Commissioner of Income Tax vs K.K. Enterprises

These two appeals preferred by the revenue are having a common question for our consideration in the terms that "whether the assessees are rightly declared entitled by the ITAT and the CIT(A) to have depreciation as per Appendix-1 to the Income Tax Rules, 1962 for the cost incurred in civil work and foundation, electrical items, components in installation and common power evacuation while installing windmills?"

The Assessing Officer determined total income of the appellants by disallowing the depreciation for the cost incurred in civil work, foundation, electrical components, installation and common power evacuation while installing windmills by holding that the items aforesaid are not covered within the term "windmills and specially designed devises which run on windmills".

A challenge to the same was given by the assessee before the CIT(A), Udaipur and that came to be accepted with finding that all the items concerned are integral part of "windmill". The civil work and foundation is necessary for strong foundation and no windmill could be installed without having a strong foundation. As such, depreciation on investment for civil work and foundation at the rate which the depreciation is allowed to windmill is applicable for these items too. The electrical items, components and common power evacuation too are integral part of a windmill as that could have not been operational without these items. The revenue challenged the decision of the CIT(A) before the ITAT, Jodhpur but that came to be dismissed by the judgment impugned. The ITAT affirmed the findings given by the CIT(A) by holding as under:-

Without doing the civil construction work including foundation work, it was not possible to install the windmill. Similarly, the electric items, component and installation were necessary for the windmill, because in the absence of these components and electric items it was not possible for the windmill to produce electricity. Therefore, it was also the integral part of the windmill.

Learned counsel for the revenue submits that as per Appendix-1(iii)(8)(xiii), the depreciation is allowed only for windmills and in any specially designed devises which run on windmills and not to the other attached items, thus, the findings arrived by the CIT(A) and ITAT, Jodhpur are erroneous.

We do not find any merit in the argument advanced.

The issue involved in these appeals has been considered by the Hon''ble Gujarat High Court in Tax Appeal No. 604/2012, decided on 29.1.2013, in Commissioner of Income Tax, Ahmedabad-III v. Parry Engineering and Electronics Pvt. Ltd. In the case aforesaid Hon''ble Gujarat High Court held that "Windmill would require a scientifically designed machinery in order to harness the wind energy to the maximum potential. Such device has to be fitted and mounted on a civil construction, equipped with electric fittings in order to transmit the electricity so generated. Such civil structure and electric fittings, therefore, it can be well imagined, would be highly specialized. Thus, such civil construction and electric fitting would have no use other than for the purpose of functioning of the windmill. On the other hand, it can be easily imagined that windmill cannot function without appropriate installation and electrification. In other words, the installation of windmill and the civil structure and the electric fittings are so closely interconnected and linked as to form the common plant. As already noted, the legislature has provided for higher rate of depreciation of 80 per cent on renewable energy devises including windmill and any specially designed devise, which runs on windmill. The civil structure and the electric fitting, equipments are part and parcel of the windmill and cannot be separated from the same. The assessees claim for higher depreciation on such investment was, therefore, rightly allowed."

We are in absolute agreement with the reasonings given by Hon''ble the Gujarat High Court. We accept the same and for the same reasons these appeals are dismissed.