PRINCIPAL COMMISSIONER OF IN vs. LIVIA POLYMER BOTTLES PVT LTD

TCA.No.187 of 2021 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 15.03.2021 CORAM : The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Ms.Justice R.N.MANJULA Tax Case Appeal No.187 of 2021 Principal Commissioner of Income Tax, Company Circle - 4(1), Chennai - 600 034. ...Appellant Vs M/s.Livia Polymer Bottles Pvt. Ltd., No.2-D, Sri Devi Apartments, West CIT Nagar, Nandanam, Chennai - 600 035. ...Respondent APPEAL under Section 260A of the Income Tax Act, 1961 against the order dated 18.04.2017 made in ITA.No.2604/Mds/2016 on the file of the Income Tax Appellate Tribunal, Madras 'B' Bench for the assessment year 2012-13. For Appellant: Mr.R.Karthik Ranganathan, SSC For Respondent: Mr.A.S.Sriraman 1/8 https://www.mhc.tn.gov.in/judis/ TCA.No.187 of 2021 JUDGMENT (Delivered by

T.S.Sivagnanam,J

) This appeal filed under Section 260A of the Income Tax Act, 1961 ('the Act' for brevity) is directed against the order dated 18.04.2017 made in ITA.No.2604/Mds/2016 passed by the Income Tax Appellate Tribunal, Madras 'B' Bench ('the Tribunal' for brevity) for assessment year 2012-13. 2. The Revenue has raised the following substantial questions of law for consideration: "1. Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT is correct in law in allowing additional depreciation on windmill of Rs.3,45,52,281/- u/s 32(1)(ii)(a) of the Income Tax Act? 2. Whether on the facts and circumstances of the case, the ITAT is correct in law in allowing the additional depreciation under Section 32(1)(ii)(a) of the Income Tax Act whereas the amended provision under Section 32(1)(ii)(a) permits for additional depreciation of actual cost of any new machinery or plant (other than ships and aircraft) acquired and installed only after 31st day of March 2/8 https://www.mhc.tn.gov.in/judis/ TCA.No.187 of 2021 2012 to an assessee engaged in the business of generation and distribution of power?" 3. We have heard elaborately heard Mr.R.Karthik Ranganathan, learned Senior Standing Counsel for the appellant-Revenue and Mr.A.S.Sriraman, learned counsel for the respondent-assessee. 4. The short issue, which is involved in the instant case, is whether the assessee is entitled for additional depreciation under Section 32(1)(iia) of the Act. 5. The Assessing Officer, while completing the assessment under Section 143(3) vide order dated 06.03.2015, denied the benefit on the ground that the primary business of the assessee does not include generation of wind energy, additional depreciation claimed by the assessee company under Section 32(1)(ii) is disallowed for the reason that generation of sale of energy is not the primary business of the assessee company. 6. The assessee carried the matter on appeal before the Commissioner of Income Tax (Appeals) [CIT(A)], contending that the 3/8 https://www.mhc.tn.gov.in/judis/ TCA.No.187 of 2021 assessee is in the business of manufacture and sale of Pet Bottles, their industry is power intensive and incurs substantial amount towards purchase of power from the Tamilnadu Electricity Board. The assessee further contended that the main purpose for which it had installed wind mills is to enable them to captively consume the energy, which is produced. Although the wind mills are not situated in the same premises where the manufacture of Pet Bottles is being carried on, the electrical energy generation by the wind mills owned by the assessee are taken to the Tamilnadu Electricity Board and the energy is credited to the power consumption of the factory manufacturing Pet Bottles. Therefore, it is submitted that generation of electricity by the wind mills is inextricably connected to the business of the assessee. The assessee enclosed the month wise wind energy generated by the wind mills and the details of units taken for captive consumption. The assessee placed reliance on the decision in the case of CIT Vs. Hi Tech Arai Ltd. (321 ITR 477). 7. The CIT(A) accepted the contention advanced by the assessee and held that the finding of the Assessing Officer that the wind energy is not the primary business of the assessee company is a wrong conclusion and 4/8 https://www.mhc.tn.gov.in/judis/ TCA.No.187 of 2021 that law also does not mandate wind mills to be the primary business of the assessee. 8. The Revenue carried the matter on appeal before the Tribunal. The Tribunal placed reliance on the decision of this Court in the case of CIT Vs. Atlas Export Enterprise (373 ITR 414) and following the said decision, dismissed the appeal filed by the Revenue. 9. The strenuous argument before us is by referring to the insertion made by Finance Act, 2012 with effect from 01.04.2013, the following words "are in the business of generation, transmission or distribution of power". It is submitted that the business of the assessee is not generation or transmission or distribution of power and therefore, the question of extending additional depreciation does not arise. This argument cannot be sustained for more than one reason. 10. Firstly, the nature of the transaction between the assessee and the Tamilnadu Electricity Board has to be understood and appreciated. Though the term 'Capital Consumption' is used by the assessee, it does not 5/8 https://www.mhc.tn.gov.in/judis/ TCA.No.187 of 2021 mean that whatever electricity energy generated by the assessee with their wind mills is directly fed into their system for being used for manufacture of Pet Bottles. If this is to be the opinion, then it will fall fowl of the regulations under which wind energy is being regulated in the State. The assessee, who owns the wind mill, if engaged in the generation of power, is mandated to feed the same into the grid of the Tamilnadu Electricity Board and pursuant to the agreement between the assessee and the Board, a grid is given to the generator. Therefore, going with scheme of things, it is undoubtedly clear that the assessee is into the generation of power, which is being fed into the grid of the Tamilnadu Electricity Board to be distributed. 11. Identical issues was considered by this Court in the case of Commissioner of Income Tax, Madurai Vs. VTM Ltd. [(2009) 319 ITR 336]. The operative portion of the judgment reads as follows: "5. In the case on hand, the assessee is stated to have set up a wind mill at a cost of Rs.5,85,60,000/-. It is true that the assessee is a company engaged in the business of manufacture of textile goods. As far as application of Section 32(1)(iia) of the Act, is concerned, what is 6/8 https://www.mhc.tn.gov.in/judis/ TCA.No.187 of 2021 required to be satisfied in order to claim the additional depreciation is that the setting up of a new machinery or plaint should have been acquired and installed after 31st March 2002 by an assessee, who was already engaged in the business of manufacture or production of any article or thing. The said provision does not state that the setting up of a new machinery or plant, which was acquired and installed upto 31.03.2002 should have any operational connectivity to the article or thing that was already being manufactured by the assessee. Therefore, the contention that the setting up of a wind mill has nothing to do with the power industry, namely, manufacture of oil seeds etc. is totally not germane to the specific provision contained in Section 32(1)(iia) of the Act." 12. Apart from the above decision, which squarely covers the issue on hand against the Revenue, other decisions which also assist the case of the assessee are in the cases of CIT Vs. Texmo Precision Castings [(2010) 321 ITR 481] and CIT Vs. Hi Tech Arai Ltd. [(2010) 321 ITR 471]. 7/8 https://www.mhc.tn.gov.in/judis/ TCA.No.187 of 2021 T.S.SIVAGNANAM,J AND R.N.MANJULA,J hvk 13. In the light of the above decision, the substantial questions of law are required to be answered against the Revenue. Accordingly, the tax case appeal is dismissed and the substantial questions of law are answered against the Revenue. No costs. (T.S.S.,J.) (R.N.M.,J.) 15.03.2021 Index:Yes/No Internet:Yes/No hvk To 1. The Income Tax Appellate Tribunal, Madras 'B' Bench. 2. The Principal Commissioner of Income Tax, Company Circle - 4(1), Chennai - 600 034. TCA.No.187 of 2021 8/8 https://www.mhc.tn.gov.in/judis/