2004 (3) TMI 342 - AT - Income Tax

Depreciation claim u/s 32 - business of generation and supply of power - Eligibility of income from steam generation for deduction u/s 80-IA(4)(iv) - Estimation of expenses against receipts - Whether the steam generated by the assessee which rotates the turbine and in the end generate electricity when taken out and used for other processes, is a form of power and thus a power or not. HELD THAT - Examining the reasons of the authorities further that it is the low pressure steam and that kind of a steam cannot be taken as a form of power, we find that even this reasoning is without any basis. We say so for the reason that there is a particular voltage at which electricity is supplied. Invariably there is a low voltage in the electricity. It does not mean that as there is low voltage it ceases to be electricity or it ceases to be a form of power. This electricity though at low voltage still gives some results. But, in this case, the admitted position is that low pressure steam which is used in the sugar plant in various stages to heat the sugar juices for evaporation produces the final sugar. The heat energy is being supplied and the sugar juices are being given treatment through the heat energy to bring the final product of the sugar. The assessee in this case is using low pressure steam to its advantage. Assuming that the assessee uses electricity instead of steam and brings same results, then what is wrong with the assessee when he uses the steam and brings the same results. The basic concept which one must understand is as to how same end product has been brought through the deployment of energy that is material and not, the form of energy be it a form of mechanical, electrical or thermal energies and if the end results are brought through the thermal energy produced through the steam, we feel that this is definitely a form of power which would be falling within the ambit of expression power used u/s 80-IA(iv) of the IT Act. The generation of power takes place when bagasse is burnt in a boiler and heat generated is used to heat up the water in the boiler and generates steam. The steam so generated is at high temperature and pressure. This steam is then transferred into an inlet of steam turbine through pipes. The energy available in steam is used to rotate the turbine, the turbine then rotates the alternator which generates electrical energy. The steam after being used to rotate turbine is drawn from the turbine outlet and then finally used. In this background, we feel that the steam so generated is generated by the industrial undertaking and the receipt would be the receipt from the business of the industrial undertaking within the meaning of s. 80-IA which would qualify for this benefit. The assessee, therefore, succeeds on this account also. Thus, we feel that the steam is a form of energy and is thus power that would qualify for the deduction u/s 80-IA of the IT Act. Thus, we feel that the observations of the authorities below that it is only the electrical form of energy which qualifies for deduction u/s 80-IA, with reference to the provisions of Electricity Act, was not correct especially when the legislature has not used the word electricity, the Courts have invariably been defined the steam to be a form of power and equated the same with power or at par with power. Thus, we have no hesitation in allowing ground Nos. 2-4 of the appeal. Admittedly, the PICUP had not approved the rate obviously for the reason of their financial involvements because they felt that if these rates are acted upon, there would be lesser profit and consequently that would affect their stakes. Consequent to the intervention by the PICUP the rates were revised retrospectively. Once the rates were revised retrospectively, the income which might have accrued to the assessee has not accrued. Merely because an income might have accrued or not accrued cannot be a ground to tax the receipt which was not assessee s own. It is the real income which in law is liable to be taxed. The difference that had accrued on account of interim arrangement and the revised arrangement could not and by no stretch of imagination be said to be the income of the assessee. The assessee has clearly said so in the document placed before the authorities below. They have also reversed the entries in the subsequent years. We, therefore, feel that the differential amount that had surfaced on account of the interim arrangement and the revised arrangement which revised the rates retrospectively by no stretch of imagination could be said to be the income of the assessee and under no circumstances could be subjected to taxation. Consequent to the above, these grounds raised by the assessee also succeed and are hereby allowed. Thus, the appeal filed by the assessee succeeds and is hereby allowed. Reduction of gross receipts by excess-credited amount - The record transpires that the AO had reduced a sum of Rs. 2,07,48,226 from the receipt eligible for deduction u/s 80-IA(iv) on the ground that as per conversion agreement entered into between the appellant-company and SBEC Sugar Ltd. dt.10th Dec., 1998, 50 per cent of the receipts from UPSEB were to be paid to SSL who was to supply bagasse and water free of cost to the assessee. The AO felt that there is a close proximity between the two and, therefore, according to the AO, the assessee was following only those terms of the conversion agreement which were favourable to the assessee and ignoring the terms which were not favourable for claiming higher deduction. Before the CIT(A), the assessee contended that the SSL did not pay upfront fee on the objection from PICUP from whom SSL had obtained a loan of Rs. 8 crores and also the fact that the assessee-company entered into power purchase agreement directly with UPSEB. It was in this background that the terms of agreement were changed and the rates were reduced. The CIT(A), therefore, held that the AO was not justified in reducing a sum of Rs. 2,07,48,226 from the gross receipts eligible for deduction u/s 80-IA . We also observe that there was no additional evidence admitted by the CIT(A) as all these facts were already disclosed through the annexures annexed to the balance sheet appended to the return. Consequent to the above, the appeal filed by the Revenue fails and is hereby dismissed.

Summary

Issues Involved:
1. Depreciation claim u/s 32 of the IT Act.
2. Eligibility of income from steam generation for deduction u/s 80-IA(4)(iv).
3. Correct estimation of expenses against receipts eligible for deduction u/s 80-IA.
4. Reduction of gross receipts by excess-credited amount.
5. Charging of interest u/s 234B.
6. Admission of additional evidence by CIT(A) in contravention of Rule 46A.

Summary:

1. Depreciation Claim u/s 32:
The assessee argued that claiming depreciation is optional based on the Supreme Court's decision in CIT vs. Mahendra Mills. However, the AO and CIT(A) held that depreciation must be claimed due to Explanation 5 added to Section 32 by the Finance Act, 2001, which the AO considered retrospective. The Tribunal, referencing the Kerala High Court's decision in CIT vs. Kerala Electric Lamp Works Ltd., concluded that Explanation 5 is prospective and upheld the assessee's right not to claim depreciation for the relevant year.

2. Eligibility of Income from Steam Generation for Deduction u/s 80-IA(4)(iv):
The assessee claimed that steam is a form of power and thus eligible for deduction under Section 80-IA(4)(iv). The Tribunal examined the process of power generation and the use of steam in the sugar plant, concluding that steam is indeed a form of energy and thus qualifies as power. The Tribunal referenced various judicial precedents and dictionary definitions to support this view. Consequently, the income from steam generation was deemed eligible for deduction under Section 80-IA(4)(iv).

3. Correct Estimation of Expenses Against Receipts Eligible for Deduction u/s 80-IA:
The assessee contended that all expenses incurred for the production of steam should be considered against eligible receipts. The Tribunal agreed, noting that the entire business of power generation is based on steam production, and thus, expenses related to steam generation should be deducted from the receipts.

4. Reduction of Gross Receipts by Excess-Credited Amount:
The assessee argued that an excess amount credited due to an interim arrangement, later revised retrospectively, should be excluded from gross receipts. The Tribunal found that the revised agreement, approved by PICUP, was genuine and retrospective. Therefore, the excess amount did not accrue to the assessee and should not be taxed.

5. Charging of Interest u/s 234B:
This issue was consequential and dependent on the outcomes of the other grounds. Given the Tribunal's decisions on the other issues, the charging of interest u/s 234B was also addressed accordingly.

6. Admission of Additional Evidence by CIT(A) in Contravention of Rule 46A:
The Revenue contended that the CIT(A) admitted additional evidence in violation of Rule 46A. However, the Tribunal found that no new evidence was admitted, and the AO had ample opportunity to comment on the issues. The Tribunal upheld the CIT(A)'s decision to include a sum of Rs. 2,07,48,226 in the gross receipts eligible for deduction under Section 80-IA.

Conclusion:
The Tribunal allowed the appeal filed by the assessee and dismissed the appeal filed by the Revenue, providing relief to the assessee on all contested grounds.