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Yes. The Rajasthan High Court has upheld Hindustan Zinc Ltd.’s claim for additional depreciation on new machinery at its captive and wind power plants, rejecting the Revenue’s Section 263 revision challenge.
The Division Bench held that electricity is movable property and that generating power falls within “production,” a wider concept than “manufacture” for Section 32(1)(iia) of the Income-tax Act.
What the Rajasthan High Court decided
In Commissioner of Income Tax, Udaipur v. M/s Hindustan Zinc Ltd., D.B. Income Tax Appeal No. 183/2014, a Division Bench comprising Chief Justice Sanjay K. Agrawal and Justice Vinit Kumar Mathur dismissed the Revenue’s appeal on 5 October 2026. The court upheld the Income Tax Appellate Tribunal’s decision restoring the assessment that had allowed Hindustan Zinc’s additional depreciation claim.
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The parties were directed to bear their own costs. The ruling answers the substantial questions of law against the Revenue and in favour of the assessee.
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How much depreciation was claimed
For Assessment Year 2007-08, Hindustan Zinc claimed additional depreciation of ₹18,87,27,973 under Section 32(1)(iia). The claim covered two categories of power-generation assets:
| Asset category | Location or description | Claimed additional depreciation |
|---|---|---|
| Captive-generation machinery | New plant and machinery at the Chanderia captive power plant | ₹9,90,887 |
| Wind-power machinery | Wind power plant | ₹18,77,37,086 |
| Total | Both categories | ₹18,87,27,973 |
Hindustan Zinc manufactured zinc, lead, silver and related products. Electricity generated by the captive and wind plants was used in those manufacturing operations. The wind-power component represented almost the entire amount claimed.
What Section 32(1)(iia) required
The court considered the version of Section 32(1)(iia) amended by the Finance Act, 2007. Its operative requirements were examined in two parts.
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New machinery acquired and installed after the statutory date
The asset had to be new machinery or plant, other than a ship or aircraft, acquired and installed after 31 March 2005. The first condition was undisputed in Hindustan Zinc’s case: the relevant machinery had been acquired and installed after that cut-off.
An assessee engaged in manufacture or production
The assessee also had to be engaged in the manufacture or production of an article or thing. Where the statutory conditions were satisfied, the provision allowed a further deduction equal to 20% of the asset’s actual cost.
Excluded assets
The provision excluded machinery or plant that was:
- Previously used, whether inside or outside India;
- Installed in an office or residential accommodation, including accommodation in the nature of a guest-house;
- Office appliances or road transport vehicles; or
- Property for which the whole of the actual cost was otherwise allowable as a deduction in one year.
Why electricity qualified as production
The Revenue’s position was that power generation did not amount to manufacture or production of an article or thing. The High Court rejected that narrow reading for this depreciation analysis.
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Repair Windows errors before they cause bigger problemsFix Now →Scan for outdated or missing drivers - takes under a minuteDriver Scan →It treated electricity as movable property capable of being transmitted, transferred, delivered, stored or possessed. On that legal characterization, generating electricity is an act of production. The court also stressed that “production” has a wider meaning than “manufacture”; the statutory test therefore did not require the taxpayer to show that electricity was manufactured in the same sense as a physical mineral or metal product.
Hindustan Zinc’s operating context reinforced the conclusion. The company was already engaged in manufacturing mineral products, and the electricity from its captive and wind facilities supported those manufacturing units. Once the new-asset and business-activity requirements were met, the court found no basis to deny additional depreciation merely because the qualifying machinery generated power rather than directly processing zinc, lead or silver.
Captive and wind power assets were both covered
The judgment did not confine its reasoning to one type of generation facility. The claim included machinery at the Chanderia captive power plant and machinery at the wind power plant, and the court upheld the assessment allowing the claim for both categories.
The decision therefore addresses the legal characterization of power generation rather than creating a separate depreciation rule for captive, wind or thermal facilities. The relevant questions remain whether the asset is new, whether it was acquired and installed after the applicable cut-off, whether the assessee meets the manufacture-or-production condition, and whether any statutory exclusion applies.
Why the Section 263 revision failed
The Commissioner had invoked Section 263 to revise the assessment on the ground that power generation was not manufacture or production of an article or thing. The ITAT set the revision aside, and the High Court agreed.
The twin-condition test
Section 263 jurisdiction requires both of the following:
- The assessment order must be erroneous; and
- That error must be prejudicial to the interests of the Revenue.
Both conditions are cumulative. A legally sustainable view taken in the assessment cannot be revised simply because the Commissioner prefers a different interpretation. Because the allowance of additional depreciation was supportable under the court’s interpretation of Section 32(1)(iia), the assessment was not shown to satisfy the required combination of error and prejudice.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What businesses should document for a similar claim
The judgment does not eliminate the need to prove the statutory conditions. A taxpayer seeking additional depreciation on generation equipment should be prepared to maintain records that establish:
- The machinery is new and was not previously used;
- The acquisition and installation dates fall after the relevant statutory cut-off;
- The assessee is engaged in manufacture or production of an article or thing;
- The generation facility and its output are connected to the assessee’s business operations;
- The asset is not installed in excluded premises and is not an excluded office appliance or road vehicle; and
- The same asset has not received a full one-year deduction under another provision.
Invoices, commissioning and installation records, fixed-asset registers, plant descriptions, electricity-use records and the computation of actual cost can help demonstrate those points if the assessment is later questioned.
Geographic and procedural limits of the ruling
This is a Rajasthan High Court authority arising from an assessment of Hindustan Zinc for AY 2007-08. It directly records the court’s interpretation of Section 32(1)(iia) and Section 263 in those facts; it is not a statement that every power project automatically qualifies for additional depreciation.
The available case record does not establish any later appeal, stay, review or statutory amendment changing the ruling’s practical effect. Taxpayers should therefore check the current statutory text and the latest appellate status before relying on the decision for a later assessment year or a different factual setting.
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