Income Tax Appellate Tribunal - Delhi
Vestas Rrb India Ltd. vs Additional Cit, Range 17 on 15 June, 2007
ORDER
I.P. Bansal, Judicial Member
1. Both these appeals are filed by the assessee. They are directed against consolidated order of Commissioner (Appeals) dated 3-11-2003 in respect of assessment years 2000-01 and 2002-03. The only grievance of the assessee in the present appeals is regarding reduction of depreciation and expenses incurred for repair and maintenance of Wind Electric Generators (WEG) from the eligible profit for the purpose of deduction under Section 80-IA. The assessee is earning income from electricity generated from WEG and claimed deduction under Section 80-1A on such income without deducting any expenditure there from contending that these WEGs were primarily installed for demonstration and demonstrative activity being in the nature of business promotion was the activity relating to sale of WEG and expenses incurred thereon should be treated to be expenses relating to sale of WEG and it cannot be related to the electricity generation activity. According to the assessee no expenditure whatsoever was incurred for the purpose of generation of electricity as the activity of generation of electricity was only incidental to the demonstrative activity. It was contended that demonstration of WEG was necessary and it was done for the promotion of sales to make the customers aware regarding the product. The assessee is not maintaining separate accounts with regard to these two activities i.e., sale of WEG and sale of electricity generated through WEG. Assessing Officer did not accept such submission of the assessee that no expenditure whatsoever was incurred with regard to the activity of generation of electricity. Therefore for the purpose of calculating eligible profit for deduction under Section 80-IA he reduced depreciation of WEG from where the assessee has generated electricity and also repair and maintenance expenses on estimate basis and granted deduction under Section 80-IA on such reduced profit. The learnedCommissioner (Appeals) has sustained the stand of assessing officer and has dismissed the appeal of assessee for both the years. The assessee is aggrieved, hence in appeal.
2. The submissions made before the assessing officer and Commissioner (Appeals) were reiterated before us. The main ground on which such action of assessing officer has been agitated by learned Counsel of the assessee can be summarized as below:
1. That the Appellant falls within the parameters of Sub-section (1) tosection 80-IA, in that the gross total income includes profits and gainsderived from any business of an industrial undertaking as defined in Sub-section (4) therein.
2. That in terms of Clause (iv) of Sub-section (4) of Section 80-IA, theappellant has set up in India, for the generation of power, anindustrial undertaking which has started generating power from1-4-1996, which is within the limits of the specified period of 1 -4-1993to 31-3-2003. Each of these 11 WEGs (13 in the later year) constitutesan undertaking within the meaning of the said provision.
3. That in terms of the stipulations contained in Section 80AB, the deduction has been claimed in respect of the income of the priority industry which is included in the gross total income by taking the priority income on a stand-alone basis.
4.That Section 80-IA envisages deduction for the income derived fromthe business of the industrial undertaking. The income from the saleof electricity is clearly and unmistakably related to the industrial undertaking generating electricity and so, is eligible for the exemption which has partially been allowed by the assessing officer himself.
5. That the expenditure on account of repair & maintenance anddepreciation is not relatable to the 11 industrial undertakings (13 inthe later year), inasmuch as, both expenses are incurred wholly,necessarily, and exclusively for the purpose of demonstration andsales promotion of each assessee.
6. That the industrial undertaking is part and parcel of the business of the appellant, inasmuch as, it is bound by the relationships of interconnection, interdependence, and interlacing of funds and managerial control with the main business of the production and assembly of WEGs.
7. That the principle of law is, that the expenditure exclusively relatable to the priority undertaking is required to be deducted against the income of the priority undertaking. The Supreme Court, and later on, the Rajasthan High Court have said that the dilution of priority profits is not permissible through the intermingling of expenses relating to the non-priority sector (reference was made to the case of CIT v. Canara Workshops (P) Ltd. , CIT v. Sharda Gum & Chemicals .
8. That where in the case of an integrated business, expenses are incurred which relate to different businesses, then, the expenses need not be identified against the exempt income for allocation. It will suffice if the entirety of expenditure is set off against the taxable income. On the same principle, the expenditure on repair & maintenance and depreciation would have to be allocated to the relevant business, i.e., demonstration of WEGs in the scheme of their sales.
9. That the onus was on the assessing officer to establish that the entirety of the depreciation on the 11 WEGs (13 in the later year) pertained wholly and exclusively to the business of power generation. This, the assessing officer has completely failed to discharge.
10. That the depreciation which has been deducted from the power generation income does not pertain to it at all. Such is directly and incontrovertibly referable to the WEGs erected and retained for demonstration purposes only.
11. That the WEGs operate and generate electricity entirely out of wind power which is entirely due to nature's bounty. That involves no visible or invisible expenditure at all, and in that situation, the act of the assessing officer in loading on to this activity, the expenditure on repair and maintenance and depreciation, was totally fallacious and entirely uncalled for.
12. That the expenses on account of repair & maintenance and depreciation were most unambiguously and unequivocally relatable to the aspect of demonstration for purposes of sales promotion, and were, therefore, allocable against the income from that head. After so doing, it was not permissible to return back to the Profit & Loss Account to allocate the same against the income for the priority sector, for tax laws do not contemplate double deduction for the same expenditure, as held in the case of Escorts Ltd. v. Union of India .
13. That were the business is one, and diverse activities are pursued, if expenditure is incurred wholly and exclusively for the purpose of business, then irrespective of the fact that income from one or more part of the activities is not liable to income-tax, the entire expenditure incurred by the assessee in connection with the business has to be allowed under Section 37 of the Act. In this case, after so doing, with regard to the activity of demonstration of WEGs, the revenue cannot contend for a deduction of such expenses against the priority income. (Reference was made to the case of CIT v. C. Parakh & Co.(India) Ltd. . Other examples are dividend and agricultural incomes out of mixed businesses.
14. That even if the income from some activity was not taxable, the expenditure incurred in a conjoint business is deductible against the income from the other activities. (Reference was made to the case of Punjab State Co-operative Supply & Marketing Federation Ltd. v. CIT and CIT v. Indian bank Ltd. .
15. That the assessing officer wrongly assumed that under Section 80-IA(5), the claim could not be entertained. The purpose of this provision has been misinterpreted by the assessing officer. The provision in effect provides that for the purpose of determining the quantum of tax holiday profits under Section 80-IA, the taxable income of the eligible business of the industrial undertaking is to be ascertained as if such undertaking were an independent unit owned by the assessee concerned, and the assessee had no other source of income. That was for relating to the priority income, the unabsorbed losses, unabsorbed depreciation etc., pertaining to that industry. Where in a case there were no such adjustments pending set-off, the section would have no application. (Please refer Pages 112-114 of the Paper Book).
16. The assessing officer wrongly interpreted the term 'profit'. Though such has to be interpreted in commercial terms as the excess of receipts over expenditure, yet, where there are no receipts and only expenditure that is a case of absolute loss. And for the converse situation, where there is only receipt and no expenditure, it is a case of absolute profits. Such situations are not ruled out by any of the provisions of the Income Tax Act. The assessing officer's interpretation of profit is, therefore, misconceived and anomalous.
17. That the assessing officer wrongly read the explanatory note to Finance Act (No. 2) of 1980 with regard to the insertion of Section 80-AB. The explanatory note only goes to support the contentions of the appellant insofar as the deductions are required to be calculated with reference to the net income. Where there is no expenditure, the gross income becomes the net income. A situation of this type has not been barred by the said explanatory note. The assessing officer has proceeded entirely on conjectures. The assessing officer has also misread the Supreme Court's decision in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT . The second criteria listed therein necessitates the identification of the total income which represents profits and gains attributable to the specified industry. In the subject case, income from power is derived from the specified industry, so whatever conditionality was envisaged in the case relied upon, is fully and completely satisfied in the facts of the instant case. In fact, the requirement spelt by the case of Distributors (Baroda (P) Ltd. v. Union of India of the income being derived from the priority industry is also fully and completely satisfied in the subject case.
18. That the computation as made by the appellant is in terms of Section 80-AB. It is a case where: the blades of the WEGs are made to rotateby wind currents, for which no payment is required to be made toanyone. It is for free for as long as the wind cares to blow in sufficientstrength so as to be able to rotate the blades, the task is accomplished. For the fact that net income is required to be computed in terms of the mandate under Section 80-AB, no expenditure can be conjured and fictionally sought to be set off against the gross income only because Section 80-AB generally speaks of the net income. The gross becomes the net income by virtue of the outflow on running expenses being nil It is not permissible to drag in expenses pertaining to other lines; of business, only to be able to say that there is a net remaining after set-off of such expenses against the priority income. The decision in the case of Motilal Pesticides (India) (P) Ltd. v. CIT has to be read in the context of facts as they stood therein, and the ratio stated in terms of those facts cannot be extended or interpolated to another fact situation dissimilar to that case.
19. That the assessing officer erroneously read a contradiction in theargument that the income from the priority industry was incidental to the main activity. Such is not a relevant criteria for the purpose ofdetermination of priority income and allowance of priority relief. The assessing officer has needlessly confused the issue on this point.
20. That the assessing officer failed in his duty to identify the expenses relatable to the priority industry, and committed a double-fault by attributing expenses incurred on the non-priority undertaking on tothat of the priority undertaking. Sub-section (4) of Section 80-IA does not envisage a condition of an income arising from a main activity or an incidental activity for providing the priority deduction. So long as power is generated, irrespective of the stature or status of the activity, the incentive is required to be granted to the assessee.
21. That despite the statute being clear on the subject, the Assessing Officer has tried to befuddle the issue by reading into the facts, caselaws which have no application to the facts of the case. The Assessing Officer has simply tried to interpret the provisions in a manner so as to take away a benefit which the statute otherwise entitles theassessee to the ratio of the decision in the case of CIT v. Vasavi PratapChand (2002) 255 ITR 517 (Delhi) is relied upon in this regard.
22. That the assessing officer has merely picked and chosen from various stray provisions of the statute rather than reading the statute as a whole, in order to understand the harmonious implication of the provisions.
23. That the assessing officer has tried to interpret the provisions of law in disregard to the object and purport of the exemption as visualized under the statute.
24. That the Commissioner (Appeals) read a dichotomy in the diverse activities of the business where there was none. The Commissioner (Appeals) failed to appreciate that there is no classification under Section 80-IA as main income or incidental income. The Commissioner (Appeals) ought to have appreciated that so long as the income inures from the priority undertaking, the assessee's right to claim deduction under Section 80-IA could not be interfered with at all.
25. That the Commissioner (Appeals) failed to appreciate that the, entire expenditure on repair & maintenance and depreciation was attributable to the manufacturing activity of WEGs, and no part of it was even obliquely relatable to the generation of electricity.
26. That the Commissioner (Appeals) failed to appreciate that it was nobody's case that there is a difference between income and profits. In the case of theappellant, on account of the peculiar nature of the activity, the wind power had resulted in the generation of electric power without the incurring of any expenditure, and here, there was a case where the income itself was a profit. In such a fact situation, to apply the ratio of cases answered under totally different and distinct compendia of circumstances is erroneous and uncalled for.
27. That the Commissioner (Appeals) failed to appreciate that the assessee's case all along has been that in the subject case, the income itself is the profit, insofaras, both income and profits are required to be related to the priority industry and in a case where there is only income and no expenditure, the income itself becomes the profit.
28.That the authorities below completely failed to appreciate that the objective of setting up these 11 WEGs(13 in the next year) was for thepurpose of increasing awareness as to this novel technology, andthus to give a possible boost to its sales. Naturally, all expenses relatable thereto, qualified for set-off against the business of selling of these WEGs. Such has not been repudiated by either of the authorities.
29. That the authorities below failed to reckon that the charges for electricity generation were received net of expenses and whatever expenses there be were on account of the purchaser of electricity, viz., Tamil Nadu State Electricity Board.
3. On the basis of the above submissions it was pleaded by the learnedAR that relief sought for should be granted to the assessee.
4. On the other hand, it was submitted by the learnedDR that the claim of assessee is contradictory. He contended that according to the provisions of Section 80-IA deduction is eligible to an undertaking or an enterprise from any business referred to in Sub-section (4). He contended that if assessee claims that generation of electricity was not its business then assessee is not entitled at all to claim deduction under Section 80-IA as according to the submissions of the assessee the generation of electricity was only incidental and WEG were installed for demonstration to promote the sale of WEG. He contended that it has been submitted by the learnedAR that production of electricity was ancillary and thus keeping in view that submission the assessee should not be held to be eligible for deduction under Section 80-IA as claimed by it as according to the requirement of Section 80-IA eligible income must arise from the business carried on in respect of specified activities. He further submitted that according to Section 80-IA(5) the income of the business in respect of which such deduction is claimed should be computed as if the said business was the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which determination is to be made. Thus he pleaded that according to that section income from business on which such deduction is claimed was to be computed on stand alone basis and thus stand of the assessing officer that depreciation and other expenses are to be reduced is in accordance with law. He objected to the alternative submission of the learned AR that the assessing officer should have at least allocated proportionately depreciation to the two business activities to compute the eligible profit. He contended when actual figure is available then there was no question of proportionate allocation.
5. He contended that reliance by the assessee on the decision in the case of Rajasthan State Warehousing Corpn. v. CIT (2002) 242 ITR 450 (SC), is misplaced as the facts in the said case and that of assessee's case are distinguishable. He contended that in that case assessee was carrying on one individual business in various ventures but in the present case the assessee has identifiable receipts with respect to generation of electricity on which deduction under Section 80-IA had been claimed and depreciation and repair and maintenance expenses are specifically attributable to such receipts. Thus he pleaded that it is not a case where entire depreciation and repair and maintenance expenses could be held as unidentifiable.
6. He further relied on the decision of Hon'ble Supreme Court in the case of Waterfall Estates Ltd. v. CIT (1996) 219 ITR 5632 to contend that assessing officer was right in allocating repair and maintenance expenses and depreciation relating to WEGs from which assessee had earned in come from generation of electricity and thus assessing officer was right in reducing depreciation and repair and maintenance expenses.
7. He further referred to the decision of Hon'ble Supreme Court in the case of ITO v. Ch. Atchaiah to contend that under Section 4 of Income Tax Act assessing officer has got no option except to assess only the right person irrespective of consequences. He contended that as it is the contention of the assessee that the WEG used for the purpose of generation of electricity were relating to business activity of sales of WEG the assessee should not be held to be eligible for any deduction under Section 80-IA as according to the provision of Section 80-IA no such deduction can be allowed if the assessee is not engaged in the business of such activity. He contended that it is within the power of Tribunal to hold that assessee is not eligible for deduction under Section 80-IA as per decision of Delhi High Court decision in the case of Indian Management Advisors & Leasing (P) Ltd. v. CIT (2007) 289 ITR 1792.
8. Thus he pleaded that assessee should not be held to be entitled for deduction under Section 80-IA at the first place and if it is held that assessee is entitled for deduction under Section 80-IA then order of assessing officer and Commissioner (Appeals) should be confirmed.
9. In the rejoinder the learnedAR reiterated the submissions made. He contended that assessee cannot be made worse off by accepting the contention of learned DR that it is not eligible at all for deduction under Section 80-IA as the appellant in the present case is the assessee.
10. We have, carefully considered the rival submissions in the light of material placed before us. The assessing officer himself has held that assessee is entitled for deduction under Section 80-IA as it is earning income from generation of electricity which is one of the eligible activity of business to be entitled for deduction under Section 80-IA. Under Section 80-IA such deduction is not eligible unless an undertaking's or an enterprise's gross total income consists of profits and gains derived from any business referred to in Sub-section (4). Thus if such profits and gains are not earned from business, undertaking/enterprise will not be entitled for deduction under Section 80-IA. It is the claim of assessee that generation of electricity was only incidental to the main activity of selling WEG. If such contention is accepted than assessee will not at all be entitled for deduction under Section 80-IA as in that case the income from generation of electricity is not earned by the assessee from business of eligible specified activity. However, it is not even the case of assessing officer that assessee is not engaged in the business of generation of electricity as he himself has allowed the deduction under Section 80-IA of the Act. At the same time contention of the assessee that generation of electricity is only incidental to the activity of selling WEG has also to be rejected for the reason that assessee is not entitled to get two benefits from such position as the same will not be in accordance with the provisions of law. In other words, assessee cannot blow hot and cold in one breath by contending on the one hand that it is eligible for deduction under Section 80-IA as it is engaged in the business of generation of electricity and on the other hand that the depreciation relating to WEG from where the electricity is generated were installed only for the purpose of demonstration related to the activity of sale of WEG. In this manner the assessee only tries to get the benefit of higher deduction under Section 80-IA and such course is not available to the assessee particularly in view of Sub-section (5) of Section 80-IA. It will be relevant to reproduce relevant portion of Section 80-IA:
80-IA. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in Sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years.
** ** ** (4) This section applies to-
** ** ** (5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which theprovisions of Sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made.
11. It is clear from the language of Section 80-IA(l) that the assessee will be entitled for deduction only if the profit and gains are derived from any business referred to in Sub-section (4). It has already been pointed out that the activity carried on by the assessee of generation of electricity was a business carried on by it. There is no material on record to suggest that the generation and supply of electricity was not a business activity of the assessee. It is also not the case of assessing officer that it was not a business activity of the assessee. Thus the argument of the learned DR that assessee is not entitled for deduction under Section 80-IA at all is not acceptable and rejected. However, his argument that according to Sub-section (5) the profit has to be counted on stand alone basis is dealt with as under.
12. According to Sub-section (5), notwithstanding anything contained in any other provisions of the Act, the profits and gains of eligible business to which the provisions of Sub-section (1) applies shall, for the purpose of determining the quantum of deduction under that sub-section for any eligible year of deduction to be computed as if such eligible business were only the source of income of the assessee during the previous year relevant to assessment year. According to the mandate of this sub-section it has to be considered that business of generation of electricity was the only source of income for the purpose of computing deduction under this section. In this view of the situation, out of gross receipts received by the assessee from generation of electricity, the permissible deduction and expenses have to be reduced for the purpose of determining the quantum of deduction. In other words, the generation of electricity has to be considered to be the only source of income of the assessee and expenses relating thereto and permissible deductions relating thereto have to be reduced to arrive at the quantum of profit on which such deduction will be eligible. Depreciation has been claimed by the assessee on the WEGs in its books of account but according to the case of assessee that depreciation does not pertain to the business of generation of electricity as these WEGs were installed for the purpose of demonstration to promote business activity of sales of WEG. We find no force in such submissions as the moment, from which the assessee started selling electricity, the installation of WEGs were no more for the purpose of business activity of selling WEGs as assessee intended to earn profit from sale of electricity as its business activity which makes entitle the assessee to claim deduction under Section 80-IA. It is also for that reason the contention of assessee that at least there should be proportionate allocation of depreciation and expenses has to be rejected. WEGs from which the assessee has earned income from generation of electricity cannot be said to be for the purpose of demonstration for promotion of sale of WEGs as demonstration became ancillary object at the point of time when assessee started selling electricity. Assessee has earned substantial receipts from generation of electricity. All the receipts cannot be considered to be net gain of the assessee as depreciation relating thereto has necessarily to be held pertaining to the activity of generation of electricity. The repair and maintenance also has to be held to be exclusively for the purpose of generation of electricity. Thus keeping in view the mandate of Sections 80-IA(l), (4) & (5), we are of the opinion that the action of the assessing officer in reducing the depreciation and repair and maintenance expenses out of gross receipts of sale of electricity to arrive at eligible profit was quite in order and has rightly been upheld by Commissioner (Appeals).
13. Now coming to the case law relied upon by the learned AR in Canara Workshops (P) Ltd.'s case (supra). The ratio of this decision is not applicable to the facts of the present case as in the said case it was held that profit of one priority industry cannot be diminished because of a loss suffered by some other industry. In the present case it is only the claim of the assessee that depreciation pertains to the business activity of sale of WEGs. This contention of the assessee has been turned down on the ground that the moment the assessee started selling electricity the depreciation also became relating to WEGs from where such electricity was generated. When generation of electricity became the business activity of the assessee the depreciation solely relating to those WEG's from where the electricity has been generated has to be reduced while computing eligible profit for the purpose of deduction under Section 80-IA. Rather the case supports the case of revenue as it has been held that each industry must be considered on its working only when adjudging its title under Section 80E. In other words the Hon'ble Supreme Court has held that while computing deduction under Section 80E (later on replaced by Section 80-I) each industry must be considered on its own working. Thus no strength can be drawn by the assessee from this case to contend that depreciation and repair and maintenance expenses cannot be reduced for arriving at eligible profit for the purpose of computing deduction under Section 80-IA.
14. Escorts Ltd.'s case (supra). This case has been relied upon by the learned AR for the contention that it was not permissible to assessing officer to return back to the profit and loss account to allocate the same against the income from priority sector as tax laws do not contemplate double deduction for the same expenditure. Reliance on this case is also misplaced as there is no question of double deduction. The assessee is maintaining composite account with regard to above-mentioned two business activities. It is only the assertion of the assessee that depreciation pertains to the activity of sale of WEGs as WEGs from where electricity has been generated were installed only for the purpose of demonstration. This contention has already been dealt with in the above part of this order and it is held that the installed WEGs were only for the purpose of generation and distribution of electricity. Therefore, the contention of the assessee: that depreciation is allowable on the business activity of selling WEGs is not acceptable and thus it is not a case where double deduction is allowed or allowable.
15. CIT v. C. Parakh & Co. (India)Ltd , Punjab State Co-operative Supply & Marketing Federation Ltd v. CIT and Indian Bank Ltd.'s case (supra). These cases are relied upon by the assessee to contend that where the business is one and diverse activities are pursued and expenditure incurred wholly and exclusively for the purpose of business then irrespective of the fact that income from one or more part of the activities is not liable to income-tax, the entire expenditure incurred by the assessee in connection with the business has to be allowed under Section 37 of the Act. This case is also not applicable to the facts of the present case as it is a case where profits have to be computed under the provisions of Section 80-IA for the purpose of grant of deduction under that section and Section 80-IA(5) specifically mandates that profits and gains of eligible business to which Sub-section (1) of Section 80-IA applies, for the purpose of determining the quantum of deduction, the income will be computed as if such eligible businesses were the only source of income of the assessee. Thus the general proposition of law laid down in the above-mentioned cases cannot be made applicable to the present case.
16. Vasavi Pratap Chand's case (supra). This case has been relied upon to contend that assessing officer cannot interpret the provision in a man nerso as to take away a benefit which the statute otherwise entitles the assessee to. No strength can be drawn by the assessee from this case to plead its case as the benefit sought for by the assessee has not been provided by the statute as it is claimed. So this decision is also not applicable.
17. Thus the case law and contentions raised by learned AR do not support the case of the assessee.
18. We may mention here that while arriving at a conclusion that depreciation and repair and maintenance expenses have to be reduced for the purpose of computing eligible profit for the purpose of deduction under Section 80-IA, we have taken into consideration all the contentions and case laws discussed during the course of hearing though for the sake of brevity they have not been discussed in this order. In this view of the matter, the order of learned Commissioner (Appeals) for both the years are confirmed and appeals filed by the assessee are dismissed.