2017 (3) TMI 1485 - SC - Indian Laws

Court rules purchase consideration basis for depreciation in thermal power station transfer scheme.

The court ruled in favor of the appellant, determining that the purchase consideration paid by the appellant should be the basis for calculating ... Entitlement to consider any value other than the transfer consideration paid by the appellant or the amount as has been specifically directed by the Central Electricity Regulatory Commission in its impugned Judgment to M/s. National Thermal Power Corporation Limited for the purpose of depreciation - Held that:- The Appellate Tribunal has merely stated that the treatment for depreciation under the Income Tax Act and for determination of tariff under the Electricity Act are different. However, such point which has been decided by the Tribunal, in our considered view, cannot come within the purview of accounting principle and, therefore, it has been noted that the Judgments which have been relied upon before us substantially support the claim of the appellant – herein and accordingly, we set aside the order so passed by the Tribunal. As a consequence thereof, whatever consequential orders are necessary to be passed in the matter, the concerned Authorities shall take necessary steps in the matter. Issues:1. Interpretation of depreciation value in a transfer scheme.2. Consideration of purchase value for computing depreciation.3. Application of accounting principles in determining depreciation.Interpretation of Depreciation Value in a Transfer Scheme:The case involved the acquisition of a thermal power station under a Statutory Transfer Scheme. The dispute centered around whether the appellant was entitled to consider any value other than the transfer consideration paid for the purpose of depreciation. The State Government had issued a Transfer Scheme transferring the power station to the appellant, recognizing the consideration as a specific amount. However, subsequent reorganization and tariff regulations complicated the matter. The Central Commission restricted the depreciation computation to a different amount than the transfer consideration, leading to the appellant challenging this decision in court.Consideration of Purchase Value for Computing Depreciation:The appellant argued that the relevant factor for computing depreciation should be the purchase consideration paid, which was distinct from the amount determined by the Central Commission. The appellant relied on legal precedents emphasizing that the purchase value forms the basis for calculating depreciation. The Appellate Tribunal's distinction between depreciation for tax purposes and tariff determination was deemed irrelevant to accounting principles by the court. Consequently, the court set aside the Tribunal's decision, favoring the appellant's claim regarding the depreciation value.Application of Accounting Principles in Determining Depreciation:The court applied principles of accountancy to the case, considering the purchase consideration paid by the appellant as the crucial factor for determining depreciation. Legal arguments and precedents cited by the appellant supported the claim that the purchase value should be the basis for computing depreciation. The court disagreed with the Tribunal's reasoning on the differentiation between depreciation treatment under tax laws and electricity regulations, asserting that accounting principles should prioritize the purchase value. As a result, the court allowed the appeal in favor of the appellant, directing relevant authorities to take necessary steps based on the judgment.