Depreciation on transferred undertaking must be computed on actual purchase price, not a reduced regulatory value.

For depreciation on a transferred undertaking, the relevant basis was the actual purchase consideration paid under the statutory transfer scheme, not a lower value fixed by the regulator. The transfer of the thermal power station was bona fide and the consideration was undisputed, so accounting principles supported computation on the purchase price. The distinction drawn between depreciation under income-tax law and tariff determination was not accepted as a reason to deny the purchaser the benefit of the actual purchase value. The Supreme Court held that depreciation had to be computed on the purchase consideration paid.

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Issues: Whether, for the purpose of depreciation, the appellant was entitled to base computation on the purchase consideration paid for the transferred undertaking or on a reduced figure fixed by the regulator.

Analysis: The transfer of the thermal power station took place under a statutory transfer scheme framed in exercise of powers under Section 23 of the Uttar Pradesh State Electricity Reforms Act, 1999. The transaction was bona fide and the consideration paid by the appellant was undisputed. The Court applied accounting principles and held that the relevant basis for depreciation was the purchase consideration actually paid, and not the lower amount adopted by the regulatory authority. The distinction drawn by the Tribunal between depreciation under income-tax law and tariff determination was not accepted as a valid reason to deny the appellant the benefit of the purchase value.

Conclusion: The appellant was entitled to compute depreciation on the purchase consideration paid, and not on the reduced amount fixed by the Commission.

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