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" under s.80IA(8) is the tariff at which the State Electricity Board supplies electricity to its consumers. The inclusion of electricity duty (8 paise per unit) in the rate of Rs. 5.40 per unit does not alter the market value, as the consumer's effective price is Rs. 5.40 and the subsequent statutory remittance to Government is irrelevant for determining market value. The Revenue's challenge to the assessee's computation on this ground was rejected, and the assessee's claim was upheld.

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Issues:
1. Deduction u/s. 80IA on interest received on margin money
2. Netting of interest
3. Adjustment of electricity price charged by CPP Unit

Analysis:
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.

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