2017 (7) TMI 743 - HC - Income Tax

High Court affirms assessee's right to deduction under Section 80-IA for power generation

Commissioner of Income Tax, Ajmer Versus M/s. RSWM Limited (Formerly known as Rajasthan Spinning & Weaving Mills Ltd.)

Commissioner of Income Tax, Ajmer Versus M/s. RSWM Limited (Formerly known as Rajasthan Spinning & Weaving Mills Ltd.) - TMI Issues:Examination of correctness of the judgment passed by the Income Tax Appellate Tribunal for assessment years 2003-04 and 2004-05 regarding deduction under Section 80-IA of the Income Tax Act, 1961 for income from captive generation of power.Analysis:The High Court examined the judgment of the Income Tax Appellate Tribunal regarding the applicability of Section 80-IA of the Income Tax Act, 1961 to income from captive generation of power. The Tribunal concluded that the assessee was entitled to deduction under Section 80-IA for notional income from generating electricity consumed internally. The Tribunal emphasized the distinction between Section 115JA(ii) and Section 80IA, highlighting that Section 115JA(ii) is a fictional provision for tax calculation, while Section 80IA grants substantive tax exemption to power-generating companies. The Tribunal noted that the provision in Section 115JA(ii) mandates reducing the profit derived from power generation from the book profit, regardless of whether the profit is explicitly credited to the profit and loss account. The Tribunal also referred to the Supreme Court's judgment in Appollo Tyres Ltd. v. CIT, emphasizing limitations on altering the profit and loss account prepared by the assessee under the Companies Act. The Tribunal upheld the order of the Commissioner of Income Tax (Appeals) and dismissed the Revenue's appeal.The High Court further referenced the Supreme Court's decision in Commissioner of Income Tax v. DCM Shriram Consolidated Ltd., affirming that setting up an independent industrial undertaking for electricity generation and using captive power for internal consumption qualifies for deduction under Section 80-IA. The High Court concluded that the issue in the present appeal aligns with the Supreme Court's ruling in DCM Shriram Consolidated Ltd.'s case. Therefore, the High Court upheld the Tribunal's decision, declaring the assessee entitled to claim deduction under Section 80-IA for both tax exemption and book profit computation under Section 115JA of the Income Tax Act, 1961. The appeals filed by the Revenue were dismissed, ruling in favor of the assessee and against the Revenue.