TaxTMI 
TaxTMI 
2013 (1) TMI 136
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....income is deductible u/s 80IA should also be taken into account for computing relief u/s 80IA ? 2. The assessee is engaged in the business of mining and production of lignite and using them in the generation of electricity. Under Bulk Power Supply Agreement dated 18.2.1999 entered into between Neyveli Lignite Corporation Limited and Transmission Corporation of Andhra Pradesh Ltd., Karnataka Electricity Board, Kerala State Electricity Board, Tamilnadu Electricity Board and the Electricity Department of Union Territory of Pondicherry, the assessee herein agreed to sell the electricity generated by it from the second Thermal Power Station Stages 1 & 2 at Neyveli. The agreement speaks about the allocation of power to various State Electricity Boards. The computation of generation tariff, the basic principles on the working of the tariff which are set out in Annexure A which is treated as integral part of the agreement. Clause 4 of the agreement deals with the computation of generation tariff; Clause 5 deals with Billing and payments; Clause 6 deals about tax liability of NLC to be borne by the Transmission Corporation of Andhra Pradesh Limited and Others. The said clause reads ....
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....ove income streams of NLC and among the Recipients shall be furnished to the Recipients." 3. It is seen from the documents placed before this Court that this agreement is the culmination of a series of meetings of the above stakeholders with the assessee. In the meeting held on 16.10.1998, decision was taken on the details on the tariff fixation. It recorded that the meeting held on 22.04.1998 had recommended for reimbursement of income tax which was not built into the tariff. The minutes of the meeting held on 22.04.1998 at Chennai reads as under: "10.0 INCOME TAX: While the SEBs agreed for reimbursement of actual Income Tax, NLC explained that the Company has to discharge advance tax liability on quarterly basis and suggested for building the tax in the Tariff itself or as an alternative for payment of advance tax as and when paid by NLC and for payment of interest on the advance tax from the date of payment by nNLC up to the date of reimbursement by the EBs. The SEBs expressed that they will examine the alternatives suggested by the NLC and revert back. " Thus, on 25.8.1998 in the letter written by the assessee to the other recipients of energy, it was stated that Ney....
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....rgy charge to be derived in the manner specified in regulation 22, for recovery of annual fixed cost (consisting of the components referred to in regulation 14) through the two charges. Clause 14 defines Annual Fixed Cost. 6. A reading of the agreement dated 18.02.1999 entered into between the assessee and the various State Electricity Boards thus show the modalities of arriving at the tariff which includes the tax liability of Neyveli Lignite Corporation. Thus, it is evident that the tariff that was arrived at between the parties consisted of various components including tax liability on the income streams from the core activity of NLC and the quantification was to be done on the basis of the methods given in Clause 6.2 of the agreement. A reading of the same thus makes it clear that in strict sense, there was no reimbursement of the tax liability by the recipient, but was treated as part of the tariff and whatever was done on the receipt of the statement of the tax payable by the assessee was that the tariff price payable on the electricity sold was finally reckoned with reference to the above said tax payment. In the circumstances, it is clear that by "reimbursement", it....
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....otification issued by the Government was only a model which had been followed all over India. The Commissioner however pointed out that the agreement did not mention anywhere that the reimbursement of income tax was or would be part of the sale price. Therefore, the contention of the assessee that the income tax liability of the assessee was treated as part of the sale price could not be sustained. The Commissioner pointed out that as per the opinion of the Institute of Chartered Accountants of India, the reimbursement of income tax was not directly linked to the quantum of power sold. If the same had been part of the sale price, then the amount could have been collected in the sale invoices or in some other manner by way of journal entries or raising debit/credit notes. Hence, the tariff did not include income tax reimbursement. On the other hand, the total income tax payable by the assessee was reduced by the reimbursement of the income tax. In the circumstances, the Commissioner rejected the assessee's claim. Consequently, the relief granted under Section 80IA was also directed to be reworked. 9. As regards the extent of the amount included in the working of Section 80IA....
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....od of computation necessarily the agreement that the assessee had with the State Electricity Boards had to go in line of the said method of computation. The Department does not dispute the genuineness of the agreement and the notification issued by the Ministry of Power in the matter of fixing the tariff and the tax components which go in the making of the tariff. 11. Referring to the correspondences and minutes of the meeting held between the parties herein, learned counsel pointed out that the parties to the agreement had stated that the working out the liability of a particular component of price was to be determined in the manner relied on in Clause 6. All the authorities had committed serious error in considering this component as reimbursement of a tax payable by the assessee. On the other hand, all that NLC had received was the price for the sale of energy on the tariff fixed by the Government in its notification and one of the components of the sale price was arrived at based on the grossed up tax or the actual tax assessed whichever is less. Thus, the fundamental error in the reasoning of the Commissioner and the Tribunal is that there was a reimbursement of tax p....
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....ration tariff is done on the lines indicated in the notification. 16. It is no doubt true that clause 6 of the agreement separately deals with tax liability of the assessee which would form part of the tariff as per the Notification. Equally, it is true that Annexure A to the agreement gives the norms and parameters for working out the generation power tariff for the 5 year period 1996-97 to 2000-01. The said Annexure however has to be read in the context of clause 4.1. Hence, going by this, we do not find any income tax payable by the assessee or paid by the assessee figuring in Annexure A. The reason is that in clause 6 of the agreement specifies the tax liability of NLC in respect of the income on generation of power from Power Station II (Stage I) and Power Station II (Stage II), mining of lignite from Mine II for the purpose of generation of power from Power Station II (Stage I) and Power Station 11 (stage II), the amount of grossed up tax that is payable by NLC on the income streams mentioned at items (i) and (ii) were to be borne by the recipients. viz, the State Electricity Boards. Clause 6.2 clarifies that either the grossed up or the actual tax assessed, whicheve....