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QUESTIONS & ANSWERS

Whether windmills are eligible for straightline depreciation

QUESTION: We, a textile mill, have installed three windmills for the sake of saving power cost by using the energy created by windmills for captive consumption. We find that there is some tax advantage in postponing the claim for depreciation at the normal rate, so that we would like to claim depreciation on straightline basis in lieu of the higher normal rate as permissible for generation of power under Sec. 36(1)(i). Our auditor says that it is not possible. Please advice.

ANSWER: The provision enabling depreciation on straightline basis under Appendix 1A is meant only for those covered by the Electricity (Supply) Act as explained in Board Circular No. 772 dated December 23, 1998, explaining the set of amendments to Sec. 32, 41(2) and 50A brought in by the Income-tax (Amendment) Act, 1998, in the following words: “Sub-section (2), as at present, was inserted by the Finance (No. 2) Act, 1998, with retrospective effect from April 1, 1998. It reintroduces the provision for depreciation before block system substituted the pre-existing system, but limits it to power sector only at its choice.” (emphasis supplied) Appendix 1A inserted in pursuance of the same amendment is not applicable for those companies which are not solely engaged in the business of generation of electricity or distribution, so that the block concept will continue to be applicable with right to depreciation vide Appendix I. The amendment had become necessary for those governed by the Electricity Act and Indian Electricity Rules, 1956, which are required to keep accounts as prescribed therein with depreciation on straightline method with tariff chargeable by them with reference to such accounts. Where business is not one covered by the Electricity Act, which incidentally applies only for those with the sole object of carrying on the generation of power, normal rates of depreciation under Appendix I alone will be applicable. It is in this context, the Tribunal in Dy. CIT v Samkrg Pistons & Rings Ltd. (2009) 34 SOT 401 (Hyd) points out with reference to the Circular No.772 referred above that the block concept will continue to apply for all others not governed by the Indian Electricity Act.

The auditor is, therefore, right on his advice to the reader.

S. RAJARATNAM

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