251 ITR 133 (Guj) ; and (iii) CIT v. Union Carbide (I) Ltd. [2002] 254 ITR 488 (Cal). Accordingly, he allowed the appeal of the assessee on the question of depreciation allowance on windmill. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeals) himself has observed that the actual production of electricity from the windmill was not established by the assessee. We may quote the exact line from the last portion of page 2 of the Commissioner of Income-tax (Appeals)'s order in this regard : "I have gone through the submission made by the authorised representative and seen that actual production of electricity from windmill is not clearly explained." He further observes in concluding portion at page 3 of his order that : "However, there is a doubt in respect of even a small unit of electricity might have been generated . . ." The Commissioner of Income-tax (Appeals) specifically clarifies in his order that he is allowing depreciation allowance only for the reason that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If a contingency had arisen during the relevant previous year, those new systems should have been actually put to use. It is in such circumstances that the courts have developed the concept of "passive use" to uphold the claim of the assessee to plead for depreciation allowance on the ground that the actual user or not, is not the crucial test, but the test is to see whether the new asset have been made absolutely ready to put to use at any point of time without further preparation. The above principle of passive user is applicable only in such cases where the new plant and machinery is put "ready for use" to support the existing and running business. For example, in the case of a fleet operator running say 15 trucks, he may put "ready t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take place only when the business has actually commenced. In the present case there is no commencement of business and there is no actual user of the windmill system. When there is no actual user there cannot be a complementary concept of "passive user" to the benefit of the assessee. In the course of hearing of the case, the learned authorised representative appearing for the assessee has submitted that the assessee wants to argue the case even beyond the findings of the Commissioner of Incometax (Appeals) to the effect that the assessee is entitled for depreciation not only on the ground of "passive user", but is entitled for depreciation on the ground of actual user itself. It is the case of the learned authorised representative that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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