By TIOL News Service

NEW DELHI, DEC 29, 2017: THE issue is - Whether when the depreciation amount eligible for deduction u/s 80-IA is higher than the assessee's income, assessee is still entitled to deduct the same on gross receipt. NO is the answer.

Facts of the case

The Assessee-company, engaged in the business of consultancy and professional services for sale and installation of wind electricity generators. The Assessee had filed its return for the relevant AY. During the assessment proceeding, the ITO noted that the Assessee had entered into an agrrement with their principal company and manufacturer, namely, M/s Vestas Danish Wind Technology, A/s, Denmark. The power generated from the wind generators was sold to Tamil Nadu State Electricity Board and the Assessee had earned money out of the same. Further, the ITO noted that the Assessee had net profit from consultancy and was entitled to depreciation on the wind mills erected and commissioned. Accordingly, the said depreciation was reduced from income earned from generation of power and as the resultant figure was in negative therefore, the Assessee was not entitled to any deduction u/s 80-IA.

On Assessee's appeal, the CIT(A) held that the wind mills was used for more than one activity and, therefore, it does not follow that depreciation would be allowed only against income of one activity and not other. On further appeal, the Tribuhnal accepted the Revenue's contentions and held that the AO was justified in treating depreciation on wind turbines as a deduction from the income of power generation and therefore, there was no income from the eligible business on which deduction u/s 80-IA was to be allowed. Therefore, the Revenue's appeal was allowed and the order of the CIT(A) was reversed and restored the AO's order.

On appeal, the High Court held that,

++ the depreciation, which was to be allowed and given on the wind mills was almost fifteen times the income earned by the Assessee from generation of electricity, which was eligible for deduction u/s 80-IA. The Assessee would not be entitled to deduction on the gross receipt without reducing depreciation u/s 80-IA regardless of whatever interpretation they want to place on the provisions of Section 80IA. The view we have taken is in consonance and in conformity with the view expressed by this Court Dabur India Ltd., where it was held that deduction u/s 80-IA is on the net amount earned by the eligible undertaking, i.e., after computing the income of the eligible undertaking in terms of Chapter IV of the Act, which includes Section 32 relating to depreciation;

++ the question of bifurcation of depreciation in view of the two lines of business, etc. wanes, as the amount of depreciation, even on bifurcation, which would be reduced from the gross receipts of the undertaking eligible for deduction u/s 80IA, would be significantly higher. Therefore, we do not find any good ground or reason to interfere with the order passed by the Tribunal.

(See 2017-TIOL-2657-HC-DEL-IT)