2011 (11) TMI 762 - HC - Income Tax

Electricity duty excluded from market value for CPP deduction; market rate under section 80IA(8) is SEB tariff

HC held that, for deduction u/s 80IA relating to a captive power plant (CPP) supplying electricity to the assessee's general unit, the 'market value' ... Claim of deduction u/s. 80IA on the interest received on margin money - CPP Unit generating electricity - HELD THAT:- Under sub-Section(8) of Section 80IA of the Act, if it is found that where any goods or services held for the purposes of the eligible business are transferred to any other business carried on by the assessee or where any goods or services held for the purposes of any other business carried on by the assessee are transferred to the eligible business and in either case the consideration for such transfer does not correspond to the market value of such goods as on the date of the transfer, then for the purposes of deduction under Section 80IA in case of the eligible business as if the transfer had been made at the market value of such goods or services. It is in this context that the question of substituting the actual consideration by the market value comes into picture. Undisputedly, GEB supplied the electricity to its consumers at the same rate. This, therefore, was a market value of the electricity supplied by the CPP Unit to the general unit. The fact that this amount of ₹ 5.40 ps. comprises of a component of 8 paise, which was electricity duty, to our mind, would make no difference in so far as the market value is concerned. To a consumer, the price being paid remains 5.40 ps. per unit. The fact that the seller retains only ₹ 5.32 ps. out of the said collection and passes on 8 paise per unit to the Government in the form of electricity duty, to our mind, would make no difference. This question is, therefore, not required to be considered. Issues:1. Deduction u/s. 80IA on interest received on margin money2. Netting of interest3. Adjustment of electricity price charged by CPP UnitAnalysis:1. Deduction u/s. 80IA on interest received on margin money: The Tribunal allowed the deduction claimed by the assessee under Section 80IA on the interest amount received on margin money. The Revenue challenged this decision, pointing out that the Tribunal had relied on an earlier decision in favor of the assessee. The matter was admitted for appeal, and the Tribunal's decision was upheld for further consideration.2. Netting of interest: The issue under sub-Section (8) of Section 80IA of the Income Tax Act involved the CPP Unit generating electricity and supplying it to a general unit. The Assessing Officer restricted the deductions claimed by the assessee based on the rate charged for electricity. The CIT (Appeals) upheld this decision, but the Tribunal reversed it, stating that the market value of the electricity should be the same as charged by the Gujarat Electricity Board (GEB) from consumers. The Revenue argued that the electricity duty component should be excluded from the market value, but the Tribunal found no error in its decision.3. Adjustment of electricity price charged by CPP Unit: The Tribunal determined that the market value of electricity supplied by the CPP Unit to the general unit should be considered as the rate charged by GEB to consumers, which included an electricity duty component. The Tribunal's reasoning was upheld, emphasizing that the actual market value remained unchanged despite the duty component. The Tribunal did not accept the argument that electricity was not covered under sub-Section (8) of Section 80IA, but it found no error in adopting the market value as charged by GEB.In conclusion, the High Court admitted the Tax Appeal for consideration of the deduction u/s. 80IA on interest received on margin money, while upholding the Tribunal's decision regarding the netting of interest and the adjustment of electricity price charged by the CPP Unit.