The Rajasthan High Court has held that a manufacturing assessee meeting the statutory conditions cannot be denied additional depreciation on qualifying power-generation machinery. Accordingly, the Court said that Hindustan Zinc’s claim of Rs.18.87 crores under Section 32(1)(iia) of the Income Tax Act for new machinery at its Captive Power Plant and Wind Power Plant survived the Revenue’s challenge.
The Court clarified that the relevant conditions were acquisition and installation of new machinery after 31 March 2005 and engagement in manufacture or production of an article or thing. Since the installation after the cut-off date was undisputed, the Court accepted that generation of power and electricity falls within “production”, a term wider than “manufacture”.
The High Court recognised that Hindustan Zinc manufactured minerals and their by-products and used the generated power in its manufacturing units. Once the statutory conditions were met, depreciation on power-generation machinery could not be denied, regardless of whether power generation independently constituted production.
Briefly, Hindustan Zinc Ltd., engaged in the business of zinc, lead and silver, claimed additional depreciation of Rs. 18.87 crores under Section 32(1)(iia) of the Income Tax Act, for Assessment Year 2007–08 on new plant and machinery installed at its Captive Power Plant and Wind Power Plant. The Assessing Officer allowed the claim. However, the Commissioner of Income Tax invoked Section 263 and directed a fresh assessment, holding that power generation did not amount to manufacture or production of an article or thing. The ITAT set aside the Commissioner’s order and restored the assessment.
The Division Bench comprising Chief Justice Sanjay K. Agrawal and Justice Vinit Kumar Mathur observed that revision under Section 263 requires the assessment order to be both erroneous and prejudicial to the interests of the Revenue; absence of either condition bars revision. The Court noted that the relevant conditions for additional depreciation were acquisition and installation of new plant and machinery after 31 March 2005 and the assessee being engaged in manufacture or production of an article or thing.
The Court further observed that power generation falls within “production”, which has a wider meaning than “manufacture”. Hindustan Zinc also manufactured minerals and their by-products, and used the power generated at its plants in its manufacturing units.
