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Income Tax Appellate Tribunal, HYDERABAD BENCHES “A” , HYDERABAD
Before: SHRI LALIET KUMAR, HON’BLE & SHRI G. MANJUNATHA, HON’BLE
O R D E R PER LALIET KUMAR, J.M :
The appeal filed by the Revenue is directed against the order of Commissioner of Income Tax (Appeals) – National Faceless Appeal Centre (NFAC), Delhi dt. 23.01.2023 (hereinafter referred to as “the ld.CIT(A)”) invoking proceedings under section 143(3) of the Income Tax Act, 1961 (in short, “the Act”) relating to A.Y. 2016-17.
2 Hinduja National Power Corporation Ltd.
The Revenue has raised the following grounds :
1. On the facts and circumstances of the case and in law, the CIT(A) has erred in allowing the Investment allowance U/s. 32AC & u/s. 32AD, and excess additional depreciation u/s. 32(1)(iia) of the Income tax Act, 1961. 2.The CIT(A) erred in noticing the provisions of Sec. 32AC, Sec.32AD of the Income Tax Act, 1961 which provides for allowance for a company engaged in the business of manufacture or production of any article or thing. 3.The CIT(A) erred in noticing the provisions of Sec. 32(1)(iia) of the Income Tax Act, 1961 which provides for additional depreciation @35% for a company engaged in the business of manufacture or production of any article or thing. 4.The CIT(A) erred in extending the benefit of Investment Allowance U/s. 32AC & u/s. 32AD of the Act to power generating companies by inheriting the provisions U/s. 32(1)(iia) of the Act, which specifically provides additional depreciation to companies engaged in the business of power generation in addition to companies engaged in the business of manufacture or production of any article or thing, which is against law. 5.The CIT(A) erred in relying on the various judicial pronouncements on different contexts where as in order to find out whether any assessee is entitled for any particular deduction, each case is required to be examined in the light of facts and circumstances of that very case and the very provisions of the Act.
Facts of the case, in brief, are that the assessee is a limited company engaged in the business of power generation, filed its return of income for AY 2016-17 on 30-11-2016, declaring a loss of ₹1751.67 crore, later revised on 16-03-2018. The case was selected for scrutiny under CASS to examine large refund claims, significant international transactions, low income compared to high loans/investments, and capital gains on property sales.
3 Hinduja National Power Corporation Ltd. Notices under sections 143(2) and 142(1) of the Act were issued, and the assessee provided necessary financial documents, including audit reports, annual reports, and transaction details. The company entered into international transactions of ₹172.67 crore and Special Domestic Transactions of ₹30.89 crore. The Transfer Pricing Officer determined no adjustment under section 92CA of the Act. The assessee claimed investment allowance under section 32AC amounting to ₹358.44 crore for new machinery installed in thermal power plants, contending that electricity generation constitutes manufacturing. However, the claim was disallowed as section 32AC does not explicitly include power generation companies. Similarly, the claim for investment allowance under section 32AD for ₹358.44 crore was disallowed, citing non-eligibility for manufacturing benefits. Additionally, excess depreciation of ₹271.70 crore under section 32(1)(iia) was disallowed as the assessee was entitled to depreciation only at 20% for assets used for less than 180 days, instead of the claimed 35%. Consequently, these disallowances were added back to the income returned, concluding the assessment with substantial adjustments. Thus, Assessing Officer completed the assessment u/s 143(3) of the Act dated 30.12.2019.
4. Feeling aggrieved by the order passed by the assessing officer, assessee filed appeal before the Ld. CIT(A) / NFAC, who granted part relief to the assessee by observing as under :
4 Hinduja National Power Corporation Ltd. “5.2. Ground 2 Vide this ground of appeal
, the Appellant has submitted that the AO has erred in not allowing the claim of appellant u/s 32AC of the Income tax act amounting to Rs. 358,44,95,902/-. It is observed from the assessment order that the AO has not allowed the claim of the Appellant made u/s 32AC by observing that; 6.08 Now coming to section 32AC, as por Memorandum to Finance Act. 2013. this section was introduced as a measure to promote socio-economic growth. "Incentive for acquisition and installation of new plant or machinery by manufacturing company. In order to encourage substantial investment in plant or machinery, it is proposed to insert a new section 32AC in the Income Tax Act to provide that where an assessee, being a company, (a) is engaged in the business of manufacture of an article or thing; and (b) invests a sum of more than Rs.100 crore in new assets (Plant or machinery) during the period beginning from 1st April, 2013 and ending on 31st March, 2015. In the said Memorandum, the power generating companies were not included. In the absence of specific inclusion of power generating units into the purview of section 32AC, the benefits mentioned in section 32(1)(ii) cannot be extended to power generation companies. Therefore, the case laws relied upon by the assessee, which were rendered in the context of 32(1)(lia) cannot be applied to provisions of section 32AC and accordingly, the claim of investment allowance claimed by the assessee at Rs.358,44,95,902/- is disallowed and added to the income returned. It can be observed from the above that the AO has categorically held that power generating units are excluded from the purview of section 32. AC of the Act. The Appellant has, however, submitted that it is entitled to the benefits of section 32AC as generation of power amounts to manufacture of an article or a thing. In this regard, the Appellant has placed reliance on the decision of Hon'ble Jurisdictional ITAT, Telangana in the case of Telangana State Power Generation vs Asst Commissioner of Income Tax dated
14. June 2021 (ITA No. 1424/H/2019). The Appellant has further placed reliance on the decision of Hon'ble Supreme Court in the case of State of Andhra Pradesh v. NTPC Ltd. AIR 2002 (SC). The Appellant has also placed reliance on some decisions of ITATs and High Courts. These have been mentioned at para 4 above. I have perused the case laws relied upon by the Appellant and I agree with the Appellant that these decisions have held that generation of power amounts to manufacture of an article or a thing. Hon'ble Supreme 5 Hinduja National Power Corporation Ltd.
Court in the case of State of Andhra Pradesh v. NTPC Ltd (supra) has held that electricity is 'goods". …. ….. It is further observed that Hon'ble Jurisdictional ITAT, Telangana has held in the case of Telangana State Power Generation Vs. Assessment Commissioner of Income Tax (supra) that the assessee engaged in generation of power is entitled to the benefits of section 32AC of the Act. …… ….. Thus, it can be observed from the above, Hon'ble Jurisdictional ITAT, Telangana has very categorically held that generation of electricity is akin to manufacture or production of any article or thing. While arriving at this conclusion, Hon'ble Jurisdictional ITAT has placed reliance on the decision of Hon'ble Supreme Court (supra) and also some High Courts. Therefore, respectfully following the decision of Hon'ble Jurisdictional ITAT, Telangana, I hold that the Appellant is entitled to the claim of deduction u/s 32AC of the Act. Accordingly, I direct the AO to delete the addition of Rs. 358,44,95,902/- made in the assessment order by denying the benefits available to the Appellant u/s 32AC of the Act. The Ground is, thus, allowed. 5.3. Ground 3 Vide this ground of appeal
, the Appellant has submitted that the AO has erred in not allowing the claim of appellant u/s 32AD of the Income tax act amounting to Rs. 358,44,95,902/-. It is observed from the assessment order that the AO has not allowed the claim of the Appellant made u/s 32AD by observing at para 7 of the order that: "The conditions laid down u/s 32AD is same as in the Section 32AC and as the assessee is not qualified for the investment allowance for not being in the business of manufacturing and production of any article or thing (as per detailed discussion in Para 6.01 to 6.07). Therefore, the claim of investment allowance u/s 32AD of Rs. 358,44,95,902/- is disallowed and added back to the income returned." I have already discussed in details at para 5.2. above that generation of power by the Appellant is akin to manufacture or production of any article or thing and, therefore, the Appellant is entitled to deduction claimed u/s 32AD as well. Accordingly, I direct the AO to delete the addition of Rs.
6. Hinduja National Power Corporation Ltd. 358,44,95,902/- made in the assessment order by denying the benefits available to the Appellant u/s 32AD of the Act. The Ground is, thus, allowed. 5.4. Ground 4. Vide this ground of appeal
, the Appellant has submitted that the AO has erred in restricting the claim of additional depreciation at a rate of 20 percent instead of 35 percent as claimed by the appellant u/s 32. (1)(ila) of the Income Tax act and thus, adding back an amount of Rs. 271,70,42,063/-. It is observed from the assessment order that the AO has restricted the claim of additional depreciation at a rate of 20 percent instead of 35 percent as claimed by the appellant u/s 32. (1)(iia)by observing at para 8 of the order that: "It is a fact from the above discussion (Para 6.01 to 6.07), that the assessee is not qualified for the additional depreciation @ of 35% as the assessee is not engaged in the business of manufacturing and production of any article or thing (as per detailed discussion in Para 6.00). Therefore, the claim of additional depreciation u/s 32(i)(iia) of Rs. 633,98,10,083/- is to be restricted to additional depreciation @ 20% of the new plant and machinery installed during the previous year-2015-16. The assessee installed the new plant and machinery of Rs. 3622, 76,80,208/-, the additional depreciation has to be allowed @ of 20% and the same is worked out at Rs. 362,27,68,020/- (half of 20% as the plant and machinery as the same is installed for less than 180 days). Therefore, the excess depreciation of Rs. 271,70,42,063/- (Rs. 6,33,98,10,083/- Rs. 362,27,68,020/-) is disallowed and added back to the income returned." I have already discussed in details at para 5.2. above that generation of power by the Appellant is akin to manufacture or production of any article or thing and, therefore, the Appellant is entitled to claim of additional depreciation u/s 32. (1)(iia) @35% and not @20% as has been concluded in the assessment order. Accordingly, I direct the AO to delete the addition of Rs. 271,70,42,063/-made in the assessment order by computing the quantum of additional depreciation @20% and not @35% as claimed by the Appellant. The Ground is, thus, allowed.”
7 Hinduja National Power Corporation Ltd.
Feeling aggrieved with the order of ld.CIT(A), Revenue is now in appeal before us.
Before us, CIT-DR submitted that the Ld.CIT(A) while granting relief to the assessee had relied upon the decision of the hon'ble Supreme Court in the case of State of Andhra Pradesh Vs. NTPC and also the decision of jurisdictional Tribunal in the case of Telangana State Power Generation Vs ACIT (ITA No.1424/Hyd/2019 dt.14.06.2021) for the purpose of coming to the conclusion that the assessee was entitled to deduction u/s 32AC of the Act. The CIT-DR had further submitted that the Ld.CIT(A) in para 5.3 of his order has also mentioned that the application of section 32AD is akin to manufacture or production of any article or thing, and therefore, assessee was entitled to deduction claimed under section 32AD of the Act as well. It was submitted that the Ld.CIT(A) had allowed the benefit of Section 32(1)(iia) of the Act, whereby the additional depreciation @ 20% was allowed. The CIT-DR for the purpose of proving the case of the assessee has submitted that the Assessing Officer while examining the case of the assessee has brought in various facts and the provision of law, which are available at paragraphs 6.00 to 8 of the assessment order, which is to the following effect :
8 Hinduja National Power Corporation Ltd. “6.00 Investment allowance u/s 32AC: The assessee claimed to have installed new machinery in new projects taken up at (i) Thermal Power Generation Plant, Visakhapatnam (Unit-1) installed new machinery costs exceeds 25 Crores on 11.01.2016 (ii). Boiler plant Visakhapatnam which is a backward area in the state of Andhra Pradesh, as per notification dated 28.09.2016 bearing No. SO 3075(E) (No. 85/2016) (F. No. 142/13/2015-TPL) On the said new machinery, the assessee claimed investment allowance u/s 32AC at Rs.358,44,95,902/- being 15% of the new machinery installed during the year. 6.01 The assessee was asked to substantiate their entitlement to the said allowance u/s 32AC. the assessee vide note dated 16-12-2019 submitted that the activity of the company comprises of production & distribution of electricity generated thru thermal power station, the meaning of Plant for the purpose of Section 32AC, 32AD & 32(i)(ila) shall include not only the machinery used in the electricity generation process, but also all the structures to hold the entire load of plant and machinery, which is an integral part of plant for the purpose of manufacture or generation of power. Therefore, installation of all these assets collectively comprises of a Power Generation Plant and any individual fragment thereof, has no meaningful independent identity, without the entire integrated power generation process equipment & structures. Further, the assessee also cited the definition of manufacturing u/s 2(29BA) of the Income Tax Act which is reproduced as under:- “Manufacture", with its grammatical variations, means a change in a non-living physical object or article or a thing- (a) Resulting in transformation of the object or article or thing into a new and distinct object or article or thing having a different name, character and use; or (b) Bringing into existence of a new and distinct object or article or thing with a different chemical composition or integral structure; 6.02 The definition is one, which accords with the law that has been laid by the Supreme Court, as one requiring an emergence of a distinct object or article or a thing having a different name, character and use. What has been added further in the definition is the recognition of processing resulting in a distinct object or article a thing with a different chemical composition or integral structure. 6.03 Thermal electricity is manufactured by burning coal and heating of weather through the turbines where coal and water are raw materials and the end product is electricity. The electricity so generated is a new article or a thing, which falls in the category of goods/ movable property since it can be transmitted, transferred, delivered, stored, possessed etc.
9 Hinduja National Power Corporation Ltd. in the same way like any other goods, Thus, generation of power amounts to manufacture of an article or a thing and is, therefore, eligible for deductions as claimed by the assessee. It is the submission of the assessee that since electricity is generated/produced, can be measured in units, transmitted, capable of being delivered and income can be earned from sale of electricity (it does not matter it is tangible or intangible form of energy), generation of power can be treated as manufacture of an article or thing. In support, the assessee referring to the following case laws submitted as under: Further it is to bring to your kind notice that the issue as to whether the generation of power amounts to production of an articular or goods was examined by ITAT B-Bench, Kolkata in the case of M/s Damodar Valley Corporation v. DCIT Circle (9), Kolkata and held that generation and distribution of electricity is akin to the manufacturing and hence the assesseo is eligible for additional deprecation u/s 32(1)(ii) (a) of the Act. Commissioner of Sales Tax v. MP Electricity Board (AIR 1970 SC 732) State of AP v. National Thermal Power Corporation Ltd (127 STC 280 SC) In the above decisions it has been held by the Apex court that the generation of power amounts to production of 'goods'. Attention is specifically drawn to the decision of the Supreme Court in the case of Madhya Pradesh Electricity Board (Supra). In the decided case the State Electricity Board generated and distributed electricity energy to various consumers. The question posed before the Supreme Court was whether the activity of generation, sale and supply of electricity comes within the purview of the Sales Tax Act. The assessee in that case contended before the Court that 'electricity generated was not goods as it did not have any physical existence or attributes or mas which goods possess The Supreme Court observed that the term 'goods' has to be understood in a wider sense and merely because electric energy is not tangible or cannot be moved it does not cease to be 'goods'. 6.04 The submissions made and the case laws relied upon by the assessee are considered. The moot point for consideration is whether the assessee is entitled to claim the incentive available u/s 32AC. The Income Tax Act provides various incentives in different sections to the companies engaged in the business of manufacture or production of any article or thing. The section in relation to investment allowance reads as under.
"32AC. (1A) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires 10 Hinduja National Power Corporation Ltd. and installs new asset and the amount of actual cost of such new assets (acquired during any previous year exceeds twenty five crore rupees and such assts are installed on or before 31st day of March, 2017, then, there shall be allowed a deduction of sum equal of fifteen per cent of the actual cost of such new assets for the assessment year relevant to that previous. 6.05 Before going into the discussion further, it is relevant to refer to the case law relied upon by the assessee in the case of Damodar Valley Corporation and NTPC (supra). Both these decisions are given in the context of allowability of additional depreciation u/s 32(1)(iia). Various judicial pronouncements on the issue make it clear that in order to find out whether any assessee is entitled for any particular deduction, each case is required to be examined in the light of facts and circumstances of that very case and the very provisions of the Act. In the light of above observations, let us examine the incentives provided by the Income Tax Act to power generation companies and the intention of Legislation behind providing such Incentives. 6.06 Section 32 (1)(iia) provides for additional depreciation to incentivize the promotion of capital goods industry, engaged in the business of manufacture or production of any article or thing, and this section came into force vide Finance Act 2002. Though the proviso relating to allowing additional depreciation u/s 32(1)(ia) starts with the words 'engaged in the business of manufacture of an article or thing' akin to the proviso 32AC(1A) where an assessee, being a company, engaged in the business of manufacture or production of any article or thing the incentive of additional depreciation was not considered for power generation companies. However, the said incentive of additional depreciation was extended to the power generation companies by an amendment to the section 32(1)(ila) by including the power generation companies in the said proviso with effect from 01.04.2013 by the Finance Act, 2012. In the Memorandum to Finance Act, 2012, the reasons for extending the benefit of additional depreciation to power generation companies was spelt out as under. Under the existing provisions, the benefit of initial depreciation is not available on the new machinery or plant installed by an assessee engaged in the business of generation or generation and distribution of power. In order to encourage new investment by the assessee engaged in the business of generation or generation and distribution of power, it is proposed to amend this section to provide that an assessee engaged in the business of generation or generation and distribution of power shall also be allowed initial depreciation at the rate of 20% of actual cost of new machinery or plant (other than ships and aircraft) acquired and installed in a previous year. This amendment will take effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years.
11 Hinduja National Power Corporation Ltd.
6.07 From the above, it can be seen that while bringing the provisions for additional depreciation under section 32(i)(ii) into existence, the power generating companies were not considered initially. It is only by an amendment to section 32(i)(ii), the power generating units were included to get the benefit of additional deprecation. It is referring to this position and provisions of section 32(1)(ii) only, theCourts in Damodar Valley Corporation and NTPC cases decided in the issue in favour of the assessee. 6.08 Now coming to section 32AC, as per Memorandum to Finance Act, 2013, this section was introduced as a measure to promote socio- economic growth, "Incentive for acquisition and installation of new plant or machinery by manufacturing company. In order to encourage substantial investment in plant or machinery, it is proposed to insert a new section 32AC in the Income Tax Act to provide that where an assessee, being a company, (a) is engaged in the business of manufacture of an article or thing; and (b) invests a sum of more than Rs. 100 crore in new assets (Plant or machinery) during the period beginning from 1st April, 2013 and ending on 31st March, 2015. In the said Memorandum, the power generating companies were not included. In the absence of specifio inclusion of power generating units into the purview of section 32AC, the benefits mentioned in section 32(1)(ii) cannot be extended to power generation companies. Therefore, the case laws relied upon by the assessee, which were rendered in the context of 32(1)(iia) cannot be applied to provisions of section 32AC and accordingly, the claim of investment allowance claimed by the assessee at Rs.358,44,95.502 is disallowed and added to the income returned. 7.00 Investment allowance u/s 32AD: On verification it is observed that the assessee also claimed additional investment allowance of Rs. 358,44,95,902/- u/s 32AD of IT Act. As per Section 32AD provides: "Where an assessee, 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, and acquires and installs any new asset for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April; 2020 in the said backward area, then, there shall be allowed a deduction of a sum equal to fifteen per cent of the actual cost of such new assets for the assessment year relevant to the previous year in which such new asset is installed. The conditions laid down u/s 32AD is same as in the Section 32AC and as the assessee is not qualified for the investment allowance for not being in the business of manufacturing and production of any article or thing (as per detailed discussion in Para 6.01 to 6.07). Therefore, the claim of investment 12 Hinduja National Power Corporation Ltd. allowance u/s 32AD of Rs. 358,44,95,902/- is disallowed and added back to the income returned. Addition: Rs. 358,44,95,902/- 8.00 Disallowance of excess additional depreciation u/s 32(1)(iia): On verification, it is observed that the assessee installed capital assets of Rs.3622,76,80,208/- (P&M) for less than 180 days during the previous year-2015-16 (AY-2016-17) and claimed additional depreciation u/s 32(i)(iia) of Rs.633,98,10,083/- (half of 35%). In this regard, it is pertinent to mention here that additional depreciation u/s 32(i)(iia) is allowable "Where an assessee, 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, and acquires and installs any new machinery or plant for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April; 2020 in the said backward area, then, there shall be allowed a deduction of a sum equal Ito thirty five per cent of the actual cost of such new machinery or plant for the assessment year relevant to the previous year in which such new machinery of plant is installed. It is a fact from the above discussion (Para 6.01 to 6.07), that the assessee is not qualified for the additional depreciation @ of 35% as the assessee is not engaged in the business of manufacturing and production of any article or thing (as per detailed discussion in Para 6.00). Therefore, the claim of additional depreciation u/s 32(i)(iia) of Rs. 633,98,10,083/- is to be restricted to additional depreciation @ 20% of the new plant and machinery installed during the previous year-2015-16, The assessee installed the new plant and machinery of Rs.3622,76,80,208/-, the additional depreciation has to be allowed @ of 20% and the same is worked out at Rs. 362,27,68,020/- (half of 20% as the plant and machinery as the same is installed for less than 180 days). Therefore, the excess depreciation of Rs. 271,70,42,063/- (Rs. 6,33,98,10,083/- Rs. 362,27,68,020/-) is disallowed and added back to the income returned. Addition: Rs. 271,70,42,063/- 13 Hinduja National Power Corporation Ltd.
The CIT-DR submitted that the scope and ambit of Section 32(1)(iia) of the Act, as well as Sections 32AC and 32AD, need to be examined. For this purpose, he drew our attention to the bare provisions of the Act and the explanatory Memorandum of the Finance Bill, by virtue of which these provisions were inserted. It was submitted, if the Parliament deem it appropriate to extend the benefit of these provisions, to the “business of the generation, transmission and distribution of the power”, then the legislature should have incorporated such assessee within the first proviso to Section 32(1)(iia), 32AC and 32AD of the Act. It was submitted that the “business of generation, transmission and distribution of the power” is conspicuously not appearing in either of the provisions to Section 32(1)(iia), 32AC and 32AD of the Act and therefore, these benefits as granted by the Ld.CIT(A) cannot be extended to the assessee.
8. Furthermore, the lower authorities and the jurisdictional Tribunal in the case of Telangana State Power Generation Vs ACIT (supra) has not examined the above said aspect and has merely given a finding relying upon the decision of hon'ble Supreme Court in the case of State of Andhra Pradesh Vs. NTPC (supra). Similarly, the decision of coordinate Bench of the Tribunal of Chennai Bench in the case of ACIT, Coimbatore Vs. M. Satish Kumar in (ITA No.718/Mds/2012 dt.28.09.2012) is not applicable as relevant provisions having not been discussed. It was submitted by the CIT-DR that the context in which the Hon'ble Supreme Court 14 Hinduja National Power Corporation Ltd. decided the issue in the case of State of Andhra Pradesh vs. NTPC (supra), the issue before the Hon'ble Supreme Court was whether the provisions of the VAT Act or the Sales Tax Act could be applied to the sale of electricity. In that context, the Hon'ble Supreme Court had held that the sale of electricity is akin to goods, and therefore, the provisions of the Goods and Sales Tax Acts are applicable. It was further submitted that the decision of the hon'ble Supreme Court in the case of CIT Vs. Sesa Goa Ltd reported in (2005) 142 Taxman 16 (SC) is not on the context of “business of generation, transmission and distribution of the power” but was in the context of production of iron ore and therefore, in that context, the hon'ble Supreme Court has decided the issue with respect to manufacturing / production of iron ore and our attention was drawn to paras 11 and 12 of the decision of hon'ble Supreme Court in the case of CIT Vs. Sesa Goa Ltd (supra), which is to the following effect :
“11. Learned counsel appearing on behalf of the assessee, correctly submitted that other provisions of the Act, particularly section 33(1)(b)(B) read with Item No. 3 of the Fifth Schedule to the Act, would show that mining of ore is treated as "production". Section 35-E also speaks of production in the context of mining activity. The language of these sections is similar to the language of section 32-A(2). There is no reason for us to assume that the word "production" was used in a different sense in section 32-A.
12. We are, therefore, of the opinion that extraction and processing of iron ore amounts to "production" within the meaning of the word in section 32- A(2)(b)(iii) of the Act and, consequently, the assessee is entitled to the benefit of section 32-A(1) of the Act. The question whether the High Court was correct in holding that the activity did not amount to “manufacture” is left open.”
15 Hinduja National Power Corporation Ltd. 8.1. Hence, it was submitted that the decision in the case of CIT Vs. Sesa Goa (supra) is not also not applicable to the facts of the present case.
9. Additionally, the CIT-DR has also drawn our attention to the decision of hon'ble Supreme Court in the case of Commissioner of Sales Tax, Madhya Pradesh Vs. Madhya Pradesh Electricity Board, Jabalpur dated 26.11.1968 reported in 1920 AIR 732, wherein the Hon'ble Supreme Court had the occasion to decide the applicability of Goods and Sales Tax on the supply of electricity, and in that context, the hon'ble Supreme Court has decided the issue. It was submitted by the CIT-DR that the literal and strict interpretation is required to be applied for deduction / expenditure of tax as held by the hon'ble Supreme Court in a catena of judgments, more particularly, in the case of (1) PCIT Vs. Wipro reported in 446 ITR 001. (2) Commissioner of Customs Vs. Dilip Kumar (2018) 5 SCC 1 and (3) CIT Vs. M/s. Calcutta Kintwears, Ludhiana reported in (2014) 6 SCC 444, are followed, then it is admittedly clear that the relief granted by the Ld.CIT(A) is in accordance with law and therefore, the appeal of the Revenue is required to be allowed.
16 Hinduja National Power Corporation Ltd.
10. Per contra, the ld.AR has submitted that the issue in the present case is covered in favour of the assessee and he has drawn our attention to the decision of the coordinate Bench of the Tribunal in the case of Telangana State Power Generation Vs ACIT (ITA No.1424/Hyd/2019 dt.14.06.2021) (supra), wherein the Tribunal has decided the issue in para 7 to 7.2, which is to the following effect :
“7. We have considered the rival submissions and perused the material on record as well as gone through the orders of revenue authorities. We find that the written submissions cited supra before us by the Id. AR of the assessee were also submitted before the CIT(A), but, the CIT(A) ignoring the written submissions of the assessee, confirmed the order of AO making disallowance on account of investment allowance u/s 32AC. We find force in the written submissions filed by the Id. AR of the assessee. In the case of Vedanta Ltd. (supra), the ITAT, Delhi Bench relying on the judgement of the Hon'ble Supreme Court in the case of Sesa Goa and NTPC Ltd, directed the AO to allow the claim of deduction u/s 32AC of the Act. 7.1. In the case of ACIT, Coimbatore Vs. M. Satish Kumar, the ITAT, Chennai Bench in dated 28/09/2012,on which reliance placed by the Assessee in its ground of appeal
, has held as under:
9. We have heard the submissions made by the respective parties and have also examined the judgements orders relied on by the A.R. of the assessee. A perusal of the judgements clearly show that generation of electricity is akin to manufacturing of a new product. In the instant case, electricity which may not be seen with the eyes, however, its effect can be seen and felt. The electricity can be transmitted, transferred, delivered, stored, possessed etc. The Hon'ble Supreme Court in the case of the CST VS. Madhya Pradesh Electricity Board (supra) has held that electricity falls within the definition of goods under the provisions of Sale of Goods Act. 1930. The Delhi Bench of the Tribunal in the case of NTPC Ltd. (supra) after a detailed examination of several judgements, Acts, Constitution of India, has concluded that the process of generation of electricity is akin to manufacture of an article or thing.
17 Hinduja National Power Corporation Ltd.
10. In view of the above, we are of the considered opinion that generation of electricity is a manufacturing activity. The assessee is involved in the manufacturing activity and fulfills the conditions as laid down under section 32(1)(ίία). The Government vide Finance Act. 2012 has amended the provisions of section 32(1)(iia) to include the business of generation or generation and distribution of power, eligible for benefit under section 32(1)(iia). Although the said amendment is with effect from 1.4.2013 but it gives impetus to the view that generation of electricity is a manufacturing process and qualifies for the benefits under section 32(1)(iia). In view of the above, the order of the CIT(A) is upheld and the appeal of the Revenue is dismissed being devoid of merit. 7.2 As the issue in dispute is similar to the issue decided by the ITAT, Delhi in Vedanta Ltd. and the Chennai Bench has decided that generation of electricity is a manufacturing activity decision cited supra, The electricity can be transmitted, transferred, delivered, stored, possessed etc. The Hon'ble Supreme Court in the case of the CST Vs. Madhya Pradesh Electricity Board (supra) has held that electricity falls within the definition of goods under the provisions of Sale of Goods Act, 1930. Therefore, respectfully following the above judgements, we set aside the order of CIT(A) and direct the AO allow the assessee's claim of deduction u/s 32AC of the Act. Accordingly, the ground raised by the assessee on this issue is allowed.”
11. Similarly, the ld.AR has also drawn our attention to the decision of Chennai Tribunal in the case of ACIT, Coimbatore Vs. M. Satish Kumar in (ITA No.718/Mds/2012 dt.28.09.2012) (supra), which is available at pages 22 to 24 of the paper book and in the said decision, the co-ordinate Bench of the Tribunal, Chennai, in paras 7 to 10 has decided the issue as under :
“7. The authorised representative pointed out that the observation of the hon'ble Supreme Court of India in the aforesaid case clearly shows that the term "production and generation" can be used interchangeably in the case of electricity and generation of electricity can also be termed as production of electricity. The authorised representative in order to further 18 Hinduja National Power Corporation Ltd. clarify the fact that production or generation of electricity is the same as manufacturing activity relied on the order of the Delhi Bench of the Tribunal in the case of National Thermal Power Corporation Ltd. v. Dy. CIT 2012 (5) TMI 127 ITAT Delhi, wherein the Tribunal has held that "the process of generation of electricity is akin to manufacture or production of an article or thing." The authorised representative has also referred to the judgment in the case of India Cine Agencies v. CIT [2009] 308 ITR 98/[2008] 175 Taxman 361 (SC) and contended that the term "production" and "manufacture" signify the same meaning, rather the word "production" has a wider connotation than the word "manufacture". While every manufacture can be characterised as production, every production need not amount to manufacture. The word "production" or "produce" when used in juxtaposition with the word "manufacture" takes in bringing into existence of new goods by a process which may or may not amount to manufacture.
8. The authorised representative strongly supported the order passed by the Commissioner of Income-tax (Appeals) and prayed for the dismissal of appeal of the Revenue.
We have heard the submissions made by the respective parties and have also examined the judgments orders relied on by the authorised representative of the assessee. A perusal of the judgments clearly shows that generation of electricity is akin to manufacturing of a new product. In the instant case, electricity which may not be seen with the eyes, however, its effect can be seen and felt. The electricity can be transmitted, transferred, delivered, stored, possessed, etc. The hon'ble Supreme Court in the case of the Madhya Pradesh Electricity Board, (supra) has held that electricity falls within the definition of goods under the provisions of Sale of Goods Act, 1930. The Delhi Bench of the Tribunal in the case of National Thermal Power Corporation Ltd. (supra) after a detailed examination of several judgments, Acts, Constitution of India, has concluded that the process of generation of electricity is akin to manufacture of an article or thing.
In view of the above, we are of the considered opinion that generation of electricity is a manufacturing activity. The assessee is involved in the manufacturing activity and fulfils the conditions as laid down under section 32(1)(iia). The Government vide Finance Act, 2012 has amended the provisions of section 32(1)(iia) to include the business of generation or generation and distribution of power, eligible for benefit under section 32(1)(iia). Although the said amendment is with effect from April 1, 2013 but it gives impetus to the view that generation of electricity is a manufacturing process and qualifies for the benefits under section 32(1)(iia). In view of the above, the order of the Commissioner of Income- 19 Hinduja National Power Corporation Ltd. tax (Appeals) is upheld and the appeal of the Revenue is dismissed being devoid of merit.”
12. Similarly, the ld.AR has also drawn our attention to the decision of the Delhi Bench in the case of Vedantha Ltd. Vs. ACIT (ITA No.12/Del/2020 dt.21.09.2020), particularly to paragraphs 78 to 81 of the order, which are as follows :
“78. We have given thoughtful consideration to the rival contentions. In so far as mining activities is concerned, we have considered an identical issue at Para 56 hereinabove, wherein we have referred to the decision of the Hon'ble Supreme Court holding that the assessee is eligible for claim u/s 32(1)(iia) of the Act. For similar reasons, the assessee is also eligible for allowance u/s 32AC of the Act.
In so far as the disallowance made on the ground that generation of power does not amount to manufacture or production of goods, in our considered opinion, this issue is no longer res Integra and has been conclusively settled by the Hon'ble Apex Court in the case of Commissioner of Sales Tax, MP Vs Madhya Pradesh Electricity Board 2SCR939 wherein it has been held that electric energy would be covered under the definition of 'goods'.
The Hon'ble Jurisdictional High Court of Delhi in the case of NTPC Sail Power Company in had the occasion to consider a similar issue. Relevant findings of the Hon'ble High Court read as under: "6. Section 32(1)(iia) of the Act as it stood at the relevant time, read as follows: "32. Depreciation: (1) In respect of depreciation of - (2) (iia) In the case of 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, a further sum 20 Hinduja National Power Corporation Ltd. equal to twenty per cent of the actual cost of such machinery or plant shall be allowed as deduction under clause (ii) 7. Learned counsel for the assessee has drawn our attention to the judgement of the Karnataka High Court dated 16.09.2014 in [Commissioner of Income Tax vs. The Hutti Gold Mines Co Ltd) wherein the question of additional depreciation was considered and it was held as follows: 3. The material on record shows that the assessee is generating electricity through windmill as a second line of business. It is a product of the assessee company. It is covered under the words "article" or "thing", which is tradable/identifiable. In other words, the electricity falls within the definition of Sale of Goods Act, 1930, and process of generation of electricity is akin to manufacture or production of an "article" or "thing". The power generated need not necessarily be used in the production of assessee's own products namely mining and extraction of gold. The use of electricity in the manufacturing activity of the core business of the assessee is not a precondition for the grant of additional depreciation under the statute. Therefore, we do not see any merit in this appeal. Accordingly, this appeal is rejected.
However, we have not gone into the question of applicability of Section 32(1)(iia) of the Income Tax Act, 1961, and the question as to whether clarificatory or not is kept open to be decided at proper time." Although the Karnataka High Court held that it was not going into the question of Section 32(1)(iia) and the question of whether the subsequent amendment was clarificatory, the analysis of the Court is in our view also applicable to the interpretation of the said provision for the purposes of the present dispute.
Similarly, it is clear that electricity has been held to be "goods" for the purposes of sales tax in the Constitution Bench judgment of the Supreme Court in State of Andhra Pradesh vs. NTPC Ltd AIR 2002 SC 1895. The Supreme Court, in that judgment held as follows: 20. Before we deal with the constitutional aspects let us first state what electricity is, as understood in low, and what are its relevant characteristics. It is settled with the pronouncement of this Court in Commissioner of Sales Tax, Madhya Pradesh, Indore v. Madhya Pradesh Electricity Board, Jabalpur 1969(2) SCR 939 that electricity is goods. The definition of goods as given in Article 366 21 Hinduja National Power Corporation Ltd. (12) of the Constitution was considered by this Court and it was held that the definition in terms is very wide according to which "goods" means all kinds of moveable property. The term "moveable property" when considered with reference to "goods" as defined for the purpose of sales-tax cannot be taken in a narrow sense and merely because electrical energy is not tangible or cannot be moved or touched like, for instance, a piece of wood or a book it cannot cease to be moveable property when it has all the attributes of such property. It is capable of abstraction, consumption and use which if done dishonestly is punishable under Section 39 of the Indian Electricity Act, 1910. If there can be sale and purchase of electrical energy like any other moveable object, this Court held that there was no difficulty in holding that electric energy was intended to be covered by the definition of "goods" However, A.N.Grover, J., speaking for three-Judge Bench of this Court went on to observe that electric energy "can be transmitted, transferred, delivered, stored, possessed etc. in the same way as any other moveable property". In this observation we agree with Grover. J., on all other characteristics of electric energy except that it can be stored and to the extent that electric energy con be stored, the observation must be held to be erroneous or by oversight. The science and technology till this day have not been able to evolve any methodology by which electric energy can be preserved or stored."
9. The Tribunal's judgment in NTPC vs. DCIT[relied upon in the orders of the CIT(A) as well as the Tribunal in the present case] followed this judgment of the Supreme Court to hold that electricity has all the necessary trappings of "articles" or "things" and the benefit of additional depreciation cannot be denied.
10. As held by the Constitution Bench, electricity is capable of abstraction, transmission, transfer, delivery, possession, consumption and use like any other movable property. Following the same logic, to deny the benefit of additional depreciation to a generating entity on the basis that electricity is not an "article" or "thing" is in our view an artificially restrictive meaning of the provision. The benefit of additional depreciation under Section 32(1)(iia) has, therefore, been rightly granted to the assessee by the concurrent judgments of the CIT(A) and the Tribunal.
11. We also note that, w.e.f. from 01.04.2013, the provision has been amended by the Finance Act, 2012 and assessees engaged in the generation of power have expressly been included in the ambit thereof.
22 Hinduja National Power Corporation Ltd.
12. For the above reasons, the Court is of the opinion that no substantial question of low arises. The oppeal is dismissed." 81. In light of the decision of the Hon'ble Supreme Court in the case of Sesa Goa and NTPC Sail Power Co. Pvt Ltd [supra], we direct the Assessing Officer to allow the claim of deduction u/s 32AC of the Act. This ground is, accordingly, allowed.”
Lastly, the ld.AR has also drawn our attention to the decision of co-ordinate Bench of the Tribunal, Delhi, in the case of ACIT Vs. M/s.Interocean Shipping (India) Pvt. Ltd., wherein the co- ordinate Bench of the Tribunal in paragraphs 7 to 10 has held as under :
“7. We have heard both the parties and perused the records. The Ld. DR relied upon the order of the Assessing Officer and reiterated the ground taken that the Ld. CIT(A) has relied upon the case laws, with respect to addition u/s 32(1)(iia), whereas the instant case is related to the claim u/s 32AC of the Act.
8. Per Contra, the Ld. counsel for the assessee relied upon the order of the Ld. CIT(A) and submitted that it is now settled that the generation of power/electricity amounts to the manufacturing and production of any article or not. In this regard, he relied upon the case laws referred by the Ld. CIT(A) and decision of the Hon'ble Madras High Court in the case of CIT vs Atlas Export Enterprises (2015) 57 taxmann.com 285 (Madras).
9. We have carefully considered the submission. We note that it is now well settled proposition that generation of electricity amounts to ITA N8335/01/2015 erotne Shipping manufacture or production of any article or they qualifying for deduction u/s 32AC. The case laws of Tribunal and Hon'ble High Courts above, duly supports this proposition. No contrary decision from Hon'ble jurisdictional High Court was cited before us. Hence, we uphold the well reasoned order of Ld. CIT(A).”
On the basis of the above, the ld.AR submitted that the Ld.CIT(A) has rightly decided the issue in paragraphs 5.2 to 5.4. of 23 Hinduja National Power Corporation Ltd. their order (which was reproduced at Para 4 of this order), and that there is no discrepancy in the decision passed by the Ld.CIT(A).
We have heard the rival submissions and perused the material on record. Before we deal with the respective contentions and the impact of the decisions cited by both the parties, it is essential to delineate the scheme of the Act, which provides the manner in which the computation of income of business is required to be made. Firstly, we refer to section 32(1)(iia) of the Act, which reads as under :
24 Hinduja National Power Corporation Ltd. 25 Hinduja National Power Corporation Ltd. 26 Hinduja National Power Corporation Ltd. 27 Hinduja National Power Corporation Ltd. 28 Hinduja National Power Corporation Ltd.
Similarly, 32AC and 32AD of the Act provides as under:
32AC. Investment in new plant or machinery.— (1) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new asset after the 31st day of March, 2013 but before the 1st day of April, 2015 and the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees, then, there shall be allowed a deduction,— (a) for the assessment year commencing on the 1st day of April, 2014, of a sum equal to fifteen per cent. of the actual cost of new assets acquired and installed after the 31st day of March, 2013 but before the 1st day of April, 2014, if the aggregate amount of actual cost of such new assets exceeds one hundred crore rupees; and (b) for the assessment year commencing on the 1st day of April, 2015, of a sum equal to fifteen per cent. of the actual cost of new assets acquired and installed after the 31st day of March, 2013 but before the 1st day of April, 2015, as reduced by the amount of deduction allowed, if any, under clause (a). [(1A) Where an assessee, being a company, engaged in the business of manufacture or production of any article or thing, acquires and installs new assets and the amount of actual cost of such new assets [acquired during any previous year exceeds twenty-five crore rupees and such assets are installed on or before the 31st day of March, 2017], then, there shall be allowed a deduction of a sum equal to fifteen per cent. of the actual cost of such new assets for the assessment year relevant to that previous year: [Provided that where the installation of the new assets are in a year other than the year of acquisition, the deduction under this sub-section shall be allowed in the year in which the new assets are installed:] [Provided further that] no deduction under this sub-section shall be allowed for the assessment year commencing on the 1st day of April, 2015 to the assessee, which is eligible to claim deduction under sub- section (1) for the said assessment year.
29 Hinduja National Power Corporation Ltd. (1B) No deduction under sub-section (1A) shall be allowed for any assessment year commencing on or after the 1st day of April, 2018.] (2) If any new asset acquired and installed by the assessee is sold or otherwise transferred, except in connection with the amalgamation or demerger, within a period of five years from the date of its installation, the amount of deduction allowed under sub-section (1) [or sub-section (1A)] in respect of such new asset shall be deemed to be the income of the assessee chargeable under the head “Profits and gains of business or profession” of the previous year in which such new asset is sold or otherwise transferred, in addition to taxability of gains, arising on account of transfer of such new asset. (3) Where the new asset is sold or otherwise transferred in connection with the amalgamation or demerger within a period of five years from the date of its installation, the provisions of sub-section (2) shall apply to the amalgamated company or the resulting company, as the case may be, as they would have applied to the amalgamating company or the demerged company. (4) For the purposes of this section, “new asset” means any new plant or machinery (other than ship or aircraft) but does not include— (i) any plant or machinery which before its installation by the assessee was used either within or outside India by any other person; (ii) any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house; (iii) any office appliances including computers or computer software; (iv) any vehicle; or (v) any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year.] [32AD. Investment in new plant or machinery in notified backward areas in certain States.— 30 Hinduja National Power Corporation Ltd.
(1) Where an assessee, 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, and acquires and installs any new asset for the purposes of the said undertaking or enterprise during the period beginning on the 1st day of April, 2015 and ending before the 1st day of April, 2020 in the said backward area, then, there shall be allowed a deduction of a sum equal to fifteen per cent. of the actual cost of such new asset for the assessment year relevant to the previous year in which such new asset is installed. (2) If any new asset acquired and installed by the assessee is sold or otherwise transferred, except in connection with the amalgamation or demerger or re-organisation of business referred to in clause (xiii) or clause (xiiib) or clause (xiv) of section 47, within a period of five years from the date of its installation, the amount of deduction allowed under sub- section (1) in respect of such new asset shall be deemed to be the income of the assessee chargeable under the head “Profits and gains of business or profession” of the previous year in which such new asset is sold or otherwise transferred, in addition to taxability of gains, arising on account of transfer of such new asset. (3) Where the new asset is sold or otherwise transferred in connection with the amalgamation or demerger or re-organisation of business referred to in clause (xiii) or clause (xiiib) or clause (xiv) of section 47 within a period of five years from the date of its installation, the provisions of sub-section (2) shall apply to the amalgamated company or the resulting company or the successor referred to in clause (xiii) or clause (xiiib) or clause (xiv) of section 47, as the case may be, as they would have applied to the amalgamating company or the demerged company or the predecessor referred to in clause (xiii) or clause (xiiib) or clause (xiv) of section 47. (4) For the purposes of this section, “new asset” means any new plant or machinery (other than a ship or aircraft) but does not include— (a) any plant or machinery, which before its installation by the assessee, was used either within or outside India by any other person; (b) any plant or machinery installed in any office premises or any residential accommodation, including accommodation in the nature of a guest house; (c) any office appliances including computers or computer software; 31 Hinduja National Power Corporation Ltd. (d) any vehicle; or (e) any plant or machinery, the whole of the actual cost of which is allowed as deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head “Profits and gains of business or profession” of any previous year.]
Firstly, we will deal with the issue under Section 32(1)(iia) of the Act. A bare reading of the said provision, make it abundantly clear that in case, any new machinery or plant (other than ships and aircraft), acquired and installed after 31.03.2005 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 qualifies for an additional depreciation of 20% of the actual cost of such machinery or plant. Clause (ii) of Section 32 deals with the calculation of depreciation on the written down value of the block of assets. Under Section 32(1)(iia), the assessee is entitled to an additional deduction of 20% over and above the normal depreciation, provided the new machinery or plant is acquired after 31.03.2005. Further, an amendment effective from 01.04.2016 inserted by way of proviso to Section 32(1)(iia), a beneficial provision applicable to the states of Andhra Pradesh, Bihar, Telangana, and West Bengal. This proviso allows an enhanced additional depreciation of 35% instead of 20% for undertakings or enterprises engaged in manufacturing or producing any article or thing, provided they were set up on or after 01.04.2015. However, upon a closer scrutiny of the proviso to Section 32(1)(iia) and the main Section 32(1)(iia) of the Act, it is 32 Hinduja National Power Corporation Ltd. evident that “the business of generation, transmission, and distribution of power” has not been included within the scope of the enhanced benefit of 35%. The enhanced rate of depreciation was specifically restricted to undertakings or enterprises set up for the manufacturing or production of any article or thing in the specified states.
In light of the above, we are of the opinion that 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.
18.1 At this stage, we would like to reproduce the scope of proviso to the provision. In this regard, the scope of proviso to the Provision has been discussed by Bennion on Statutory Interpretation Book at page 674 as under :
33 Hinduja National Power Corporation Ltd. “Section 242 The proviso A proviso is a formula beginning ‘Provided that …….’, which is placed at the end of section or subsection of an Act, or of a paragraph or sub- paragraph of a Schedule, and the intention of which is to narrow the effect of the preceding words.”
18.2 Similarly, Justice G.P. Singh in his book Principle of Statutory Interpretation, at pages 185 to 187, after referring various judgments had discussed the scope of proviso to the Provision and written as under :
9. PROVISO (a) Its real nature The normal function of a proviso is to except something out of the en- setment or to qualify something enacted therein which but for the proviso would be within the purview of the enactment. As stated by LUSH, J., "When one finds a proviso to a section the natural presumption is that, but for the proviso, the enacting part of the section would have included the subject-matter of the proviso." In the words of LORD MACMILLAN: "The proper function of a proviso is to except and to deal with a case which would otherwise fall within the general language of the main enactment, and its effect is confined to that case. The proviso may, as LORD MACNAGHTEN laid down, be "a qualification of the preceding enactment which is expressed in terms too general to be quite accurate". The gen eral rule has been stated by HIDAYATULLAH, J., in the following words: "As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment, and ordinarily, a proviso interpreted as 15 not rule 12 And in the words of KAPUR, J stating a general rule". "The proper function of a proviso is that it qualifies the generality of the main enactment by providing an exception and taking out as it were, from the main enactment, a portion which, but for the proviso would fall within the main enactment. Ordinarily it is foreign to the proper function of pro viso to read it as providing something by way of an addendum or dealing with a subject which is foreign to the main enactment." Further, a proviso is not normally construed as nullifying the enactment or as taking away 34 Hinduja National Power Corporation Ltd. completely a right conferred by the enactment. As a consequence of the aforesaid function of a true proviso certain rules follow.
18.3. From the reading of the above, it is clear that 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.
18.4. 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 35 Hinduja National Power Corporation Ltd. 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). In view of the above, the argument raised by the Revenue is valid, and the appeal on this ground is required to be allowed.
The Ld.A.R. while referring to the decisions in Vedanta Ltd Vs. ACIT (supra), and ACIT Vs. M. Satishkumar (supra), has argued that the generation of electricity constitutes the manufacturing of an article or thing. It was emphasized that electricity has been recognized as an article or thing by the Hon'ble Supreme Court in judgments such as Commissioner of Sales Tax, Madhya Pradesh vs. Madhya Pradesh Electricity Board, Jabalpur (supra), State of Andhra Pradesh vs. NTPC (supra), and CIT vs. Sesa Goa Ltd. (supra). Therefore, it was contended that the manufacturing of electricity attracts the provisions of Section 32, entitling the assessee to claim depreciation at the enhanced rate of 35% under the proviso to Section 32(1)(iia) of the Act.
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The next issue came for our consideration is deduction claimed u/s 32AC and 32AD. The bare reading of the provisions reproduced herein above make it abundantly clear that the language used in Section 32AC and 32AD are parametria similar to the language used in Proviso to Section 32(1)(iia) of the Act. In our view the Legislature deem it appropriate to restrict the benefit of Section 32AC and 32AD only to such class of assessee, which are engaged in the business of manufacture or production of any article of thing acquires any new assets etc. and had not deliberately extended to “business of power generation, transmission and distribution. The benefit of Section 32AC and 32AD of the Act, were extended only to the assessee engaged in the business of manufacture of production of any article of thing acquires any new assets etc and was not extended to the assessee which are engaged in the “business of power generation, transmission and distribution”. As held by us, that “business of power generation, transmission and distribution” is altogether a different class of assessee, for which the restrictive / limited benefit have been given by the Legislature. Quite contrary to this, the benefit under Proviso to Section 32(1)(iia), 32AC and 32AD of the Act has been given to the first class i.e., the assessee which are engaged in the business of manufacture of production of any article of thing acquires any new assets etc. In our view, 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 37 Hinduja National Power Corporation Ltd. 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 amendment to Section 32(1)(iia) of the Act was carried out w.e.f. 01.04.2013 whereby a distinct class i.e., “the business of generation, transmission, and distribution of power” was added to the already existing class of assessee engaged in “the business of manufacturing or production of any article or thing”. However, despite this, when the legislature introduced Sections 32AC and 32AD w.e.f. 01.04.2014 and 01.04.2016, it deem it appropriate not to extend the benefit of Section 32AC and 32AD of the Act to the assessee engaged in “generation, transmission, and distribution of power sector” and had only given the benefit the assessee engaged in “the business of manufacturing or production of any article or thing”. Therefore, in our considered opinion, the Ld. CIT(A) has not considered the above said important aspect of the provisions and had wrongly decided the issue by relying on the judgment of the Hon'ble Supreme Court rendered in different context and dealing with the other law.
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The law has evolved significantly since the passing of the judgment in the case of State of Andhra Pradesh Vs. NTPC (supra) and also in the case of Commissioner of Sales Tax, Madhya Pradesh. These two judgments, as referred to by the CIT- DR as well as Ld.A.R. were focused on the specific provisions related to the interpretation of duties on the sale of electricity and did not address the issue of deduction or additional depreciation under Sections 32, 32AC, or 32AD of the Act.
The Hon'ble Supreme Court in the cases of Commissioner of Customs Vs. Dilip Kumar (supra) and PCIT Vs. Wipro (supra) 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. We may rely on the following observations of the Hon'ble Supreme Court in the case of PCIT Vs. Wipro (supra), as under:
“7. It is the case on behalf of the Revenue that as there was a non- compliance of twin conditions under Section 10B (8) of the IT Act, namely, the declaration under Section 10B (8) was not submitted along with the original return of income, the assessee shall not be entitled to the exemption/benefit under Section 10B (8) of the IT Act. According to the Revenue, furnishing of declaration under Section 10B (8) before the due date of filing original return of income is also mandatory. On the other hand, it is the case on behalf of the assessee, which has been accepted by the High Court, that the requirement of submission of declaration 39 Hinduja National Power Corporation Ltd. under Section 10B (8) is mandatory in nature, but the time limit within which the declaration is to be filed is directory in nature. While considering the issue involved, whether the time limit within which the declaration is to be filed as provided under Section 10B (8) is mandatory or directory, Section 10B (8) is required to be referred to, which reads as under:
“10B (8) Notwithstanding anything contained in the foregoing provisions of this section, where the assessee, before the due date for furnishing the return of income under sub-section (1) of Section 139, furnishes to the Assessing Officer a declaration in writing that the provisions of this section may not be made applicable to him, the provisions of this section shall not apply to him for any of the relevant assessment years.” On a plain reading of Section 10B (8) of the IT Act as it is, i.e., “where the assessee, before the due date for furnishing the return of income under sub-section (1) of section 139, furnishes to the Assessing Officer a declaration in writing that the provisions of Section 10B may not be made applicable to him, the provisions of Section 10B shall not apply to him for any of the relevant assessment years”, we note that the wording of the Section 10B (8) is very clear and unambiguous. For claiming the benefit under Section 10B (8), the twin conditions of furnishing the declaration to the assessing officer in writing and that the same must be furnished before the due date of filing the return of income under sub-section (1) of section 139 of the IT Act are required to be fulfilled and/or satisfied. In our view, both the conditions to be satisfied are mandatory. It cannot be said that one of the conditions would be mandatory and the other would be directory, where the words used for furnishing the declaration to the assessing officer and to be furnished before the due date of filing the original return of income under sub- section (1) of section 139 are same/similar. It cannot be disputed that in a taxing statute the provisions are to be read as they are and they are to be literally construed, more particularly in a case of exemption sought by an assessee.
9. In such a situation, filing a revised return under section 139(5) of the IT Act claiming carrying forward of losses subsequently would not help the assessee. In the present case, the assessee filed its original return under section 139(1) and not under section 139(3). Therefore, the Revenue is right in submitting that the revised return filed by the assessee under section 139(5) can only substitute its original return under Section 139(1) and cannot transform it into a return under Section 139(3), in order to avail the benefit of carrying forward or set-off of any 40 Hinduja National Power Corporation Ltd. loss under Section 80 of the IT Act. The assessee can file a revised return in a case where there is an omission or a wrong statement. But a revised return of income, under Section 139(5) cannot be filed, to withdraw the claim and subsequently claiming the carried forward or set- off of any loss. Filing a revised return under Section 139(5) of the IT Act and taking a contrary stand and/or claiming the exemption, which was specifically not claimed earlier while filing the original return of income is not permissible. By filing the revised return of income, the assessee cannot be permitted to substitute the original return of income filed under section 139(1) of the IT Act. Therefore, claiming benefit under section 10B (8) and furnishing the declaration as required under section 10B (8) in the revised return of income which was much after the due date of filing the original return of income under section 139(1) of the IT Act, cannot mean that the assessee has complied with the condition of furnishing the declaration before the due date of filing the original return of income under section 139(1) of the Act. As observed hereinabove, for claiming the benefit under section 10B (8), both the conditions of furnishing the declaration and to file the same before the due date of filing the original return of income are mandatory in nature.
10. Even the submission on behalf of the assessee that it was not necessary to exercise the option under section 10B (8) of the IT Act and even without filing the revised return of income, the assessee could have submitted the declaration in writing to the assessing officer during the assessment proceedings has no substance and the same cannot be accepted. Even the submission made on behalf of the assessee that filing of the declaration subsequently and may be during the assessment proceedings would have made no difference also has no substance. The significance of filing a declaration under section 10B (8) can be said to be co-terminus with filing of a return under section 139(1), as a check has been put in place by virtue of section 10B (5) to verify the correctness of claim of deduction at the time of filing the return. If an assessee claims an exemption under the Act by virtue of Section 10B, then the correctness of claim has already been verified under section 10B (5). Therefore, if the claim is withdrawn post the date of filing of return, the accountant’s report under section 10B (5) would become falsified and would stand to be nullified.
Now so far as the reliance placed upon the decision of this Court in the case of G.M. Knitting Industries Pvt. Ltd. (supra), relied upon by the learned counsel appearing on behalf of the assessee is concerned, Section 10B (8) is an exemption provision which cannot be compared with claiming an additional depreciation under section 32(1) (ii-a) of the Act.
41 Hinduja National Power Corporation Ltd. As per the settled position of law, an assessee claiming exemption has to strictly and literally comply with the exemption provisions. Therefore, the said decision shall not be applicable to the facts of the case on hand, while considering the exemption provisions. Even otherwise, Chapter III and Chapter VIA of the Act operate in different realms and principles of Chapter III, which deals with “incomes which do not form a part of total income”, cannot be equated with mechanism provided for deductions in Chapter VIA, which deals with “deductions to be made in computing total income”. Therefore, none of the decisions which are relied upon on behalf of the assessee on interpretation of Chapter VIA shall be applicable while considering the claim under Section 10B (8) of the IT Act.
Even the submission on behalf of the assessee that the assessee had a substantive statutory right under Section 10B (8) to opt out of Section 10B which cannot be nullified by construing the purely procedural time requirement regarding the filing of the declaration under Section 10B (8) as being mandatory also has no substance. As observed hereinabove, the exemption provisions are to be strictly and literally complied with and the same cannot be construed as procedural requirement.”
Similarly, in the case of Commissioner of Customs Vs. Dilip Kumar (supra), the Hon'ble Supreme Court in paragraph 40 has held as under : “40. After considering the various authorities, some of which are adverted to above, we are compelled to observe how true it is to say that there exists unsatisfactory state of law in relation to interpretation of exemption clauses. Various Benches which decided the question of interpretation of taxing statute on one hand and exemption notification on the other, have broadly assumed (we are justified to say this) that the position is well settled in the interpretation of a taxing statute: It is the law that any ambiguity in a taxing statute should enure to the benefit of the subject/assessee, but any ambiguity in the exemption clause of exemption notification must be conferred in favour of revenue – and such exemption should be allowed to be availed only to those subjects/assesses who demonstrate that a case for exemption squarely falls within the parameters enumerated in the notification and that the claimants satisfy all the conditions precedent for availing exemption. Presumably for this reason 42 Hinduja National Power Corporation Ltd. the Bench which decided Surendra Cotton Oil Mills Case (supra) observed that there exists unsatisfactory state of law and the Bench which referred the matter initially, seriously doubted the conclusion in Sun Export Case (supra) that the ambiguity in an exemption notification should be interpreted in favour of the assessee.”
Similarly, the Delhi Tribunal in the case of Vedanta Ltd. Vs. ACIT (supra) has relied on the decision of NTPC reported in AIR 2002 SC 1895 (supra), and concluded that the assessee is entitled to a deduction under Section 32AC of the Act. However, as mentioned earlier, the Hon'ble Supreme Court in the case of Sesa Goa Ltd (supra), was not called upon to interpret either the proviso to Section 32 or Section 32AC of the Act whether the provision of electricity, transmission, and distribution would amount to production or not. At no point did the Hon'ble Supreme Court consider whether the generation, transmission, and distribution of power would fall within the scope of manufacturing or production of any article or thing. As stated earlier, when the Legislature has specifically used different terms for “manufacturing and production of any article or thing” and separate treatment has been given for business of generation, transmission or distribution of power, then it will be against the cardinal principle of interpretation to wrongly assume that business of generation, transmission or distribution of power were subsumed in “manufacturing and production of any article or thing”. In our view, no provision of law can be interpreted which may result in rendering the word/s used in the provision as 43 Hinduja National Power Corporation Ltd. superfluous or redundant. It is not permissible to add words or filling the gap or lacuna, by this Tribunal as argued by the ld.AR. On the other hand, the Tribunal is duty bond to make efforts to give meaning to each and every word used by the Legislature. 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. Therefore, the decision in these cases is not applicable here. We are of the considered opinion that the judgments of the Hon'ble Supreme Court were not based on the interpretation of the relevant statutory provisions, and the questions posed to the Court were not concerning the statute in its present context. In light of the above, the grounds raised by the Revenue are allowed.
44 Hinduja National Power Corporation Ltd.
In the result, the appeal of Revenue is allowed.
Order pronounced in the Open Court on 8th January, 2025.