2014 (2) TMI 1351 - AT - Income Tax

Assessee's Captive Power Generation Qualifies for Deduction under Section 80-IA

Assistant Commissioner of Income tax, Company Circle- iii (3), Chennai. Versus M/s. Ucal Fuel Systems Ltd.

The High Court upheld the entitlement of the assessee for deduction under section 80-IA on power generation for captive consumption. The Court clarified ... Entitlement for deduction u/s 80-IA on the generation of power and utilized for captive consumption - HELD THAT:- As decided in TAMILNADU PETRO PRODUCTS LTD. VERSUS ASSISTANT COMMISSIONER OF INCOME-TAX [2010 (11) TMI 645 - MADRAS HIGH COURT]  in the light of section 80-IA and in particular sub-clause (iv) of the said section which provides for the benefit even in respect of electricity generation plant established by the assessee and the income derived from such enterprise of the assessee, it will have to be held that the assessee fully complied with the requirements prescribed under section 80-IA in order to avail the benefits provided therein. Therefore, the contention based on the interpretation of the expression 'derived from' can have no application to the case where the provisions of section 80-IA get attracted - Decided against revenue. Issues Involved:- Appeal against Commissioner of Income Tax (Appeals) order- Entitlement for deduction under section 80-IA on power generation for captive consumption- Interpretation of section 80-IA for deduction eligibilityIssue 1: Appeal against Commissioner of Income Tax (Appeals) orderThe appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-III, Chennai dated 31.08.2005. The High Court restored the appeal to the file of the Tribunal to decide the issue on merits. The question raised before the High Court was whether the assessee is entitled to deduction under section 80-IA on the generation of power and its utilization for captive consumption. The Tribunal had to determine if it was right in law to follow the decisions in a specific order dated 6.8.2004 by the CIT(A) and not that of the coordinate bench of the Appellate Tribunal.Issue 2: Entitlement for deduction under section 80-IA on power generation for captive consumptionThe Assessing Officer disallowed the deduction claimed under section 80-IA on power generation through windmills, stating it was only a transfer to the EB grid without an element of sale. However, the Commissioner of Income Tax (Appeals) decided in favor of the assessee, allowing the relief under section 80-IA. The Commissioner relied on a previous order in the assessee's own case for the assessment year 1996-97. The High Court's decision in the case of Tamil Nadu Petro Products Ltd. Vs. ACIT supported the assessee's claim for deduction under section 80-IA for notional profits on power generated for captive consumption. The High Court emphasized that the assessee had complied with the requirements prescribed under section 80-IA to avail the benefits provided therein.Issue 3: Interpretation of section 80-IA for deduction eligibilityThe High Court clarified that the expression 'derived from' in section 80-IA should not be restricted to profits earned solely from an outside source. It stated that captive consumption of power generated by the assessee from its own power plant could enable the assessee to derive profits and gains, making it eligible for deduction under section 80-IA. The Court rejected the argument that since electricity generation was not the primary business of the assessee, notional profits from captive consumption could not be considered as derived from the business undertaking. The Court held that the provisions of section 80-IA, particularly sub-clause (iv), applied to the case, allowing the assessee to claim benefits under the section.In conclusion, the Tribunal dismissed the appeal of the Revenue based on the decisions of the High Court and upheld the entitlement of the assessee for deduction under section 80-IA on power generation for captive consumption. The judgment provided clarity on the interpretation of section 80-IA and highlighted the significance of compliance with the statutory requirements for claiming deductions under the provision.