TMI Blog2013 (6) TMI 691X X X X Extracts X X X X X X X X Extracts X X X X ..... so in the judicial discipline, the later judgment on the same issue which has discussed the earlier judgment becomes binding in nature. Accordingly, Ld. CIT(A) has passed a well reasoned order, wherein, he has explained as to how the decision of Abhishek Industries would not apply - Decided against revenue. Disallowance u/s 14A - expenses incurred on investments on which exempt income arises CIT(A) has deleted the additions - Held that:- This ground is wrongly framed. The ld. CIT(A) has not deleted the entire disallowance of ₹ 5,02,628/- as has been pleaded in Ground No. (2), but he has sustained it at ₹ 4,41,272/-, instead, as has been claimed in the revised working by the assessee. Accordingly, we don't find any merit in this ground as well. The decision of Goetz India [2006 (3) TMI 75 - SUPREME Court] bounds the AO only, and, otherwise also it is not the case of fresh claim made. We find no infirmity in the reasoning of ld. CIT(A) and, in the interest of justice, we confirm his finding. - Decided against revenue. Wind Mill and the capitalization of bills of infrastructure evacuation and transmission lines under the head of Wind Mill eligible for depreciation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent ORDER Hari Om Maratha, Judicial Member This appeal of the revenue for A.Y. 2008-09 is directed against the order of Ld. CIT (A), dated 16/05/2012. 2. Briefly stated, the facts of the case are that the assessee derived his income, pertaining to A.Y. 2008-09, from business in shares/derivate trading and money lending. He filed his return of income on 29/09/2008 declaring income of ₹ 5,77,95,580/-. As against which the AO has computed taxable income at ₹ 6,13,35,559/-. The ld. CIT(A) has deleted the contentions additions. The revenue is, now, aggrieved. 3. The first ground of this appeal is in relation to deletion of an addition of ₹ 28,55,831/- made u/s 36(1 )(ii) of the I.T. Act 1961 ('the Act' for short). The facts of this ground are that the AO has disallowed interest debited in the P L account u/s 36(1)(iii), on the reasoning that the assessee has given an advance of ₹ 8.89 crores interest free to his son Shri Aman Singhal but at the same has paid interest on funds borrowed for the business. As per the assessee interest-free advance is out of his own capital which has no nexus with the borrowed funds. He has stated that the bor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, he has explained as to how the decision of Abhishek Industries would not apply. Therefore, there is no merit in ground No. (1) of this appeal which is likely to be dismissed. Accordingly, we dismiss Ground No. (1) of revenue's appeal. 4. Ground No. (2) is in relation to disallowance of ₹ 5,02,628/-made by resorting to Section 14A of the Act, in respect of expenses incurred on investments on which exempt income arises. In fact at the time of filing of the return of income, the assessee had himself added back ₹ 502,628/- on account of expenses incurred u/s 14A in his computation of income And during the course of assessment proceedings a revised working of expense as per Section 14A was revised and the disallowance, thus, came to ₹ 4,41,272/- as per Rule 8D of the I.T. Rule. The AO has not disputed this working rather, he has found it correct, but according to him this claim cannot be entertained in view of the ratio of the judgment of Hon'ble Apex Court rendered in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323. 4.1 The ld. CIT(A) has found that the ratio of Goetz IndiaLtd. (supra) would not apply to the facts of this case. After relying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or your consideration, the electrical line for power transmission and metering cannot be viewed as an asset independent of the Windmill because such electrical line is being used for transmission of power from the Windmill to the grid as the power generated by the Windmill needs to be transmitted to the main grid point from where it is distributed for use. Generally the distance between the place where the Windmill are located and the main grid station, is long and therefore, transmission line/power evacuation facilities are required to be set up to enable the power to reach the main grid. Thus, the power evacuation facilities and the transmission line are integral constituent of the wind power project and without this Windmill would be useless. It is also a fact that the power generated by the Windmill cannot be stored separately. Even, the commissioning certificate is issued when the Windmill actually generates power unit and such power unit reaches the main grid through the help of PEF (power evacuation facility) and transmission lines. Thus, without PEF and transmission lines, the Windmill cannot be said to be commissioned. We wish to draw your kind attention to the judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sites and it cannot be directly mounted on bare land as it has to be given firm stability and to protect against heavy wind, rains, earth quake etc. The generation of electricity is at one place whereas the supply/ consumption of the same at the other place. In these cases, the supply of 'electricity is generally controlled by the State Government. All the generation of electricity is to be transferred to the State Government grid/ specially defined grid, to supply the same to the consumer/ industries as per the demand because of the fact that the power generation cannot be stored. The function of Wind Mill is to generate power which has to be continuously transmitted through Power Evacuation Facility as a windy site is always with poor evacuation facility which affects the project performance. As such, the Power Evacuation Facility plays a critical role in the Wind Mill project. So without the Power Evacuation Facility, power generated at the wind mill cannot be transmitted to the main electric grids as required by the State Government/power transmitting agencies. 2. It is further a fact that it is almost impractical for each customer to set up and own their private PEF sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill is a machine which converts the energy of wind into rotational motion by means of adjustable vanes called sails. It is used to generate electricity by converting the energy of wind into rotational motion. (b) What is renewable energy? Renewable energy is energy which comes from natural resources like sun-light, wind, rain, tides and geothermal heat, which are renewable (Naturally replenished). Energy from any source which is not naturally replenish-able is called non-renewable energy. Wind Mill is a machine which is used to GENERATE renewable energy. (c) Concepts related to a power system : ELECTRIC POWER SYSTEM: An electric power system consists of the following parts: 1. Power generation facility. 2. Power transmission facility. 3. Power distribution network. 1. The power generation system is used to generate electric power from different sources of energy like coal, nuclear power, hydel power, wind energy etc. These sources of power are further classified into renewable and non-renewable/energy sources. A wind mill is one such device which is used to generate electricity by converting the energy of wind into rotational motion, and is therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue or capital. Capital v. Revenue The test of whether an expenditure is revenue or capital in nature has been discussed by the Hon'ble Supreme Court in a number of cases. In a landmark judgment in the case of Assam Bengal Cement Company Ltd. 27 ITR 34, the Hon'ble Supreme Court has approved the tests laid down in various previous cases regarding the determination of an expenditure being capital in nature. The excerpts are as follows:- It is not easy to define the term 'capital expenditure' in the abstract or to lay down any general and satisfactory test to discriminate between a capital and a revenue expenditure. Nor is it easy to reconcile all the decisions that were cited before us for each case has been decided on its peculiar facts. Some broad principles can, however, be deduced from what the learned Judges have laid down from time to time. They are as follows: 1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment; vide Lord Sands in Commissioners of Inland Revenue v. Granite City Steamship Company. In City of London Contract Corporation v. Sty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een reiterated by the Hon'ble 'Supreme Court in the case of Ballimal Naval Kishore v. CIT [1997] 224 ITR 414. In this case, the Apex Court endorsed the view expressed by the Bombay High Court in New Shorrock Spg. and Mfg Co. Ltd. v. CIT [1956] 30 ITR 338. In the light of the criteria above, the assessee's contentions are examined as follows; The assessee has incurred the said expenditure to acquire rights to use the power evacuation infrastructure facility by making a one time payment to the Electricity Board. This one time payment entitles the assessee to use the power evacuation infrastructure over a long period of time to transmit the electricity generated by the wind mill, thereby bestowing an enduring benefit on the assessee. The expenditure relates to the fixed capital i.e. rights to use the infrastructure facility of the assessee. As long as the assessee owns the wind mill and generates electricity, he would be using the power evacuation infrastructure facility for transmission of electricity. As and when the assessee chooses to sell the wind mill, the subsequent buyer would also have to buy the rights to use the power evacuation infrastructure. Therefore, tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has incurred an expenditure of ₹ 16,21,776/-. The assessee has also included this expenditure in the actual cost of the wind mill, eligible for depreciation @ 80%. But as can be seen from the discussion above, the transmission and distribution net work is 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. The assessee's reliance on various case laws is misplaced as the facts relating to telephone lines or air condition buses are distinguishable on facts from the said case and have no relevance Cost of other assets and accessories: Cost of components accessories ₹ 13,91,000 Cost of electrical items and components ₹ 25,48,000 Wind 'mills parts ₹ 5,64,44,000 Tubular Tower ₹ 1,35,20,000 Total ₹ 7,39,20,000 Cost of power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat though the power evacuation facility is owned by M/s Suzlon Limited, no depreciation on the same has been claimed in their books of account. The payments made by the wind mill owners for the usage of same as one time payment is also non refundable. The issue whether the wind mill owner can be considered the owner of power evacuation facility for the purposes of depreciation in the given circumstances is important. The concept of beneficial owner has been discussed in detail by Hon'ble High Court of Madras in the case of CIT v. Smt. A. Siva Kami [2010] 322 ITR 64and it has been held as under. It is clear that the provision required that the tangible assets should be owned by the assessee wholly or partly. The words owned wholly or partly have been considered by the Supreme Court and various High Courts and explained that under the common law owner means a person who has got a valid title legally conveyed to him after complying with the requirements of law, such as, the Transfer of Property Act, the Registration Act, etc,. In the context of the IT Act, 1961, having regard to the ground realities and further having regard to the object of the Act, viz., to tax the inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal, which warrants interference by the Court by entertaining the appeals CIT v. Podar Cement (P.) Ltd. [1997] 141 CTR 67/ 226 ITR 625 (SC), CIT v. General Marketing Manufacturing Co. Ltd. [1996) 132 CTR 50/ 222 ITR 574 (Cal.) and CIT v. Fazilka Dabwali TPT. Co. (P.) Ltd. [2004] 270 ITR 398 (Punj. Har.) followed. It is apparent from the perusal of above detailed judgment that the decision of Hon'ble Jurisdictional Court in the case of CIT v. Fazilka Dabwali Transport Company Ltd. 270 ITR 398has been followed by the Hon'ble High Court of Madras. As such the facts of the case under consideration are on the similar lines as the appellant does not own the asset on paper but it is using the same as the owner to the extent he has made contribution for same. Further, the revenue realized from the operation of wind mill/power evacuation facility has been credited 'income. In the circumstances the assessee not being owner of the power evacuation facility in its books of account cannot be taken to be the basis to disallow the claim of depreciation.' 5.3 Before us both parties have taken their earlier stand. It was argued by Ld. D.R. that on the contribution made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thout the existence of the above three system (i + ii + iii), the idea of wind mill is meaningless. Thus, one can say with impunity that all the above i, ii iii systems, go to form an essential composite system known as 'wind mill'. This composite system has been referred to in Rule 8 (sic) of the I.T. Rules to be eligible for 80% depreciation. Wind mill is invariably installed at a place where ample wind pressure is found to move the sails which in turn generate electricity. The electric power is generated at places which are usually intractable and near which the consumption of that energy is not possible. Therefore, this energy has to be 'transmitted' with the use of a 'transmission system' which further requires a 'distribution system' to make use of that energy. After all the energy is produced by way of generation for its useful utility and not for a show portraying the method as to how energy is generated. Therefore, the generation, the transmission and distribution of energy, in fact is the 'Wind-Mill'. This Rule especially provides for such a high rate of depreciation because the generation of electric energy is necessary for the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard we draw support from the decision of CIT v. Fazilka Dabawali Transport Co. (P.) Ltd. [2004] 270 ITR 398 (Puj. Har.) and the case of CIT v. Smt. A SivaKami [2010] 322 ITR 64(Mad.). In the Madras High Court decision it has been held thus : 'It is clear that the provision required that the tangible assets should be owned by the assessee wholly or partly. The words owned wholly or partly have been considered by the Supreme Court and various High Courts and explained that under the common law owner means a person who has got a valid title legally conveyed to him after complying with the requirements of law, such as, the Transfer of Property Act, the Registration Act, etc. In the context of the IT Act, 1961, having regard to the ground realities and further having regard to the object of the Act, viz., to tax the income, owner is a person who is entitled to receive income from the property in his own right. In order to claim the benefit of s. 32, it is not necessary that the assessee should be a complete owner. The expression owner used in s. 32 has been considered by taking into account all its phrases and aspects. The owner need not necessarily be a lawful owner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led judgement that the decision of Hon'ble Jurisdictional Court in the case of CIT v. Fazilka Dabwali Transport Company Ltd. 270 ITR 398has been followed by the Hon'ble High Court of Madras. As such the facts of the case under consideration are on the similar lines as the appellant does not own the asset on paper but it is using the same as the owner to the extent he has made contribution for same. Further, the revenue realized from the operation of wind mill/power evacuation facility has been credited 'income. In the circumstances the assessee not being owner of the power evacuation facility in its books of accounts cannot be taken to be the basis to disallow the claim of depreciation.' Accordingly, we uphold the order of ld. CIT(A). Any part of plant which is an integral part of capital asset which is legible for higher depreciation even if that other part is eligible, otherwise, for normal depreciation, it became entitled to higher rate of depreciation. For the above conclusion we rely on the decisions of Hon'ble Delhi High Court in the cases of (i) CIT v. Mahanagar Telephone Nigam Ltd. [2002] 254 ITR 627and (ii) CIT v. Delhi Airport Service [2002] 120 Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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