Additional depreciation on new asset not subject to setting up or operational connectivity with main business

This article summarizes recent ruling of the Madras High Court (HC) in the case of CIT v M/s Hi Tech Arai Limited (Taxpayer) [Tax Case (Appeal) Nos. 670 and 671 of 2009] on the issue of allowability of additional depreciation on newly set-up windmills, under the Indian Tax Law (ITL), where the setting up of windmills had no connection with the main business activity of the Taxpayer. The HC held that, for the purpose of claiming additional depreciation under the ITL, it is not required for the setting up of new machinery or plant to have any operational connectivity with the main business of the Taxpayer.

Background and facts

• The Taxpayer is engaged in the business of manufacture of oil seeds, moulded rubber parts etc., apart from power generation.

• The Taxpayer had set up 2 windmills in addition to the existing 4 windmills, thereby increasing the power generation capacity more than 50%.

• The power generated from the wind energy was used for self-consumption and the surplus was sold to the State Electricity Board.

• The ITL provides for the allowability of additional depreciation, when a new undertaking is set up or there is a substantial expansion of an existing undertaking by a taxpayer which is engaged inthe business of manufacture or production of any article or thing.

• For the relevant assessment years, the Taxpayer claimed additional depreciation on setting up of windmills which was disallowed by the Tax Authority, on the ground that the main business of the Taxpayer was not power generation.

• The first and second appellate authorities allowed the claim of additional depreciation made by the Taxpayer. Aggrieved by this, the Tax Authority preferred an appeal before the HC.

Issue for consideration:-Whether the setting up of new machinery or plant, which is not used in the main business of the Taxpayer, is eligible for additional depreciation under the ITL.

Contentions of the Tax Authority :- The setting up of the windmill has absolutely no connection with the Taxpayer’s main business of manufacture of oil seeds etc.

Ruling of the HC

• For the purpose of claiming additional depreciation under the ITL, the condition to be satisfied by a taxpayer already engaged in the business of manufacture or production of any article or thing, is to set up a new machinery or plant.

• The setting up of a windmill will fall within the expression ’setting up of new machinery or plant’.

• The new machinery or plant need not have any operational connectivity to the article or thing that was being manufactured by the Taxpayer.

• It was held that the Taxpayer was entitled to the claim of additional depreciation on setting up of the windmill.

Comments :-The HC has taken a liberal view in the matter of grant of additional depreciation.

MAHARASHTRA VALUE ADDED TAX (MVAT)

Value Added Tax (VAT) is a modern and progressive form of sales tax. It is charged and collected by dealers on the price paid by the customer. VAT paid by dealers on their purchases is usually available for set-off against the VAT collected on sales.

VAT applies to all types of businesses including:

(1)Importers

(2)Manufacturers

(3)Distributors

(4)Wholesalers

(5)Retailers

(6)Works Contractors

(7)Lessors

Registration Under MVAT Act, 2002

For New Dealer the registration is compulsory on exceeding the threshold turnover of limit & also voluntary registration scheme exist for old dealer. The registration under BST Act will continue to be registration under MVAT Act,2002 You must apply within 30 days of becoming liable for registration, that iswhen your turnover first exceeds the thresholds set out in this leaflet or you are liable to register for CentralSales Tax. There is a special form, Application for Registration, form number 101, which you can obtainfrom your local Sales Tax Office

Registration for new dealer

FORM NO 101 FOR REGISTRATION

Form 101 tells you what to do and what information you must provide. There is also a leaflet, number MVAT 103, to help you complete the form.

Turnover Limit for Registration

Return Filing Chart

Rs. 12,000 or less	6 monthly	25 days from end of period
More than Rs.12,000 but less than Rs. 1,00,000	Quarterly	25 days from end of quarter
Rs. 1,00,000 or more	Monthly	20 days from end of January / February and 25 days
Retailer opting for composition scheme	6 monthly	25 days from end of period

Forms under MVAT Act, 2002

For Monthly return	Form No.201
For Quarterly	Form No.202
For 6 Monthly Return	Form No.203
For Composition Dealer Retailer Restaurant Bakery Secondhand motorcar vechile dealer Caterer	Form No.204 Form No.205 Form No.206 Form No.207 Form No.214
Letter of Authority Consultant Relatives
For Audit Report	Form No.704

Rates under MVAT Act, 2002

Schedule	Rate
Schedule "A"	NIL
Schedule "B"	1%
Schedule "C"	4%
Schedule "D"	20% to 40%
Schedule "E"	12.5%

Profession Tax

Returns :

1. Every employer registered under this Act shall furnish to the prescribed authority ,a return insuch form, for such periods and by such dates as may be prescribed, showing therein the salariesand wages paid by him and the amount of tax deducted by hi
   
2. Every such return shall be accompanied by a treasury challan in proof of payment of fullamount of tax due according to the return, and a return without such proof of payment shall notbe deemed to have been duly filed.
   
3. Where an employer has without reasonable cause failed to file such return within the required time, theprescribed authority may, after giving him a reasonable opportunity of being heard, impose upon him apenalty of rupees three hundred per return.