Telangana State Power Generation Corporation Ltd v ACIT — generation of electricity is manufacture or production of an article or thing, so a power company is within the s.32AC investment allowance
ITATHelps taxpayerNo later treatment found
The Assessing Officer has disallowed my power company's section 32AC investment allowance on the ground that generating electricity is not the manufacture or production of an article or thing, and that the Finance Act 2013 memorandum did not mention power companies. Is there anything on the point?
Yes. On 14 June 2021 the ITAT Hyderabad set aside the Commissioner (Appeals) and directed the Assessing Officer to allow a section 32AC deduction of about Rs 301 crore to Telangana State Power Generation Corporation Ltd for AY 2016-17. The Assessing Officer had reasoned that because the Memorandum to the Finance Act 2013 did not name power generating companies, they were outside section 32AC, and that the case law on additional depreciation under section 32(1)(iia) could not be carried across. The Tribunal rejected that. It followed the ITAT Delhi decision in Vedanta Ltd, which had itself relied on the Supreme Court in Sesa Goa and NTPC, and a Chennai Bench decision holding that generation of electricity is a manufacturing activity, and it reasoned from the nature of electricity itself: it can be transmitted, transferred, delivered, stored and possessed, and the Supreme Court in CST v Madhya Pradesh Electricity Board had held that electricity falls within the definition of goods under the Sale of Goods Act, 1930. On that footing the appeal was allowed.
Statutory position — s.32AC: the fifteen per cent investment allowance for new plant and machinery — two different windows, two different thresholds, and a five-year lock-in that survives the allowance
CBDT Circulars & InstructionsCuts both ways
A company client has been told it can claim a fifteen per cent investment allowance on new plant. Which years does section 32AC actually cover, what is the investment threshold, and what happens if the plant is sold?
Section 32AC is a spent provision and its two limbs cover different years on different thresholds. Sub-section (1), inserted by the Finance Act, 2013 with effect from 1 April 2014, applies only to a COMPANY engaged in the business of manufacture or production of any article or thing which acquires AND installs new assets after 31 March 2013 but before 1 April 2015 with an aggregate actual cost exceeding one hundred crore rupees; it gives fifteen per cent for AY 2014-15 on assets acquired and installed after 31 March 2013 but before 1 April 2014, and fifteen per cent for AY 2015-16 on assets acquired and installed after 31 March 2013 but before 1 April 2015, reduced by whatever was allowed for AY 2014-15. Sub-section (1A), inserted by the Finance (No. 2) Act, 2014 with effect from 1 April 2015, lowers the entry price: fifteen per cent where the actual cost of new assets acquired during a previous year exceeds twenty-five crore rupees and those assets are installed on or before 31 March 2017. Sub-section (1B), inserted by the same Act from the same date, kills sub-section (1A) for any assessment year commencing on or after 1 April 2018. So the whole section reaches AY 2014-15 to AY 2017-18 and no further. Whatever is allowed carries a five-year lock-in under sub-section (2): if the new asset is sold or otherwise transferred within five years of the date of INSTALLATION, otherwise than in an amalgamation or demerger, the deduction is deemed to be business income of the year of transfer, "in addition to taxability of gains, arising on account of transfer of such new asset".
