Market value for captive electricity transfers under section 80-IA(8) must reflect industrial supply rates, not regulated sale tariffs.

For deduction under section 80-IA(8), captive transfer of electricity from windmills to the assessee's yarn business had to be valued at market value. Because the windmill power was not sold in an open competitive market and the sale to the Electricity Board was driven by a regulated tariff framework, that sale price was not treated as market value. The appropriate benchmark was the rate payable by an industrial consumer to the Board for supplied electricity, so the captive transfer was to be valued at the Board's industrial supply rate for computing the deduction.

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Issues: Whether, for computing deduction under section 80-IA(8), the electricity generated by the assessee's windmills and transferred for captive consumption in its yarn manufacturing business had to be valued at the rate at which it was sold to the Electricity Board or at the rate at which the assessee purchased electricity from the Board for industrial use.

Analysis: Section 80-IA(8) requires the consideration recorded for transfer of goods or services between the eligible business and the other business to correspond to market value. The electricity generated by the windmills was not supplied in a competitive market but under a regulated tariff structure under the Electricity (Supply) Act, 1948. The rate at which the assessee sold power to the Board did not represent market value for the purposes of section 80-IA(8), because the sale to the Board was compelled by the regulatory framework and not the result of open market conditions. By contrast, the rate at which the Board supplied electricity to the assessee's industrial unit reflected the price payable by an industrial consumer and was treated as the proper market value for the captive transfer.

Conclusion: The electricity transferred to the assessee's yarn manufacturing business had to be valued at Rs. 3.50 per unit, being the rate payable by the assessee to the Electricity Board, and not at Rs. 2.70 per unit; the assessee's claim for deduction under section 80-IA was therefore to be computed on that basis.

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