TMI Blog2008 (6) TMI 586X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as a plant for the purpose of investment allowance. For interpreting the scheme of depreciation as prescribed u/s. 32 it is not necessary that we should adopt a judge-sense meaning, which is sometimes artificial and imprecise in application by giving a meaning altogether different from the statutory provisions. The scheme of s. 32 unequivocally leads to the conclusion that on one hand plant and on the other hand machinery are to be treated as separate for the purpose of allowance of depreciation. Moreover, how one can ignore the block of assets as prescribed in the table of rates for the purpose of allowance of depreciation in Appendix I of IT Rules. As per this Appendix Part 'A' contains building in a separate head, furniture and fittings in another head and machinery and plant in a different head by prescribing different rates of depreciations. The scientific reason is often discussed as the period of diminution for tangible assets. If the period of diminution or wear-tear is very fast than higher rate of depreciation is granted. Naturally the speed with which a machinery gets discarded due to wear and tear, the buildings do not get wear and tear so fast. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mer upto DP structure is allowed. Resultantly, this appeal is partly allowed. - PRAMOD KUMAR (A.M.) and MUKUL SHRAWAT (J.M.) S. U. Pathak, for the Appellant D. S. Kothari, for the Respondent ORDER Assessee is in appeal arising out of the order of CIT(A)-I, Pune dt. 23rd Jan., 2006 and the grounds are narrative, however, the issue is in respect of depreciation whether to be allowed at the rate of 100 per cent on the components of the windmill. For the sake of completeness, grounds are reproduced below : On the facts and circumstances of the case and in law, the learned CIT(A)-I, Pune erred in : 1(a) ignoring the test of functional use of an asset and the principle of capitalization while applying different rates of depreciation on different components of cost which bring into existence a fixed asset recognized as 'windmill'. 1(b) without prejudice to 'ground No 1(a)' above'confirming depreciation at lower rate on following components of cost incurred to bring into existence an asset i.e. 'windmill' (entitled for depreciation @ 100 per cent) : Particulars of items of capitalization isolated while allowin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue in hand, the relevant observations of the AO were that during the year, the assessee company installed windmill at a village in District Satara. An investment to the tune of ₹ 1,77,00,000 was incurred for setting up of the windmill. The AO has further noted that the appellant has claimed depreciation at the rate of 100 per cent on the entire amount. The claim of 100 per cent depreciation included the assets such as electrical items, civil works etc. The AO was not convinced to allow the 100 per cent depreciation on such items of expenditure and proceeded to disallow the claim in respect of few items, by making following observations : (i) Site development expenses of ₹ 75,000 As per bills, it is noticed that Suzlon Developers (P) Ltd. has charged ₹ 75,000 for wind mill as labour cost for site development. This will be treated as expenses for improvement of land at site and therefore will be a part of acquisition of land. Therefore, it will not be entitled to any depreciation. (ii) Cost of construction for control room and transformer ₹ 75,000 The expenses of ₹ 75,000 incurred by the assessee for this work is civil in nature to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these four items in the following manner : (1) Site development expenses : It has been pleaded by the appellant that expenditure of ₹ 75,000 was incurred so as to make the site proper for installation of windmill. The expenditure was for facilitating erection of the windmill and not to develop the market value of the plot as contended by the appellant. In my considered opinion, the expenditure on site development is not an expenditure for erection of windmill. The expenditure is incurred for clearing the land for use. The subsequent use of the land for erection of windmill will not entitle the appellant to claim such expenditure as cost to the windmill. This expenditure gets embedded in the cost of the land and the cost of land is not a cost component of the windmill. The assessment order to the extent of this expenditure is upheld. (2) Cost of construction of control room : It has been pleaded by the appellant that in the control room, transformer and other equipments have been installed and the said control room thus becomes intrinsic part of the windmill. I am of the humble opinion that the action taken by the AO cannot be faulted as control room is a civil construc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee, having identical nature of construction activity, can be argued as a group, since in the nature of civil construction. He has started his arguments by citing CIT vs. Herdillia Chemicals Ltd. (1993) 114 CTR (Bom) 145: (1995) 216 ITR 742(Bom), for the preposition that expenditure incurred on development, levelling of land and construction of internal roads leading to the plant and machinery to be considered as a part of the actual cost of plant and machinery, therefore be allowed higher depreciation. The learned Authorised Representative has also mentioned that in the said decision, the Hon'ble Bombay High Court has referred the case of Challapalli Sugars Ltd. vs. CIT 1974 CTR (SC) 309: (1975) 98 ITR 167(SC), CIT vs. Gwalior Rayon Silk Manufacturing Co. Ltd. (1992) 104 CTR (SC) 243: (1992) 196 ITR 149(SC), CIT vs. Caltex Oil Refining (I) Ltd. (1976) 102 ITR 260(Bom) and Addl. CIT vs. Madras Cements Ltd. 1977 CTR (Mad) 513: (1977) 110 ITR 281(Mad). The learned Authorised Representative has mentioned that the undisputed facts in the said precedents were that the expenditure was incurred on the foundation for fixing the plant and machinery which was held as forming a par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. We have heard the submissions of both the sides at length, carefully perused the order of the authorities below in the light of compilation filed and case laws cited. As observed by the AO and also mentioned in the statement of facts that the appellant company has incurred a capital expenditure on windmill cost at ₹ 1,77,00,000. The windmill is eligible for depreciation as per IT Rules at the rate of 100 per cent. Therefore, the AO has held that as per Appendix I of IT Rules cl. (III)(3)(xiii)(l), the assessee is entitled for 100 per cent depreciation towards investment made in installing windmill, accordingly the depreciation was allowed. The dispute was in respect of the expenditure which was capitalized and incurred towards other construction and structure. The argument from the side of the assessee was basically that those structures were an integral part of the windmill hence also entitled for 100 per cent depreciation. On the other hand the stand of the Revenue was that the said construction was not an integrated part of the windmill therefore, not entitled for higher rate of depreciation but entitled for the rate of depreciation as particularly prescribed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the instrument considered as a whole clearly conveys a somewhat different shade of meaning. Words have to be so construed as to fit in with the idea which emerges on a consideration of the entire context. The meanings of the words 'building' and 'plant have to be gathered in the context of the scheme of s. 32 and it is not necessary to adopt a judge-made sense, which is artificial and imprecise in application. 10. The Court has also observed that a characteristic of plant is it is an adjunct to the carrying on of a business and not the essential site or core of the business itself. Since the question before the Hon'ble Court in those appeals was whether the building which is used as hotel or cinema theatre can be considered to be a tool for running the business, so that it can be termed as a plant, with the result depreciation could be allowed accordingly or whether it remains a building wherein either hotel business or business for cinema could be conducted ? So the Court has held that a hotel or cinema building cannot be stated to be an adjunct to the carrying on of the business, that is to say, something added to another, or which is in a subordinate, auxi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ish that on the touchstone of functional test the control room or site development expenditure or even internal roads were so designed that they can only be used for power generation as done by the wind mill and meant for no other use. There is nothing on record, such as a report from a qualified person to establish that the site construction of control room, internal road etc. were designed in such a manner to facilitate the power generation and distribution of windmill. Naturally a machinery does not require protection so installed in a building but such a building cannot be said to be a part and parcel of the machinery. Resultantly the claims fail on functional test. 13. We have examined the decisions as cited by learned Authorised Representative however they are very much distinguishable. In respect of Herdillia Chemicals Ltd. (supra), the company was a chemical industry. For the purpose of erection of plant and building, a huge land admeasuring about 360 acres was taken on lease from Maharashtra Industrial Development Corporation. The entire factory was stated to be constructed in the said large tract of land. To protect the property, which covered a wide area and also to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that the two could not be segregated and the air conditioner had become an integral part of the bus. The distinction is that no such fact is applicable in the present appeal. Almost identical is the situation in the case of Samiran Majumdar (supra) as cited by learned Authorised Representative since in that case as well the printer and scanner were undisputably a part of the computer system therefore held as entitled for higher rate of depreciation as it was applicable to computer. 15. It is an accepted principle of interpretation that it is not always a safe way to construe the statute by dividing it by a process of etymological dissection and after separating words from the context to give each word some particular definition given by lexicographers and then to reconstruct the instrument upon the basis of those interpretation. The correct method is that when particular meaning is attached to a word as is given in an instrument is to be gathered from the context, the nature of the subject-matter, the purpose or the intention of the author and the effect of giving to them one or more other permissible meaning on the object to be achieved. Applying this test, we have to gath ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a sum of ₹ 7,00,000 for the purpose of supplying of electrical items like transformer upto DP structure, internal line upto metering. The said payment was made to Suzlon Developers (P) Ltd. This gadget is for transmission of electrical power generated upto sub-station of MSEB at site. In our humble opinion the electrical energy so produced by the wind mill is a waste if it is not transmitted to MSEB sub-station. The function of such unit is that the electricity so generated is required to be transferred and transmitted to cable line upto sub-station, where the actual units so generated are stored and metered. Since this is the function of transformer upto DP structure, hence ought to be held as an integral part of the windmill. The other reasons such as the period during which a machinery gets depreciated, as discussed hereinabove, does also apply in case of this machinery. Since we have held so, therefore, the appellant is consequently entitled for higher rate of depreciation as prescribed in IT Rules. 17. In the result, as per the grounds of appeal the claim of depreciation in respect of items (i) to (iii) are rejected and claim of depreciation in respect of item No. (i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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