Income Tax Appellate Tribunal - Delhi
Rrb Consultants And Engg. (P) Ltd. vs Income Tax Officer on 6 July, 2007
Equivalent citations: (2007)112CTR(DELHI)794
ORDER
R.V. Easwar, Vice President
1. There are as many as seven grounds taken by the assessee in this appeal which relates to the asst. yr. 2000-01, but they all centre around Section 80-IA of the IT. Act. The assessee is a company deriving income from the business of consultancy in renewable and non-conventional sources of energy and also income from power generation. It entered into a memorandum of understanding on 3rd July, 1990 with a Danish company under which it was to render expert advice and technical information relating to site identification and wind data on specific sites in India in relation to various types of wind energy including controllers, towers, central monitoring equipment, etc. The Danish company was one of the pioneers in wind energy in the world, especially windmills and the assessee was engaged in business as its sole and exclusive consultant in India. During the year under consideration, the assessee derived consultancy fees and service charges of Rs. 3,94,69,169 and other income of Rs. 1,35,39,859. Out of the other income, a sum of Rs. 1,27,81,835 was received as power generation income for energy sold to the Tamil Nadu State Electricity Board. In respect of the amount received from the aforesaid electricity board, the assessee claimed deduction under Section 80-IA. In the assessment proceeding the AO took the view that the deduction cannot be allowed on the gross income and it can be allowed only after deducting the proportionate expenses incurred for earning the income. He considered the expenditure of Rs. 2,68,805 incurred on repair and maintenance of wind energy generators and the insurance expenses of Rs. 1,46,472 in respect of the above generators, aggregating to Rs. 4,15,277 as expenditure incurred to earn the income of Rs. 1,27,81,835. Deducting Rs. 4,15,277 from the same, he arrived at the net income at Rs. 1,23,66,558 which he exempted under Section 80-IA. In doing so, the AO also referred to Section 80-IA(5).
2. The assessee appealed to the CIT(A) to contend that no expenditure should be apportioned against the income received from TNSEB for power sold to them. It contended that the main business of the assessee was that of consultancy in the field of wind energy generation and that the windmills were installed as part of the main business in order to demonstrate to the customers, the assessee's expertise in this field and the income received from sale of wind energy was earned only in the process of the main business which was that of consultancy and therefore no part of the repairs and maintenance expenditure or the insurance expenditure could be apportioned against the income from power generation. Reliance was also placed on the order of the CIT(A) from the asst. yr. 1996-97 in which the assessee's claim had been accepted by him. The CIT(A) agreed with the assessee that Section 80-IA(5) was not applicable to the case but held that the deduction under Section 80-IA was admissible only against the profits of the industrial undertaking and not against the gross receipts. He accordingly held that the AO was right in deducting expenditure aggregating to Rs. 4,15,277 from the income received from TNSEB while granting the deduction under Section 80-IA. He thus confirmed the action of the AO.
3. In the further appeal before us, the learned Counsel for the assessee has raised four contentions. He first contended that the deduction was allowed in the earlier years against the income received from the electricity board without reducing the same by any expenditure and the rule of consistency requires that the same decision should be applied in all the subsequent years, especially when no new fact has been unearthed justifying a departure from the past assessment and further without taking steps to disturb the finality of the earlier assessments. He cited a number of authorities in support of this contention which are:
(i) H.A. Shah & Co. v. CEPT ;
(ii) CIT v. Godavari Corporation Ltd. ;
(iii) M.A. Namazie Endowment v. CIT (1988) 69 CTR (Mad) 117 : (1988) 174 ITR 58 (Mad);
(iv) Radhasoami Satsang v. CIT .
4. The second contention, was that the allocation of the expenditure to reduce the income of the eligible unit is contrary to the ruling of the Supreme Court in CIT v. Canara Workshop (P) Ltd. . The third contention was that the windmill functions on wind energy which is a natural resource and, the assessee did not incur any expenditure in running the same. Lastly, and in the alternative, it was contended that at best the expenditure should be restricted to 25 per cent of the total expenditure incurred, regard being had to the fact that the income received from TNSEB constituted approximately 1/4th of the total revenues for the year.
5. On the other hand, the learned senior Departmental Representative contended that the assessee cannot be permitted to claim the deduction from the gross receipts and that to do so would be contrary to the matching principle embodied in Section 80AB of the Act. He did not dispute that the main business of the assessee was that of consultancy, but contended that under Section 80-IA, r/w Section 80AB, the deduction can only be given against the net income after deducting the direct expenditure incurred for earning the income and in this connection submitted that the expenditure on repairs, maintenance and insurance of the wind energy generators represented direct expenditure connected with the functioning of the equipment which was properly deductible. He also pointed out that the amount deducted was very reasonable and was just 3 per cent of the total revenues for the year. As regards the rule of consistency as shown by the past assessments, the learned senior Departmental Representative submitted that each year is an independent year and the principle of res judicata is not applicable to income-tax proceedings. He accordingly contended that the Departmental authorities were right.
6. In his brief reply, the learned Counsel for the assessee reiterated his submissions based on the rule of consistency and cited the judgment of the Karnataka High Court in CIT v. Sridev Enterprises in which it was held that the AO cannot make a departure from the assessments without disturbing the finality of those assessments. He pointed out that in the present case, the AO had taken no steps to reopen the assessment of the earlier years.
7. We have carefully considered the rival contentions. The issue came up for consideration in the asst. yr. 1996-97 in a slightly different context. In that year, the AO had deducted depreciation from the income derived from power generation which reduced the income to a negative figure and thus no deduction was allowed. The question before the CIT(A) was whether depreciation on windmills should be first allowed from the entire income of the assessee and then the balance income was to be adjusted against the deduction under Section 80-IA. Referring to the provisions of Section 32, the CIT(A) held that the depreciation cannot be deducted against the income from one activity, when the assessee carries on both consultancy business and power generation business. It was held that the profits of both the businesses should be clubbed and the depreciation should be allowed against the aggregate of the profits. The question before the CIT(A) was thus slightly different from the question which has arisen before us for consideration. The order of the CIT(A) for the asst. yr. 1996-97 is therefore not directly on the point and does not directly assist the assessee, though some help can be derived therefrom to the extent that it says that depreciation relating to the windmills cannot be deducted from the profits of the power generation activity alone. In the asst. yr. 1997-98, the assessee derived income of Rs. 45,60,741 from power generation and appended a note to the computation of income (p. 49 of the paper book) to the effect that the same was eligible for deduction under Section 80-IA(iv)(b), but since the company had no taxable income for that year the deduction was not claimed. It was further stated in the note that the assessee reserves its right to claim the deduction in case the assessment results in taxable income. The assessment order for that year, passed under Section 143(3) of the Act (pp. 51-52 of the paper book) shows that ultimately the assessment was made on the book profit under Section 115JA of the Act, but the computation of the income under the normal provisions of the Act, made in the assessment order for purposes of comparison, shows that the AO deducted the depreciation of Rs. 4,50,00,000 on the windmills from the income derived from power generation and arrived at a loss of Rs. 4,04,39,259 from the power generation activity and hence no deduction under Section 80-IA was allowed. In the asst. yr. 1998-99 the assessee claimed the entire income of Rs. 78,27,825 derived from power generation to be eligible for the deduction under Section 80-IA (p. 58 of the paper book) and in the assessment framed under Section 143(3) of the Act the claim was accepted by the AO (p. 63 of the paper book). For the asst. yr. 1999-2000 a similar claim was made by the assessee but the income was computed under Section 115JA when the return was processed under Section 143(1)(a) of the Act, there being no decision taken on the claim. Thus, only in the asst. yr. 1998-99 the claim of the assessee stood accepted and in the other earlier years there is no definite stand taken by the AO. It is therefore somewhat difficult to infer that there was any consistency in the conduct of the Departmental authorities so as to bind them to their past conduct on the basis of the rule of consistency.
8. However, on merits, the assessee's claim needs to be accepted. The main activity of the assessee is that of consultancy in the field of windmill energy. It has put up windmills for the purpose of demonstration to its clients and customers and in connection with the consultancy activity. Incidentally, the windmills are also used for generation of electricity which is sold to the electricity board. No hydel or mechanical power is required to run the windmills. They are run on the natural resource, namely, the winds. Therefore, no expenditure is required to be incurred to run them. The expenditure on repairs, maintenance and insurance is in any case allowable against the income from consultancy in the course of which activity also the windmills are required to be run. The aforesaid expenditure is allowable against the consultancy income and it would be too artificial to break it up and allocate a portion of the same towards the activity of power generation merely to reduce the deduction allowable under Section 80-IA. The reference made by the learned Counsel for the assessee to the judgment of the Supreme Court in Canara Workshop (supra) is apposite. In that case, the assessee ran two priority industries. The assessee earned profits from one of them and claimed the deduction under Section 80E as it stood then. From the other priority industry he suffered a loss. The IT authorities adjusted the loss from the priority industry against the profits of the other priority industry and reduced the deduction available under Section 80E. Disapproving this action, the Supreme Court held that the deduction envisaged by the section is in recognition of the efficient functioning of the industry, that it was never intended that the merit earned by such industry should be lost or diminished because of a loss suffered by another industry, whether it is a priority industry or not, that the co-existence of two industries in common ownership was not intended by Parliament to result in the misfortune of one being visited on the other and that the shifting of the focus from the industry to the assessee was not permissible. The ratio of this decision, in our humble opinion, applies to the present case. There are two activities, the main activity being that of consultancy and the incidental activity being that of power generation. The windmills are required in connection with the main activity and they incidentally produce income for the assessee by generating power. The expenditure on repairs, maintenance and insurance of the windmills is in any case allowable against the consultancy income. It cannot be pinpointed that a part of the expenditure was incurred for earning the income from power generation except by an artificial or presumptive approach. Had the power generation activity not been eligible for the deduction under Section 80-IA there would have been no occasion or warrant for apportioning a part of the expenditure towards the said activity. We do not see how such apportionment can be made merely because the income from the said activity is eligible for the deduction. The provisions of Section 80AB cannot be understood as authorizing an estimated or artificial apportionment of the expenditure; they apply only when the expenditure can be pinpointed to have been incurred for the purpose of earning the profits from the eligible industry.
9. For the above reasons we hold that the IT authorities were not justified in reducing the profits from the power generation activity by the expenditure aggregating to Rs. 4,15,277 while calculating the deduction under Section 80-IA. In this view, we are not deciding the alternative contention of the assessee that the expenditure allocated is too high.
10. In the result, the appeal is allowed with no order as to costs.