Market value of captive power and ascertained bonus liability governed deduction and book profit computation under the tax provisions.

For computing deduction under section 80IA, electricity transferred from a captive power unit to the assessee's other business had to be valued at market value; the Tribunal accepted the State electricity board purchase rate as the proper benchmark because no contrary authority was shown. The assessee's bonus provision was also treated as an accrued and ascertained liability, not a contingent one, because the allocable surplus under the Bonus Act exceeded the statutory maximum bonus payable. As a result, the captive power value was taken at the board rate for section 80IA computation, and the bonus provision was not added back while computing book profit under section 115JB.

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Issues: (i) Whether the market value of electricity generated by the captive power unit for computing deduction under section 80IA should be taken at the rate at which the assessee purchased electricity from the State electricity board. (ii) Whether provision for bonus was an ascertained liability so as not to be added while computing book profit under section 115JB.

Issue (i): Whether the market value of electricity generated by the captive power unit for computing deduction under section 80IA should be taken at the rate at which the assessee purchased electricity from the State electricity board.

Analysis: The assessee consumed electricity from both the captive unit and the external power supplier at the same rate. For computing profits of the eligible unit, the Tribunal followed its earlier co-ordinate bench view that the transfer of power between the eligible business and the other business must be valued at market value. Since the purchase price from the electricity board was Rs. 4.9 per unit and no contrary authority was shown, that rate represented the proper market value for the captive power supplied to the assessee's other unit.

Conclusion: The issue was decided in favour of the assessee and the deduction under section 80IA was to be computed by taking the captive power at Rs. 4.9 per unit.

Issue (ii): Whether provision for bonus was an ascertained liability so as not to be added while computing book profit under section 115JB.

Analysis: The assessee demonstrated that the allocable surplus under the Bonus Act exceeded the amount payable as maximum bonus, making payment of bonus at 20% of salary mandatory. On those facts, and following the co-ordinate bench view in the assessee's own case, the bonus provision was treated as an accrued and ascertained liability rather than a contingent liability. It was therefore not liable to be added back for book profit computation under section 115JB.

Conclusion: The issue was decided in favour of the assessee and the bonus provision was held not to be includible in book profit under section 115JB.

Final Conclusion: Both Revenue grounds failed on merits, and the appellate relief granted by the lower authority was sustained.

Ratio Decidendi: For an eligible business transferring goods or services to another business of the assessee, profits must be computed at market value, and a bonus provision supported by an allocable surplus exceeding the statutory maximum is an ascertained liability not to be added in book profit computation under section 115JB.

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