IT : Assessee was entitled to deduction under section 80-IA in respect of notional profits on account of power generated from its own captive power plant and utilized by itself
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[2011] 13 taxmann.com 139 (Madras)
HIGH COURT OF MADRAS
Tamilnadu Petro Products Ltd.
v.
Assistant Commissioner of Income-tax*
NOVEMBER 2, 2010
Section 80-IA of the Income-tax Act, 1961 - Deductions - Profits and gains from infrastructure undertakings - Whether assessee was entitled to deduction under section 80-IA in respect of notional profits on account of power generated from its own captive power plant and utilized by itself - Held, yes [In favour of assessee]
FACTS
The Tribunal held that the assessee was not entitled to deduction under section 80-IA in respect of notional profits on account of power generated from its own captive power plant and utilized by itself. Against the said order, the assessee filed instant appeal in the course of hearing of which, the revenue raised a contention that the expression 'derived from' should be given restricted meaning in which event the claim of the assessee could not be countenanced.
HELD
The revenue's contention had no application to the case on hand. Inasmuch the issue was to be dealt with in the light of section 80-IA and in particular sub-clause (iv) of the said section which provides for the benefit even in respect of electricity generation plant established by the assessee and the income derived from such enterprise of the assessee, it would have to be held that the assessee fully complied with the requirements prescribed under section 80-IA in order to avail the benefits provided therein. Therefore, the contention based on the interpretation of the expression 'derived from' could have no application to the case where the provisions of section 80-IA got attracted. [Para 7]
In the result, the assessee's appeal was to be allowed.
CASES REFERRED TO
CIT v. Tanfac Industries Ltd. [SLP (C) No. 18537 of 2009] (para 5).
R. Vijayaragavan and Subbaraya Aiyar Padmanabhan for the Appellant. K. Subramanian for the Respondent.
JUDGMENT
F.M. Ibrahim Kalifulla, J. - The following substantial questions of law were raised in Tax Case (Appeal) Nos. 896, 899 and 900 of 2009 :
"1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the income derived by the assessee from generation of electricity and sold to Tamilnadu Electricity Board is not entitled to relief under section 80-I of the Act?
2. Whether the Tribunal had valid material to hold that the assessee has not set up a separate undertaking for generation of electricity ignoring the fact that the lower authorities have not controverted that the wind electricity generation by separate undertaking is entitled to relief under section 80-IA only in respect of electricity sold to TNEB?
3. Whether the Tribunal was right in holding that deduction under section 80-IA is not allowable to the assessee as there is no positive income as recorded by the Assessing Officer and ignoring the findings of CIT(A)?
4. Whether on the facts and in the circumstances of the case, the Tribunal ought to have adverted to the findings of the lower authorities as well as decision of the Co-ordinate Bench regarding grant of relief in respect of electricity generated and captively consumed?"
2. The following substantial questions of law were raised in Tax Case (Appeal) Nos. 897, 898, 901 and 902 of 2009 :
"1. Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that income derived by the assessee from generation of electricity which was captively consumed is not entitled to relief under section 80-I of the Act?
2. Whether the Tribunal had valid material to hold that the assessee has not set up a separate undertaking for generation of electricity ignoring the fact that the lower authorities have not controverted that the wind electricity generation by separate undertaking is entitled to relief under section 80-IA only in respect of electricity sold to TNEB?
3. Whether the Tribunal was right in holding that deduction under section 80-IA is not allowable to the assessee as there is no positive income as recorded by the Assessing Officer and ignoring the findings of CIT(A)?
4. Whether on the facts and in the circumstances of the case, the Tribunal ought to have adverted to the findings of the lower authorities as well as decision of the Co-ordinate Bench regarding grant of relief in respect of electricity generated and captively consumed?"
3. The issue is directly covered by the decision of this Court dated 7-6-2010 in Tax Case (Appeal) Nos. 68 to 70 of 2010.
The substantial question of law raised in these appeals was :
"Whether on the facts and in the circumstances of the case, the Tribunal was right in holding that the assessee is entitled to deduction under section 80-IA of the Income-tax Act in respect of notional profits on account on power generated from its own captive power plant and utilised by itself ?"
4. After considering the issue, the statutory requirement as prescribed under section 80-IA(1) has been stated in paras 8 and 9 of the abovesaid judgment which reads thus :
"8. The contention that only whatever power generated from the sale to an outsider or the Electricity Board, and the profit or gain derived by such sale alone can be taken as profits or gains derived by the assessee as mentioned in section 80-IA(1) of the Income-tax Act, has been rejected by the Tribunal in the order impugned. In our considered view, the Tribunal was well justified in having rejected such a stand of the appellant. Having referred to section 80-IA(1) of the Income-tax Act, we are also convinced that what is all to be satisfied in order to be eligible for the deduction as provided under sub-section (1) of section 80-IA, the assessee should have set up an undertaking or an enterprise and from and out of such an undertaking or an enterprise set up, any profit or gain is derived, falling under sub-section covered by sub-section (4) of section 80-IA of the Income-tax Act, such profit or gain derived by the assessee can be deducted in its entirety for a period of 10 years starting from the date of functioning of the set up. The contention that profit or gain can be claimed by the assessee only if such profit or gain is derived by the sale of its product or power generated to an outsider cannot be the manner in which the provisions contained in section 80-IA(1) can be interpreted. The expression 'derived' used in the said section 80-IA(1) in the beginning as well as in the last part of sub-section (4) makes it abundantly clear that such profit or gain could be obtained by one's own consumption of the outcome of any such undertaking or business enterprise as referred to in sub-section (4) of section 80-IA. The dictionary meaning of the expression 'derive' in the New Oxford Dictionary of English states 'obtaining something from a specified source'. In section 80-IA(1) also no restriction has been imposed as regards the deriving of profit or gain in order to state that such profit or gain derived only through an outside source alone would make eligible for the benefits provided in the said section.
9. Therefore, there is no difficulty in holding that captive consumption of the power generated by the assessee from its own power plant would enable the respondent/assessee to derive profits and gains by working out the cost of such consumption of power inasmuch as the assessee is able to save to that extent which would certainly be covered by section 80-IA(1). When such will be the outcome out of own consumption of the power generated and gained by the assessee by setting up its own power plant, we do not find any lack of merit in the claim of the respondent/assessee when it claimed by relying upon section 80-IA(1) of the Income-tax Act by way of deduction of the value of such units of power consumed by its own plant by way of profits and gains for the relevant assessment years."
5. The Division Bench also relied upon the decision of the Hon'ble Supreme Court in CIT v. Tanfac Industries Ltd. [SLP (C) No. 18537 of 2009] wherein while applying section 80-IA of the Income-tax Act, the Hon'ble Supreme Court took a view that the value of steam used for captive consumption by the assessee was entitled to be deducted under section 80-IA of the Act. On behalf of the Revenue, reliance was placed upon the circular of CBDT dated 3-10-2001 and contended that the assessee was not entitled for the deductions. After making a detailed reference to the contents of the said circular, the Division Bench has stated as under in para 13 of the judgment :
"13. A perusal of the abovesaid circular would clearly show that it is also in favour of the assessee. The said circular is very specific that in a case of captive power unit the provision of law is also the same as in the case of the undertaking which generates and distributes the power to any other concern. Further, it is a well-established principle of law that a circular can only be made in consonance with the provisions of the enactment and the same cannot be derogatory to the purport sought to be achieved. Hence we are of the opinion that the circular relied upon by the learned counsel for the Revenue is in fact in favour of the assessee and therefore the said contention also cannot be accepted."
6. Mr. K. Subramanian, learned standing counsel for the respondent would however contend that the expression 'derived from' should be given restricted meaning in which event the claim of the appellant cannot be countenanced. According to the learned standing counsel since the business of the appellant is manufacture of petro products and generation of electricity is not its business, it cannot be held that whatever profit earned, even notional profit, by virtue of captive consumption, cannot be construed as profit earned from and out of the income derived from the business undertaking.
7. In our considered opinion, the said contention can have no application to the case on hand. Inasmuch as we dealt with the issue in the light of section 80-IA and in particular sub-clause (iv) of the said section which provides for the benefit even in respect of electricity generation plant established by the assessee and the income derived from such enterprise of the assessee, it will have to be held that the assessee fully complied with the requirements prescribed under section 80-IA in order to avail the benefits provided therein. Therefore, the contention based on the interpretation of the expression 'derived from' can have no application to the case where the provisions of section 80-IA get attracted.
8. Therefore, we do not find any scope to deviate from what was held by this Court in the decision dated 7-6-2010 in Tax Case (Appeal) Nos. 68 to 70 of 2010. The questions of law are therefore, answered in favour of the appellant. The appeals stand allowed and the impugned orders are set aside. Consequently, connected miscellaneous petitions are closed. No costs.
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