2015 (7) TMI 450 - HC - Income Tax

Eligibility of deduction u/s 80IA of the Income Tax Act 1961 - Revenue generated or the profit derived by the power undertaking - Dispute in rate at which electricity supplied will be computing the benefit under the section - Held that - Eligibility of deduction u/s 80IA of the Income Tax Act 1961 - We are, as such, unable to hold that the benefit under Section 80IA is not available to the assessee because the power generated was consumed at home or by other business of the assessee. It is now well-settled that a statute granting incentives for promoting growth and development should be construed liberally so as to advance the objective of the provision and not to frustrate it. Refer cases of Tata Iron Steel Company Ltd. and Ors. Vs- State of Bihar reported in 1962 (9) TMI 49 - SUPREME COURT and Textile Machinery Corporation Limited Vs- CIT reported in 1977 (1) TMI 3 - SUPREME Court . - Decided against the revenue. Rate dispute - The benefit under Section 80IA was intended to encourage the business of generating power. An entrepreneur who wants to avail the benefit of Section 80IA cannot hope to get any benefit more than what has been contemplated by the Act. It was a fortuitous circumstance that the entrepreneur in this case has a home consumption of electricity which any other entrepreneur engaged in the generation of electricity would not have. But that cannot be a reason why two entrepreneurs engaged in the same business will get benefit at rates computed differently. In order to avoid any such discrimination, the legislature has taken care to provide that the price which can be charged has to be the same, which electricity would fetch in the open market. The last submission, advanced by Mr. Khaitan that this point was not taken by the appellant, has not impressed us. The point is certainly involved in the appeal because the CIT (A) reversed the finding of the assessing officer that the rate at which electricity was supplied by the Andhra Pradesh State Electricity Board cannot be taken as the market rate within the meaning of Section 80IA . The learned Tribunal has upheld that finding. The revenue is in appeal. The decision to reverse the finding is based on a wrong determination of a substantial question of law and is therefore amenable under Sub-Section (6) of Section 260A of the I. T. Act, 1961. Moreover when this Court is satisfied that the case involves the aforesaid question, it has a corresponding duty to decide the same. - Decided in favour of revenue. In Net, appeal is partly allowed.

Summary

Issues Involved:
1. Eligibility of the assessee to claim the benefit under Section 80-IA.
2. The rate at which electricity supplied by Andhra Pradesh State Electricity Board to the paperboard manufacturing unit could be considered for computing the benefit under Section 80-IA.

Detailed Analysis:

1. Eligibility of the Assessee to Claim the Benefit under Section 80-IA:
The primary issue was whether the assessee, engaged in manufacturing paperboard and generating power for uninterrupted supply, was eligible for benefits under Section 80-IA. The assessing officer initially denied the benefit, arguing that the assessee did not earn any profit from the power-generating plant and did not qualify under Section 80-IA. The CIT(A) and the Tribunal, however, held that the assessee did generate profit and was eligible for the benefit. The court referenced sub-Section 8 of Section 80-IA, which allows for the transfer of goods or services within the same business entity at market value. The court concluded that the mere fact that the power was consumed internally did not disqualify the unit from claiming the benefit. The legislative intent was to promote infrastructure for power generation, and the internal consumption of power reduced the overall demand on public electricity supply, aligning with the objective of Section 80-IA. The court emphasized that statutes granting incentives should be construed liberally to promote growth and development.

2. Rate for Computing the Benefit under Section 80-IA:
The second issue was whether the rate at which electricity was supplied by the Andhra Pradesh State Electricity Board to the paperboard manufacturing unit could be used for computing the benefit under Section 80-IA. The assessing officer argued that the market rate should reflect the price the electricity would fetch in the open market, not the rate at which the paperboard unit purchased it from the state electricity board. The CIT(A) and the Tribunal disagreed, using the rate charged by the Andhra Pradesh State Electricity Board as the market rate. The court, however, found this approach incorrect. It held that the market rate should be the price at which electricity could be sold to a distribution company or a company engaged in both generation and distribution, as governed by Sections 61 and 62 of the Electricity Act 2003. The court referenced several judgments, including Thiru Arooran Sugars Ltd. vs. CIT and Godawari Power & Ispat Ltd., to support its stance that the market rate must reflect the open market price, not the internal consumption rate. The court concluded that the benefit under Section 80-IA should be computed based on the market rate at which electricity could be sold to a distribution licensee, not the consumer rate.

Conclusion:
The court affirmed the eligibility of the assessee to claim the benefit under Section 80-IA but held that the computation of the benefit should be based on the market rate at which electricity could be sold to a distribution licensee. The case was remanded to the assessing officer to allow the assessee to adduce evidence regarding the market rate and recompute the benefit accordingly. The appeal was partly allowed, with the first issue resolved in favor of the assessee and the second issue in favor of the revenue.