No Deduction to Evacuation of Land for Installation of Wind Turbine Generators: Kerala HC rejects Muthoot Finance Ltd’s Plea [Read Judgment]

Muthoot Finance

A division bench of the Kerala High Court recently granted partial relief to Muthoot Finance Ltd and observed that evacuation of land for installation of Wind Turbine Generators does not amount to act of improvement of land, hence, administrative charges are not revenue expenditure under the Income Tax Act.

Assessee, advances loans against the gold ornaments pledged with it. The department, for the relevant assessment year, re-opened assessment against the assessee and disallowed the depreciation claimed on the wind mills and interest on investment in the assessee’s new line of business.

The Muthoot Finance Ltd has purchased three wind mills and spent some amount  for erecting the three windmills and paid Infrastructure Development Charges (IDC) to Tamil Nadu Electricity Board (TNEB). Thereafter, the Assessee claimed depreciation for infrastructure development charges towards the cost of land. The Revenue doubted the nature of amount spent by the Assessee on the wind mills.

In the same year, the assessee started a new line of business., i.e, a FM Radio for which, a license fee of Rs. 8,32,16,000 was paid to the to the Ministry of Information & Broadcasting and Bharati.

The assessee, has submitted that the assessee paid the land cost of `45 lakh separately. The rest of the expenditure, according to him, is towards infrastructure development, relatable to the Wind Turbine Generators. He also contended that the assessee duly acquired the licence and, on its strength, it commenced work for setting up the FM Radio station. So it cannot be said that the asset was not “put to use.”

Both the appellate authorities have concluded the matter in favour of the Revenue. The Tribunal, while dismissing the appeal of the Assessee, held that the debit notes produced by the Assessee revealed that the amounts were paid towards IDC representing infrastructure development charges.

Aggrieved by the orders, the assessee approached the High Court on appeal.

Based on the above findings, the division bench concluded that the AO and both the appellate authorities have misread evidence, and that has led to the perversity of findings.

The division bench comprising of Acting Chief Justice Antony Dominic and Justice Dama Sheshadiri Naidu said that, to install the wind turbine generators, the Assessee must have excavated some earth on the land it purchased. Such excavation, does not amount to improving the land; rather, it amounts to a preparatory step for erecting the wind turbines. Therefore, the land evacuation, if any, must be taken as part of infrastructure development for establishing the windmills. Therefore, this Court held that the AO and both the appellate authorities have misread and misapplied the evidence, and that has led to the perversity of findings. This Court believes it to be a judicially reviewable error and accordingly set aside the Tribunal’s finding on the depreciation. As a result, the depreciation of Rs. 38,76,000 (50% for second half addition) claimed on the windmills was allowed.”

Regarding the source of capital invested in new line of business the High Court based on the tribunal order concluded that by the time the assessee claimed the tax benefit, it had not set up the business or made it operational; so the question of interest concession under section 36 (1) (iii) of the Act does not arise. Accordingly the court disallowed the depreciation claim of assessee regarding the source of fund invested in new line of business.

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