Captive windmill electricity generation profits valued at self-consumption allowed as "derived" income for s. 80-IB deduction; appeal dismissed.

The dominant issue was whether profits attributable to electricity generated by an eligible windmill undertaking and captively consumed by the assessee qualify as "profits and gains derived from" the undertaking for deduction under s. 80-IB. Applying its earlier ruling, the HC held that once an undertaking is set up and begins functioning, the statute allows deduction of the entire profits derived from it for the prescribed period, and "profits" can arise through self-consumption of the undertaking's output by valuing the power consumed and corresponding cost savings. The Tribunal's view allowing s. 80-IB deduction on income relatable to captively consumed wind power was upheld, and the appeal was dismissed against the revenue.

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Issues:
1. Interpretation of Section 80IB for deduction in respect of income from power generated by wind mills consumed by the assessee.

Analysis:
1. The case involved the interpretation of Section 80IB of the Income Tax Act regarding the eligibility of the assessee to claim a deduction in respect of income from power generated by wind mills consumed by the assessee. The assessee, a manufacturer of boilers engaged in the business of generating electricity through wind mills, had filed its return of income declaring a total income. The Assessing Officer disallowed a portion of the claimed deduction under Section 80IA, leading to an appeal by the assessee. The Commissioner of Income Tax (Appeals) upheld the decision of the Assessing Officer, prompting the assessee to appeal further before the Income Tax Appellate Tribunal.

2. The Tribunal, in its decision, supported the contentions of the assessee, stating that the income derived from the generation of electricity was eligible for deduction. It emphasized that the assessee, instead of receiving cash benefits, was obtaining credits for the units supplied to the Government agency, and thus, the income earned did not fall within the term 'attributable to.' The Revenue, dissatisfied with the Tribunal's decision, filed the present Tax Case (Appeal) before the High Court.

3. The High Court, in its judgment, referred to a previous decision in the case of Tamilnadu Petro Products Ltd. v. Assistant Commissioner of Income Tax, where it was held that profit or gain derived by the assessee through its own consumption of the outcome of any undertaking or business enterprise could be eligible for deduction under Section 80IA. The Court emphasized that the expression 'derived' in the provision made it clear that profit or gain could be obtained through one's own consumption, not just from an external source. Therefore, the High Court concluded that the assessee's captive consumption of power generated by its own plant enabled it to derive profits and gains, making it eligible for the deduction under Section 80IA.

4. Based on the above interpretation and the precedents cited, the High Court ruled in favor of the assessee and against the Revenue. The Court dismissed the Tax Case (Appeal), upholding the decision of the Tribunal and allowing the assessee's claim for deduction under Section 80IA for the income related to the power generated by the wind mills consumed by the assessee. The judgment highlighted the importance of considering captive consumption in determining eligibility for deductions under the Income Tax Act.

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