IT : Power evacuation facilities and transmission lines are part of wind mill, eligible for depreciation at 80 per cent
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[2013] 36 taxmann.com 546 (Chandigarh - Trib.)
IN THE ITAT CHANDIGARH BENCH
Assistant Commissioner of Income-tax, Circle-1, Ludhiana
v.
Rakesh Gupta*
HARI OM MARATHA, JUDICIAL MEMBER 
AND N.K. SAINI, ACCOUNTANT MEMBER
IT APPEAL NO. 822 (CHD.) OF 2012
[ASSESSMENT YEAR 2008-09]
JUNE  17, 2013 
Section 32 of the Income-tax Act, 1961 - Depreciation - Allowance/rate of [Rate of] - Assessment year 2008-09 - Whether, any part of plant, being an integral part of a capital asset eligible for higher depreciation, even if such part is otherwise eligible for normal depreciation, would be entitled to such higher rate of depreciation - Held, yes - Whether, therefore, where electricity could not be generated by wind mill without power evacuation facilities and transmission and distribution lines, depreciation was to be allowed on same at higher rate of 80 per cent applicable to wind mills, and not at normal rate - Held, yes - Whether, where assessee made one time payment to electricity board to earn right to use power evacuation facilities, assessee was beneficial owner, and depreciation could not be disallowed on ground that assessee was not real owner of capital asset - Held, yes [Para 5.5] [In favour of assessee]
FACTS
 
■  The assessee had included amount spent on account of contribution for power evacuation facilities (PEF) and installation of electrical line for power transmission and metering in the actual cost of the windmill, which was eligible for depreciation at the rate of 80 per cent. The Assessing Officer held that transmission lines could not form part of block of wind mill and was eligible for normal rate of depreciation at 15 per cent. The Assessing Officer further held that since the assessee was not the owner of the evacuation facilities, for which it had made one-time payment to the Electricity Board, depreciation was not allowable on it.
■  On appeal, the Commissioner (Appeals) allowed the assessee's appeal and allowed depreciation at the rate of 80 per cent.
■  On revenue's appeal:
HELD
 
■  The Income-tax Rules provide for allowance of depreciation at the rate of 80 per cent on 'renewable energy devices' - like wind mills and any other specially designed devices, which run on wind mills. [Para 5.5]
■  Any 'electric power system' (EPS), to become operational and useful, can be divided into three systems, which when coalesced become the EPS. These parts are:
(i)  power generation system, which is wind mill in this case;
(ii)  power transmission system i.e. after power is generated it needs to be transmitted to places wherever it is required; and
(iii)  power distribution system - this energy has to be distributed as per requirement.
■  Without the existence of the above three systems, the idea of wind mill is meaningless. Thus, one can say with impunity that all the above, systems go to form an essential composite system known as 'wind mill'. This composite system is eligible for 80 per cent depreciation. Wind mill is invariably installed at a place where ample wind pressure is found to move the sails, which in turn generates electricity. The electric power is generated at places which are usually intractable and near which the consumption of that energy is not possible. Therefore, this energy has to be 'transmitted' with the use of a 'transmission system' which further requires a 'distribution system' to make use of that energy. Therefore, the generation, the transmission and distribution of energy, in fact is the 'Wind-Mill'. Without the combination of the above three systems, the idea of wind mill will not became viable. Without the system No. (ii) and (iii), the wind mill cannot even be commissioned. Since the electricity cannot be stored, one cannot simply go on generating it in the air and let it be wasted. Therefore, the expenditure incurred towards systems (i), (ii) and (iii), have to be clubbed and cannot be separated. [Para 5.5]
■  The assessee has to contribute for using the power evacuation facilities which are normally owned by the Electricity Board. The assessee made a one time payment to the Board so as to earn the 'right' for usage of the infrastructure network. On that basis, the Assessing Officer claims that the assessee is not the owner of the facilities, and unless he is its owner, he cannot claim depreciation under section 32, whereunder it is one of the necessary conditions that the assessee should own a capital asset to claim depreciation. The Assessing Officer has misdirected himself, and without understanding the peculiar circumstances, has gone on hyper pedantic route. The assessee has made one-time payment by way of contribution for using the PE facilities which are owned by the Board, but the assessee 'has acquired a 'right to use this facility' - which is owned as a right so the assessee is the owner of that 'right' in the facilities. Thus, it can be safely stated that the assessee is using the system as real owner although he is not the owner on papers. [Para 5.5]
■  Accordingly, the order of Commissioner (Appeals) is upheld. Any part of plant which is an integral part of capital asset which is eligible for higher depreciation even if that other part is eligible, otherwise, for normal depreciation, it became entitled to higher rate of depreciation. Accordingly, there is no merit in grounds of revenue's appeal. Same are dismissed. [Para 5.5]
CASE REVIEW
 
CIT v. Mahanagar Telephone Nigam Ltd. [2002] 254 ITR 627/120 Taxman 635 (Delhi) (para 5.5) and CIT v. Delhi Airport Service [2002] 120 Taxman 792 (Delhi) (para 5.5) followed.
CASES REFERRED TO
 
CIT v. Abhishek Industries Ltd. [2006] 286 ITR 1/156 Taxman 257 (Punj. & Har.) (para 3), CIT v. Mark Auto Industries Ltd. [2011] 201 Taxman 137/12 taxmann.com 259 (Punj. & Har.) (para 3), Goetze (India) Ltd. v. CIT [2006] 284 ITR 323/157 Taxman 1 (SC) (para 4), CIT v.Ramco International [2009] 180 Taxman 584 (Punj. & Har.) (para 4.1), CIT v. Fazilka Dabwali TPT. Co. (P) Ltd. [2004] 270 ITR 398/[2005] 144 Taxman 376 (Punj. & Har.) (para 5.5), CIT v. Smt. A. Siva Kami [2010] 322 ITR 64 (Mad.) (para 5.5), CIT v. Mahanagar Telephone Nigam Ltd. [2002] 254 ITR 627/120 Taxman 635 (Delhi) (para 5.5) and CIT v. Delhi Airport Service [2002] 120 Taxman 792 (Delhi) (para 5.5).
Sudhir Sehgal for the Appellant. J.S. Nagar for the Respondent.
ORDER
 
Hari Om Maratha, Judicial Member - This appeal of the revenue for A.Y. 2008-09 is directed against the order of Ld. CIT (A), dated 16/05/2012.
2. Briefly stated, the facts of the case are that the assessee derived his income, pertaining to A.Y. 2008-09, from business in shares/derivate trading and money lending. He filed his return of income on 29/09/2008 declaring income of Rs. 5,77,95,580/-. As against which the AO has computed taxable income at Rs. 6,13,35,559/-. The ld. CIT(A) has deleted the contentions additions. The revenue is, now, aggrieved.
3. The first ground of this appeal is in relation to deletion of an addition of Rs. 28,55,831/- made u/s 36(1 )(ii) of the I.T. Act 1961 ('the Act' for short). The facts of this ground are that the AO has disallowed interest debited in the P&L account u/s 36(1)(iii), on the reasoning that the assessee has given an advance of Rs. 8.89 crores interest free to his son Shri Aman Singhal but at the same has paid interest on funds borrowed for the business. As per the assessee interest-free advance is out of his own capital which has no nexus with the borrowed funds. He has stated that the borrowed fund has been used in the share trading business with reference to the decision of P&H High Court rendered in the case ofCIT v. Abhishek Industries Ltd. [2006] 286 ITR 1/156 Taxman 257 (Punj. & Har.), in which their Lordship have observed that entire money in a business represents a common kitty, therefore, the argument either that the interest-free advance to his son is out of his own capital or that it has got no nexus with the borrowed funds would not help the case of the assessee. Accordingly, he has disallowed the interest at the notional rate of 12% p.a. amounting to Rs. 28,55,131/-. However, the ld. CIT(A), by accepting the contention that the later decisions of the Hon'ble P&H High Court in the case of CIT v. Mark Auto Industries Ltd. [2011] 201 Taxman 137/12 taxmann.com 259 in which it was held that in case no nexus between the borrowed funds and the advance made to sister concern (relatives) no such notional disallowance can be made, has deleted this addition.
3.1 Before us both parties have reiterated their original stand. Let us clarify that it is not the case of the AO that the assessee has diverted the funds borrowed, on interest, for the purpose of business to his son. Rather, he has accepted this that no such borrowed fund has been advanced to his son. Therefore, nexus between the borrowed fund and the advanced fund has neither been the issue nor the AO it has been alleged by the AO. Having found as above, we have to see if the decision of Abhishek Industries would prevail or the later decision of the jurisdictional High Court in the case of Mark AutoIndustries Ltd. (supra), would be applicable to the facts of this case. We have found that the decision of Abhishek Industries has been discussed and distinguished in the later judgment passed in M/s. Mark Auto Industries. We have found force in the reasoning of ld. CIT(A) that the facts of Abhishek Industries are different in as much as that it is a case of Corporate entity wherein the share holders are not at liberty to withdraw the capital and the entire funds of the corporate entity are in a way like a water tight compartment, as there is nothing like business and perusal aspects. Otherwise also in the judicial discipline, the later judgment on the same issue which has discussed the earlier judgment becomes binding in nature. Accordingly, Ld. CIT(A) has passed a well reasoned order, wherein, he has explained as to how the decision of Abhishek Industries would not apply. Therefore, there is no merit in ground No. (1) of this appeal which is likely to be dismissed. Accordingly, we dismiss Ground No. (1) of revenue's appeal.
4. Ground No. (2) is in relation to disallowance of Rs. 5,02,628/-made by resorting to Section 14A of the Act, in respect of expenses incurred on investments on which exempt income arises. In fact at the time of filing of the return of income, the assessee had himself added back Rs. 502,628/- on account of expenses incurred u/s 14A in his computation of income And during the course of assessment proceedings a revised working of expense as per Section 14A was revised and the disallowance, thus, came to Rs. 4,41,272/- as per Rule 8D of the I.T. Rule. The AO has not disputed this working rather, he has found it correct, but according to him this claim cannot be entertained in view of the ratio of the judgment of Hon'ble Apex Court rendered in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323/157 Taxman 1.
4.1 The ld. CIT(A) has found that the ratio of Goetz IndiaLtd. (supra) would not apply to the facts of this case. After relying on the decision of Hon'ble jurisdictional High Court in the case of CIT v. Ramco International [2009] 180 Taxman 584 (Punj. & Har.) wherein it has been held that any claim made by the assessee even during the course of assessment proceedings by way of application is allowable since filing of audit report along with the return of income is not mandatory but is only directory, he has reduced this disallowance to Rs. 4,41,272/-,
4.2 After hearing both sides we have found that this ground is wrongly framed. The ld. CIT(A) has not deleted the entire disallowance of Rs. 5,02,628/- as has been pleaded in Ground No. (2), but he has sustained it at Rs. 4,41,272/-, instead, as has been claimed in the revised working by the assessee. Accordingly, we don't find any merit in this ground as well. The decision of Goetz India bounds the AO only, and, otherwise also it is not the case of fresh claim made. We find no infirmity in the reasoning of ld. CIT(A) and, in the interest of justice, we confirm his finding and dismiss ground No. (2) of revenue's appeal.
5. The next issue which is composite are has been raised vide ground Nos. 2 to 5 of this appeal. The facts of the case are that the assessee has shown, in his proprietorship concern M/s. Rita International, capital work in progress amounting to Rs. 8,75,98,683/-on account of a wind will being set up. From the replies of the assessee that amount consists of :
(i)  contribution for power evacuations facilities of Rs. 39,00,000/-and
(ii)  installation of electrical line for power transmission and metering in respect of the wind Farm project of Rs. 16,21,776/-.
The AO found that the assessee has included these expenses in the actual cost of the wind mill and has also included them in the wind mill block eligible depreciation at the rate of 80%. The AO proposed to treat these expenses as capital expenditure. The assessee replied vide letter dated 18/11/2010 stating therein that :—
"Regarding the Wind Mill and the capitalization of bills of infrastructure evacuation and transmission lines under the head of Wind Mill eligible for depreciation of 80%, it is submitted that the same is rightly claimed as per law as the same are all related to the purchase and installation of Windmill and as such, are to be treated as apart of the Windmill eligible for depreciation @80%.
It is for your consideration, the electrical line for power transmission and metering cannot be viewed as an asset independent of the Windmill because such electrical line is being used for transmission of power from the Windmill to the grid as the power generated by the Windmill needs to be transmitted to the main grid point from where it is distributed for use. Generally the distance between the place where the Windmill are located and the main grid station, is long and therefore, transmission line/power evacuation facilities are required to be set up to enable the power to reach the main grid. Thus, the power evacuation facilities and the transmission line are integral constituent of the wind power project and without this Windmill would be useless. It is also a fact that the power generated by the Windmill cannot be stored separately.
Even, the commissioning certificate is issued when the Windmill actually generates power unit and such power unit reaches the main grid through the help of PEF (power evacuation facility) and transmission lines. Thus, without PEF and transmission lines, the Windmill cannot be said to be commissioned.
We wish to draw your kind attention to the judgment of the Hon'ble Delhi High Court in the case of CIT v. Mahanagar Telephone Nigam Ltd. as reported in 254 ITR 627 wherein it has been held that the underground cables for telecommunication network form the link between the telephone exchanges and as such forms part of the apparatus of the plant of the assessee engaged in providing the telecommunication network and therefore, the extra shift allowance was allowed on underground cables.
It is also submitted for your consideration that power evacuation facility is a specific expenditure relevant for the Windmill and does not result in creating any independent asset and therefore, part and parcel of the Windmill project. Similarly, the transmission line and metering cannot be viewed de-hors the "Windmill because without transmission line the basic function of Windmill for which it is set up will not be performed. Even in case of any normal machinery, the power cables and other electrical equipments and electrical network farm the part of the machinery itself and cannot be recognized as a separate asset altogether.
In this regard, we would like to bring to your kind notice the judgment in the case of CIT v Delhi Airport Service [2001] 170 CTR (Delhi) 534 wherein the Hon'ble Delhi High Court held that Air condition plant is an integral part of the bus and therefore, depreciation on air conditioner fixed in bus is allowable at the rate applicable to Bus instead of rate applicable to Air conditioner.
We would also draw your attention to the recent judgment in the case of Trumac Engineering Co. (P.) Ltd. v. ITO Mumbai ITA NO. 55S/Mum/2003 dated 27-6-2008 wherein it has been categorically held that transformers, electrical lines etc. are part of the windmill and are eligible for depreciation @ 80%.
Thus, it is submitted that the power evacuation expenditure and transmission lines are farming part of the windmill block eligible for 80% depreciation. It may further be clarified here that no depreciation on windmill has been claimed in the year under consideration as the windmill is still under installation. "
The assessee vide further reply dated 26-11-10 stated that:
"A Wind Mill is being installed for the purposes of generating electricity at a place where sufficient/ required amount of wind is available to make the project viable/feasible. As such the Wind Mills are erected at hilly/uneven sites and it cannot be directly mounted on bare land as it has to be given firm stability and to protect against heavy wind, rains, earth quake etc. The generation of electricity is at one place whereas the supply/ consumption of the same at the other place. In these cases, the supply of 'electricity is generally controlled by the State Government. All the generation of electricity is to be transferred to the State Government grid/ specially defined grid, to supply the same to the consumer/ industries as per the demand because of the fact that the power generation cannot be stored. The function of Wind Mill is to generate power which has to be continuously transmitted through Power Evacuation Facility as a windy site is always with poor evacuation facility which affects the project performance. As such, the Power Evacuation Facility plays a critical role in the Wind Mill project. So without the Power Evacuation Facility, power generated at the wind mill cannot be transmitted to the main electric grids as required by the State Government/power transmitting agencies.
2. It is further a fact that it is almost impractical for each customer to set up and own their private PEF since that would create lot of congestion and traffic of transmission cables near Srid point and therefore, Electricity Board will not accept applications from customers in this regard. Thus, the cost of PEF is recovered by Suzlon on proportionate basis from the Wind Mill owners who are using the PEF. It is also a fact that the payment made towards the PEF is non refundable.
3. Thus, under the above said facts and circumstances of the case and considering the provisions of section 32 of the Act, it is submitted that the PEF is an integral constituent of the Wind power project and the cost incurred for this PEF is a part of cost of the Wind Mill project and accordingly eligible for 80% depreciation. The expenditure incurred on PEF is inextricably linked with the bringing into existence of the Wind Mill without which the Wind Mill could not be commissioned and as such, the said expenditure cannot be separated from the Wind Mill.
4. It is a settled law that all the costs incurred for bringing into existence of an asset is capitalized to the cost of such asset. For example, if there is a term loan taken for purchase of asset, interest on loan is capitalized to the asset and all the costs like transportation, labour etc. are also identified and capitalized with that asset upto the date of this put to use. Hence, on the same principle, the cost incurred by the assessee for contribution towards PEF cannot be separated as a separate expenditure for the purpose of determining the allowability of such expenditure under the Act. "
5.1 However, the AO was not agreeable with the above submission. He has decided this issue under various parts as under :—
'A. Legal position:
The Income-tax Rules allow for 80% depreciation in the following case:-
"(8)(xiii) Renewable energy devices, being-(I) Wind mills and any specially designed devices which run on wind mills"
B. Facts:
The assessee has installed a wind farm project and has included it in wind mill block eligible for depreciation @ 80%. The above-mentioned expenditures relating to power evacuation infrastructure facilities and power transmission network have been treated as a part of the block of plant and machinery eligible for depreciation @ 80%. Before proceeding further, it is essential to understand some basic concepts relating to energy and power systems.
(a) What is a Wind Mil?
A wind mill is a machine which converts the energy of wind into rotational motion by means of adjustable vanes called sails. It is used to generate electricity by converting the energy of wind into rotational motion.
(b) What is renewable energy?
Renewable energy is energy which comes from natural resources like sun-light, wind, rain, tides and geothermal heat, which are renewable (Naturally replenished). Energy from any source which is not naturally replenish-able is called non-renewable energy. Wind Mill is a machine which is used to GENERATE renewable energy.
(c) Concepts related to a power system :
ELECTRIC POWER SYSTEM:
An electric power system consists of the following parts:
1.  Power generation facility.
2.  Power transmission facility.
3.  Power distribution network.
1. The power generation system is used to generate electric power from different sources of energy like coal, nuclear power, hydel power, wind energy etc. These sources of power are further classified into renewable and non-renewable/energy sources.
A wind mill is one such device which is used to generate electricity by converting the energy of wind into rotational motion, and is therefore, a renewable energy device,
2. Power transmission facility: Power transmission refers to bulk transfer of electric energy from generating power plant to sub-station located near population centres. The network used for transmitting power is called the power transmission facility.
3. Power distribution network is the local network of distribution of electricity between high voltage sub-station and the final customers.
(d) What is power evacuation infrastructure facility ?
'Power Evacuation Infrastructure Facilities:- are basically a part of the power transmission network. Power projects normally develop as a cluster. The power evacuation scheme consists of the following infrastructure facilities:-
1.  Feeders for evacuation of power from the wind projects.
2.  Extra high tension sub-station for grouping the total wind power and stepping it up to a higher voltage level.
3.  Line for inter-facing the above facilities to a transmission/distribution network.
This concept is presented through the schematic flow chart as under:
Power generation network comprising of wind mill in case of wind power project
Power transmission network including power evacuation facilities
Power distribution network
C. Analysis of the facts :
The facts pertaining to the above expenditures are as follows:
1. Contribution to power evacuation infrastructure:
The assessee has only made a contribution for using the power evacuation facilities which are actually owned by the Electricity Board. The assessee, therefore, does not enjoy ownership of the infrastructure evacuation networks. It has made a one time payment to the Electricity Board so as to earn the rights for usage of the infrastructure network. As per Section 32 of the Income-tax Act, 1961, for claiming depreciation on assets, the first condition is that the assessee should have ownership of the asset. On the contrary, the assessee has in his reply himself admitted that it is almost impractical for each customer to set up his own PEF and has also not given any proof or argument regarding his ownership of this infrastructure. It is very clear that the assessee is not the owner of the power evacuation infrastructure and is only one of the contributors for usage of the infrastructure, actually owned by the Electricity Board. Therefore, what is to be examined is the nature of the expenditure revenue or capital.
Capital v. Revenue
The test of whether an expenditure is revenue or capital in nature has been discussed by the Hon'ble Supreme Court in a number of cases. In a landmark judgment in the case of Assam Bengal Cement Company Ltd.27 ITR 34, the Hon'ble Supreme Court has approved the tests laid down in various previous cases regarding the determination of an expenditure being capital in nature. The excerpts are as follows:- "It is not easy to define the term 'capital expenditure' in the abstract or to lay down any general and satisfactory test to discriminate between a capital and a revenue expenditure. Nor is it easy to reconcile all the decisions that were cited before us for each case has been decided on its peculiar facts. Some broad principles can, however, be deduced from what the learned Judges have laid down from time to time. They are as follows:
1. Outlay is deemed to be capital when it is made for the initiation of a business, for extension of a business, or for a substantial replacement of equipment; vide Lord Sands in Commissioners of Inland Revenue v. Granite City Steamship Company. In City of London Contract Corporation v. Styles Bow en, L. J., observed as to the capital expenditure as follows:
'You do not use it "for the purpose of your concern, which means, for the purpose of carrying on your concern, but you use it to acquire the concern.'
2. Expenditure may be treated as properly attributable to capital when it is made not only once and for all, but with a view to bringing into existence an asset or an advantage for the enduring benefit of a trade: vide Viscount Cave, L.C, in Atherton v. British Insulated and Helsby Cables Ltd. - If what is got rid of by a lump sum payment is an annual business expense chargeable against revenue, the lump sum payment should equally be regarded as a business expense, but if the lump sum payment brings in a capital asset, then that puts the business on another footing altogether. Thus, if labour saving machinery was acquired, the cost of such acquisition cannot be deducted out of the profits by claiming that it relieves the annual labour bill, the business, has acquired a new asset, that is, machinery.
The expressions 'enduring benefit' or 'of a permanent character' were introduced to make it clear that the asset or the right acquired must have enough durability to justify its being treated as a capital asset.
3. Whether for the purpose of the expenditure, any. capital was withdrawn, or, in other words, whether the object of incurring the expenditure was to employ what was taken in as capital of the business. Again, it is to be seen whether the expenditure incurred was part of the fixed capital of the business or part of its circulating capital Fixed capital is what the owner turns to profit by keeping it in his own possession. Circulating or floating capital is what he makes profit of by parting with it or letting it change masters. Circulating capital is capital which is turned over and in the process of being turned over yields profit or loss. Fixed capital, on the other hand, is not involved directly in that process and remains unaffected by it."
Based on this judgment and subsequent judgments, the criteria for an expenditure being capital has been discussed under the following headings:-
(i)  Expenditure for acquisition of capital asset,
(ii)  Expenditure once and for all.
(iii)   Expenditure to acquire and enduring benefit and
(iv)  Expenditure relating to fixed capital
These principles have been reiterated by the Hon'ble 'Supreme Court in the case of Ballimal Naval Kishore v. CIT [1997] 224 ITR 414. In this case, the Apex Court endorsed the view expressed by the Bombay High Court in New Shorrock Spg. and Mfg Co. Ltd. v. CIT [1956] 30 ITR 338. In the light of the criteria above, the assessee's contentions are examined as follows;-
The assessee has incurred the said expenditure to acquire rights to use the power evacuation infrastructure facility by making a one time payment to the Electricity Board. This one time payment entitles the assessee to use the power evacuation infrastructure over a long period of time to transmit the electricity generated by the wind mill, thereby bestowing an enduring benefit on the assessee. The expenditure relates to the fixed capital i.e. rights to use the infrastructure facility of the assessee. As long as the assessee owns the wind mill and generates electricity, he would be using the power evacuation infrastructure facility for transmission of electricity. As and when the assessee chooses to sell the wind mill, the subsequent buyer would also have to buy the rights to use the power evacuation infrastructure. Therefore, though the assessee is not the owner of the power evacuation infrastructure, the expenditure incurred by the assessee to acquire rights to use the power evacuation infrastructure is a capital expenditure.
This stand of the revenue has been upheld by the Hon'ble Supreme Court in the case of Travancore Cochin Chemicals Ltd. v. CIT 106 ITR 900, where the Apex Court has held that laying of a new road and paying money to the Govt. of Kerala for the same is of capital in nature.
Without prejudices to the above, even if in subsequent appellate proceedings, the assessee claims that it is the owner of the power evacuation infrastructure, the power evacuation infrastructure is only related to the transmission of electricity.
As has been mentioned above, the Income-tax Rules, 1962, provide for special rates of depreciation only for renewable energy devices being wind mills and any devices which run on wind mills.
The Power Evacuation Infrastructure is not a renewable Energy Device. It is worthwhile to note that power evacuation infrastructure is also required even if the power generation plant works on thermal energy or any other non-renewable energy device. Had the assessee set up the wind mill in a energy farm having both renewable and non-renewable energy devices, would the power evacuation infrastructure still be eligible for depreciation at special rate of 80% ? The answer is an emphatic "No because the power evacuation infrastructure is required only to transmit electricity which may be generated either by renewable or non-renewable energy devices.
The legislative intent behind providing special rates of depreciation to renewable energy devices is to promote the generation of power by renewable energy devices. This cannot be artificially overstretched to include all the transmission and distribution net works as parts of renewable energy devices.
In view of the discussion above, it is held that expenditure relatable to power evacuation infrastructure facilities amounting to Rs. 39,00,000/- is a capital expenditure which cannot be treated as part of the block of renewable energy devices being wind mill eligible for depreciation @ 80%. It is, therefore, held to be a capital expenditure and the value of block of wind mill eligible for depreciation @ 80% is reduced accordingly.
Electrical line for power transmission and metering; The assessee has incurred an expenditure of Rs. 16,21,776/-. The assessee has also included this expenditure in the actual cost of the wind mill, eligible for depreciation @ 80%. But as can be seen from the discussion above, the transmission and distribution net work is actually plant and machinery which is eligible only for normal rates of depreciation @ 15%. It is by no stretch of imagination a part of the power generation wind mill device. It's only function is the transmission of the generated power to the common grid.
The assessee's reliance on various case laws is misplaced as the facts relating to telephone lines or air condition buses are distinguishable on facts from the said case and have no relevance
Cost of other assets and accessories:
 Cost of components & accessories Rs. 13,91,0001-
 Cost of electrical items and components Rs. 25,48,0001-
 Wind 'mills partsRs. 5,64,44,0001-
 Tubular TowerRs. 1,35,20,000/-
 Total Rs. 7,39,20,000/-
 Cost of power transmission & metering facilities = Rs. 16,21,7767-
 Proportion of cost of power evacuation = Rs. 16,21,776/-
 
Rs.7,55,24,776
 (Rs. 7,39,03,000 + Rs.16,21,776)
 
= 0.022%
 
 Civil work relatable to power transmission and metering Rs.5770527 × 0.022 Rs. 1,26,952
  KREDL processing fees for the project relatable to power transmission and metering Rs. 100000×0.022 Rs.2,2007-
  Labour expenses relatable to power transmission and metering Rs.2 191020×0.022 Rs.48,2037-
  Labour expenses of testing and commissioning relatable to power transmission and metering Rs. 112360×0.022 Rs.2,4727-
In view of the discussion held above, expenditure pertaining to power transmission and metering facilities amounting to Rs. 18,01,603/- is held to be normal plant and machinery eligible for depreciation @ 15%. Therefore, the value of the block of wind mill is accordingly decreased by Rs. 18,01,603/-. Therefore, the value of the block of wind mill eligible depreciation @ 80% is hereby reduced by Rs.57,01,6037- (Rs.39,00,000 + 18,01,603).'
5.2 The Ld. CIT(A) has given his finding as under :—
'I have considered the basis of disallowance made by the AO and the arguments of the AR on the issue. I have also examined the role of power evacuation facility set up by M/s Suzlon Limited in the windmill project. The contribution towards the usage of power evacuation facility for the life of the windmill is a one-time payment without which the electricity produced by the windmill cannot be made available to the grid for eventual use of customers. The wind mill by itself cannot be said to be commissioned until and unless power evacuation facility is installed and attached to the wind mill for power evacuation. It is also important to appreciate that establishing power evacuation facility is highly capital intensive and becomes economically viable only when its costs are share by number of wind mill project owners. Here it is relevant to note that though the power evacuation facility is owned by M/s Suzlon Limited, no depreciation on the same has been claimed in their books of account. The payments made by the wind mill owners for the usage of same as one time payment is also non refundable. The issue whether the wind mill owner can be considered the owner of power evacuation facility for the purposes of depreciation in the given circumstances is important. The concept of beneficial owner has been discussed in detail by Hon'ble High Court of Madras in the case of CIT v. Smt. A. Siva Kami [2010] 322 ITR 64 and it has been held as under.
"It is clear that the provision required that the tangible assets should be owned by the assessee wholly or partly. The words "owned wholly or partly" have been considered by the Supreme Court and various High Courts and explained that under the common law "owner" means a person who has got a valid title legally conveyed to him after complying with the requirements of law, such as, the Transfer of Property Act, the Registration Act, etc,. In the context of the IT Act, 1961, having regard to the ground realities and further having regard to the object of the Act, viz., to tax the income, "owner" is a person who is entitled to receive income from the property in his own right. In order to claim the benefit of s. 32, it is not necessary that the assessee should be a complete owner. The expression "owner" used in s. 32 has been considered by taking into account all its phrases and aspects, The owner need not necessarily be a lawful owner entitled to pass on the title of the property to another. It could be seen from the order of the first appellate authority the CIT(A) that it is the case of assessee before him that though the buses were not in their names and permits were also not in their names they were the beneficial owners. In order to establish the beneficial ownership of the estate the assessee has furnished the documents relating to the loans obtained by the assessees for the purchase of the buses which are in the names of others, the repayment of the loans were made out of the collections from the buses, the road tax, insurance, etc., were paid by the assessee; the assessee has obtained undertaking from the persons in whose names the vehicles and permits are there for plying the buses in the name of KAS Transports; the entire collections from the buses is shown in their income and expenditure account; and the entire expenditure pertaining to the buses including drivers' salary, diesel, spares, R.T.O. tax, interest on the loans and other expenses were met by the assessee. The assessee has also shown in the balance sheet the buses under dispute as assets of KAS. Transports, which is a proprietary concern of the assessee. Thus, the assessee has made available all the documents relating to the business and also established, before the authorities that she is a beneficial owner, though her name has not been shown as owner of the buses in the permit as well as the RC book and she is virtually the beneficial owner and receiving the income from exploitation of buses and incurred expenses as stated above. The above stated principle laid down by the Supreme Court and other High Courts is in favour of the assessee and in similar circumstances. Hence, the view taken by the first appellate authority as confirmed by the Tribunal is in accordance with the requirements of the statutory provision, which has been explained by the Supreme Court and other various High Courts. As such, there is no illegality or irregularity in the order of the Tribunal, which warrants interference by the Court by entertaining the appeals CIT v. Podar Cement (P.) Ltd. [1997] 141 CTR 67/226 ITR 625 (SC), CIT v. General Marketing & Manufacturing Co. Ltd. -[1996) 132 CTR 50/222 ITR 574 (Cal.) and CIT v. Fazilka Dabwali TPT. Co. (P.) Ltd. [2004] 270 ITR 398/[2005] 144 Taxman 376 (Punj. & Har.) followed."
It is apparent from the perusal of above detailed judgment that the decision of Hon'ble Jurisdictional Court in the case of CIT v. Fazilka Dabwali Transport Company Ltd. 270 ITR 398 has been followed by the Hon'ble High Court of Madras. As such the facts of the case under consideration are on the similar lines as the appellant does not own the asset on paper but it is using the same as the owner to the extent he has made contribution for same. Further, the revenue realized from the operation of wind mill/power evacuation facility has been credited 'income. In the circumstances the assessee not being owner of the power evacuation facility in its books of account cannot be taken to be the basis to disallow the claim of depreciation.'
5.3 Before us both parties have taken their earlier stand. It was argued by Ld. D.R. that on the contribution made by the assessee for the use of Power Evacuation Infrastructure facilities in Wind Mills is not a power generation device but it is a power transmission device, on which depreciation @ 15% is allowable and not @ 80% which has been allowed by ld. CIT(A). He further argued that the expenditure of Rs. 39,00,000/- incurred towards acquiring rights to use this Power Evacuation Infrastructure facility is a capital expenditure and not a revenue expenditure. He has further argued that power transmission and distribution net work is a plant and machinery which is eligible for depreciation @ 15% and @ 80% as has been allowed by ld. CIT(A).
5.4 Per contra ld. A.R. has reiterated all reasons given before AO and ld. CIT(A) apart from relying on the finding of Ld. CIT(A).
5.5 After cogitating the entire evidence available on record in the light of the obtaining facts of the case, the paper books, et. Al, vis a vis the oral and written submissions of the parties we have found no error in the impugned finding of Ld. CIT(A). We have tried and understood that the Income-tax Rules provide for allowance of depreciation at the rate of 80% on 'renewable energy devices' - like windmills and any other specially designed devices, which run on wind mills. The assessee has installed a 'wind farm project' and has included it in the windmill block eligible for depreciation @80%. A windmill is a machine which uses' energy of wind' to rotate adjustable vanes 'sails'* which generate electricity. A renewable energy is the energy of sun light, wind, tides and geothermal heat. The term 'renewable' refers to natural replenishment of that kind of energy. Thus we can safely hold that the wind mill uses natural (= renewable) energy and that is why the energy generated in this process sis called as a 'renewable energy'. What is not a renewable energy is a non renewable energy. We have also analysed that any 'electric power system' (EPSO to become operational and useful, can be divided into three systems, which when coalesced become the EPS. There parts are:—
(i)  power generation system, which is wind mill in this case;
(ii)  power transmission system after power is generated it needs to be transmitted to places wherever it is required; and
(iii)  power distribution system - this energy has to be distributed as per requirement.
Without the existence of the above three system (i + ii + iii), the idea of wind mill is meaningless. Thus, one can say with impunity that all the above i, ii & iii systems, go to form an essential composite system known as 'wind mill'. This composite system has been referred to in Rule 8 (sic) of the I.T. Rules to be eligible for 80% depreciation. Wind mill is invariably installed at a place where ample wind pressure is found to move the sails which in turn generate electricity. The electric power is generated at places which are usually intractable and near which the consumption of that energy is not possible. Therefore, this energy has to be 'transmitted' with the use of a 'transmission system' which further requires a 'distribution system' to make use of that energy. After all the energy is produced by way of generation for its useful utility and not for a show portraying the method as to how energy is generated. Therefore, the generation, the transmission and distribution of energy, in fact is the 'Wind-Mill'. This Rule especially provides for such a high rate of depreciation because the generation of electric energy is necessary for the economic upliftment' of the messes. All the generated electricity is transferred to the state Government grids to supply it to consumers, be it individual or industry as the generated electric energy cannot be stored an transported like liquid or gas energy of other kinds. Without the combination of the above these systems the idea of wind mill will not became viable. Without the system No. (ii) and (iii) the wind mill cannot, even, be commissioned. To put in simple words without system No. ii & iii the generation of electricity is not even possible. We cannot store electricity; we cannot simply go on generating it in the air and let it waste them' no purpose would be served and without distribution i.e., taking it to the doors of the consumer again it is all waste. Therefore, the expenditure incurred towards systems (i), (ii) and (iii), have to be clubbed and cannot be separated. Likewise, the power evacuation infrastructure facilities are a part of power transmission network. This facility consists of the following :—
(1)  Feeders for evacuation of power from the wind projects.
(2)  Extra high tension substation for grouping the total wind power and stepping it upto a higher voltage level.
(3)  Line for inter facing the above facilities to a transmission/distribution network.
The assessee has to contribute for using the power evacuation facilities which are normally owned by the Electricity Board. The assessee made a onetime payment to the E.B so as to earn the 'right' for usage of the infrastructure network. On that basis, the AO wants to say that, in fact, the assessee is not the owner of these facilities and unless he is its own he cannot claim depreciation u/s 32 of the Act where under it is one of the necessary condition that the assessee would own a capital asset to claim depreciation. In our considered opinion the AO has misdirected himself and without understanding this peculiar circumstances has gone on hyper pedantic route. The assessee has made one-time payment by way of contribution for using the PE facilities which are owned by the EB, but the assessee has acquired a 'right to use this facility' - which is owned as a right so the assessee is the owner of that 'right' in the facilities. Thus, it can be safely stated that the assessee is using the system as real owner alight he is not owner on papers. In the regard we draw support from the decision of CIT v. Fazilka Dabawali Transport Co. (P.) Ltd. [2004] 270 ITR 398/[2005] 144 Taxman 376 (Puj. & Har.) and the case of CIT v. Smt. A SivaKami [2010] 322 ITR 64 (Mad.). In the Madras High Court decision it has been held thus :—
'It is clear that the provision required that the tangible assets should be owned by the assessee wholly or partly. The words "owned wholly or partly" have been considered by the Supreme Court and various High Courts and explained that under the common law "owner" means a person who has got a valid title legally conveyed to him after complying with the requirements of law, such as, the Transfer of Property Act, the Registration Act, etc. In the context of the IT Act, 1961, having regard to the ground realities and further having regard to the object of the Act, viz., to tax the income, "owner" is a person who is entitled to receive income from the property in his own right. In order to claim the benefit of s. 32, it is not necessary that the assessee should be a complete owner. The expression "owner" used in s. 32 has been considered by taking into account all its phrases and aspects. The owner need not necessarily be a lawful owner entitled to pass on the title of the property to another. It could be seen from the order of the first appellate authority the CIT(A) that it is the case of assessee before him that though the buses were not in their names and permits were also not in their names they were the beneficial owners. In order to establish the beneficial ownership of the estate the assessee has furnished the documents relating to the loans obtained by the assessees for the purchase of the buses which are in the name of others, the repayment of the loans were made out of the collections from the buses, the road tax, insurance, etc., were paid by the assessee; the assessee has obtained undertaking from the persons in whose names the vehicles and permits are there for plying the buses in the name of KAS Transports; the entire collections from the buses is shown in their income and expenditure account; and the entire expenditure pertaining to the buses including drivers' salary, diesel, spares, R.T.O. tax, interest on the loans and other expenses were met by the assessee. The assessee has also shown in the balance sheet the buses under dispute as assets of KAS. Transports, which is a proprietary concern of the assessee. Thus, the assessee has made available all the documents relating to the business and also established before the authorities that she is a beneficial owner, though her name has not been shown as owner of the buses in the permit as well as the RC book and she is virtually the beneficial owner and receiving the income from exploitation of buses and incurred expenses as stated above. The above stated principle laid down by the Supreme Court and other High Courts is in favour of the assessee and in similar circumstances. Hence, the view taken by the first appellate authority as confirmed by the Tribunal is in accordance with the requirements of the statutory provision, which has been explained by the Supreme Court and other various High Courts. As such, there is no illegality or irregularity in the order of the Tribunal, which warrants interference by the Court by entertaining the appeals CIT v. Podar Cement (P.) Ltd. [1997]141 CTR 67/226 ITR 625 (SC), CIT v. General Marketing & Manufacturing Co. Ltd. [1996] 132 CTR 50/222 ITR 574 (Cal.) and CIT v. Fazilka Dabwali TPT. Co. (P.) Ltd. [2004]270 ITR 398 (P&H) followed.
It is apparent from the perusal of above detailed judgement that the decision of Hon'ble Jurisdictional Court in the case of CIT v. Fazilka Dabwali Transport Company Ltd. 270 ITR 398 has been followed by the Hon'ble High Court of Madras. As such the facts of the case under consideration are on the similar lines as the appellant does not own the asset on paper but it is using the same as the owner to the extent he has made contribution for same. Further, the revenue realized from the operation of wind mill/power evacuation facility has been credited 'income. In the circumstances the assessee not being owner of the power evacuation facility in its books of accounts cannot be taken to be the basis to disallow the claim of depreciation.'
Accordingly, we uphold the order of ld. CIT(A). Any part of plant which is an integral part of capital asset which is legible for higher depreciation even if that other part is eligible, otherwise, for normal depreciation, it became entitled to higher rate of depreciation. For the above conclusion we rely on the decisions of Hon'ble Delhi High Court in the cases of (i) CIT v. Mahanagar Telephone Nigam Ltd. [2002] 254 ITR 627/120 Taxman 635 and (ii) CIT v. Delhi Airport Service [2002] 120 Taxman 792 interalia. Accordingly, we don't find any merit in ground No. 3 to 5 of revenue's appeal. We dismiss them.
6.The Ground Nos. 6 and 7 are formal in nature.
7. As a result, we dismiss this appeal of the revenue.
P. SEN
*In favour of assessee.

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Regards,