2004 (5) TMI 244 - AT - Income Tax

Tribunal Rules Steam Unit's Hot Gas Has No Market Value, Only Ash Sales Qualify for Deductions Under Tax Sections.

National Thermal Power Corporation Limited. Versus Additional Commissioner Of Income-Tax.

The Tribunal partially allowed the assessee's appeals, ruling that no notional expenditure should be attributed to the steam unit, as the hot gas had no ... Determination of profits derived from an 'industrial undertaking or not' - engaged in generating electricity through gas and steam turbines - the receipts, which are incidental to the actual conduct of the business are eligiable for deduction u/s 80I or 80IA - HELD THAT:- According to submission, profits of gas unit as well as steam unit must be determined independently as the sole source of income of the assessee and consequently, the expenditure incurred for the generation of electricity by gas unit cannot be shifted to any other unit even by the logic of the Assessing Officer. For the similar reasons, profit of the steam unit has to be determined independently on the basis of the expenditure incurred by such unit. Steam unit has not incurred by expenditure for acquiring hot gas. Therefore, the question of reducing the profits of such unit by any notional figure does not arise. Therefore, we reject the stand of the revenue that sub-section (6) of section 80-I permits the revenue to shift the expenses of one unit to another unit. After going through the Section 80-IA(9) carefully, we are unable to uphold the stand of the revenue. Such provisions can be applied if it is established by the revenue that the gas unit transferred hot gas to the steam unit and the consideration for the transfer of gas does not correspond to the market value as on the date of transfer. Market value has been defined as the price, which such goods would fetch on sale in the open market. No evidence, whatsoever, has been brought to our notice to show that there is any market for sale of such waste hot gas inIndia. There is also no evidence that such gas can be packed or transported. Such gas, if not used, has to be exposed to the open atmosphere. May be that in the future such gas may find a market but as per the provisions of sub-section (8) of section 80-I and sub-section (9) of section 80-IA, the market value has to be seen as on the date of transfer. Since there is no evidence of any market for sale of such waste hot gas, we are unable to accept the stand of the revenue. Thus, it is held that the course adopted by the Assessing Officer for shifting a portion of expenses incurred by gas unit to the steam unit was not permissible in law and, therefore, cannot be approved. Consequently, the order of the CIT(A) confirming the above action of the Assessing Officer is set aside and the Assessing Officer is directed to allow deductions under sections 80-I and 80-IA without allocating any expenditure of gas unit to steam unit. Whether the following receipts can be considered as profits derived from an industrial undertaking for the purpose of claiming deductions under sections 80-I and 80-IA - We find that the legal position is now well-settled by various judgments of theApex Court. The first judgment is in the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978 (4) TMI 1 - SUPREME COURT] wherein the Hon'ble Supreme Court made a distinction between two expressions, namely, 'attributable to' and 'derived from'. According to their Lordships the expression 'attributable to' had a wider import than the expression 'derived from', thereby intending to cover-receipts from sources other than the actual conduct of the business of the assessee. From this judgment, it is clear that the receipts, which are incidental to the actual conduct of the business, may fall within the expression 'attributable to' but cannot fall within the expression 'derived from'. Thus, the receipts of the assessee mentioned above, except sale of ash, cannot be considered as profits derived from an industrial undertaking. The reason is that main activity of the business is the generation and distribution of electricity and such receipts are not directly connected with the main activity of the assessee's business. These receipts may be incidental to the carrying on of the business but cannot fall within the restricted meaning of the expression 'derived from'. We uphold the orders of CIT(A) except in respect of receipts by way of sale of ash. Consequently, the Assessing Officer is directed not to exclude the sale of ash for the purpose of computing deduction under sections 80-I and 80-IA. In the result, appeals of the assessee are partly allowed. Issues Involved:1. Determination of profits derived from the industrial undertaking engaged in generating electricity through gas and steam turbines.2. Whether various receipts can be considered as profits derived from an industrial undertaking for the purpose of claiming deductions u/s 80-I and 80-IA.Summary:Issue 1: Determination of Profits Derived from Industrial Undertaking- Facts: The assessee was engaged in generating electricity using gas turbines at multiple locations. The Assessing Officer noticed discrepancies in fuel cost reporting across different units.- Assessee's Explanation: The assessee explained that steam turbines used waste hot gases from gas turbines, which had no commercial value, hence no fuel cost was indicated for steam turbines.- Assessing Officer's Observations: The officer argued that the hot gas used by steam units had commercial utility and should be valued, reducing the profits of the steam units accordingly.- CIT(A) Decision: The CIT(A) upheld the Assessing Officer's decision, stating that the hot gases had commercial value and should be accounted for in determining the profits.- Tribunal's Findings: The Tribunal held that no notional expenditure should be allocated to the steam unit as the hot gas had no market value and was freely available. The provisions of section 80-I(6) and 80-IA(9) were interpreted to support the assessee's stand that profits should be determined independently without shifting costs between units. Consequently, the Assessing Officer's method of reducing steam unit profits by allocating gas unit expenses was not permissible.Issue 2: Various Receipts as Profits Derived from Industrial Undertaking- Receipts in Question: The receipts included hire charges, interest from banks and employees, liquidity damages, rent from employees, hospital recoveries, sale of ash, electricity charges, earnest money forfeited, vehicle hire charges, sale of forms, miscellaneous recoveries, supervision charges, written off liabilities, and subsidized transport receipts.- Assessing Officer and CIT(A) Decision: Both rejected the claim that these receipts could be considered as profits derived from an industrial undertaking.- Tribunal's Analysis: The Tribunal referred to the Supreme Court judgments distinguishing between 'attributable to' and 'derived from.' The receipts, except for the sale of ash, were found to be incidental and not directly connected to the main activity of generating and distributing electricity. Hence, they could not be considered as profits derived from the industrial undertaking.- Tribunal's Decision: The Tribunal upheld the CIT(A) decision except for the sale of ash, directing the Assessing Officer not to exclude the sale of ash for computing deductions u/s 80-I and 80-IA.Conclusion:The Tribunal partly allowed the appeals of the assessee, concluding that no notional expenditure should be allocated to the steam unit and that only the sale of ash could be considered as profits derived from the industrial undertaking for the purpose of deductions u/s 80-I and 80-IA.