2018 (1) TMI 785 - AT - Income Tax

Applicability of section 80A(6) - benefit under Section 80-IA entitlement - Held that - As noted the authorities below have not examined the matter after taking into consideration the provisions of section 80A(6) of the Act wherein the market value of the electricity sold and purchased are to be determined separately and has been made subject to statutory and regulatory restrictions. Further, the earlier decisions of the Coordinate Benches are distinguishable as the provisions of section 80A(6) were not considered in those decisions. Thus in the interest of justice and fair play, following our decision in case of Chambal Fertilizers (2016 (10) TMI 1115 - ITAT JAIPUR) and given the provisions of section 80A(6) which overrides section 80IA(8) and are clearly applicable in the instant case and have not been considered by the authorities below, we deem it appropriate to set aside the matter back to the file of the Assessing officer to examine the same afresh taking into consideration the above discussions. TDS liability on education cess and higher education cess - Held that - Hon ble Supreme Court in case of SRD Nutrients Private limited (2017 (11) TMI 655 - SUPREME COURT OF INDIA) where education cess and higher education cess have been held to partake the character of excise duty, the legal proposition so laid down by the Hon ble Supreme court will apply with equal force in the context of income tax, and following our decision in case of Chambal Fertilizers (supra) wherein we have held that across all tax legislation direct taxes as well as indirect taxes on goods and services, the nature and character of education cess and higher education cess is clearly tax and nothing else, we are of the considered view that the assessee s claim of deduction on account of education cess (EC) & secondary and higher education cess (SHEC) on income tax & dividend distribution tax amounting to ₹ 1,42,79,859/-, as eligible revenue expense u/s 37 of the Act is not permissible in view of the provisions of section 40(a)(ii) of the Act. MAT computation - exclusion of profit on sale of investments and profit on sale of fixed assets while computing book profit u/s 115JB - Held that - This issue has since been covered against the assessee by the decision of Coordinate Bench 2015 (3) TMI 759 - ITAT JAIPUR in the assessee s own case for AY 2008-09. Respectfully following the same, we hereby confirm the order of the ld CIT(A) and dismiss the ground of appeal taken by the assessee. Disallowance of electricity duty exemption - capital receipt or revenue receipt - not including the same while determining the books profits u/s 115JB - Held that - The object and purpose test has been held to be determinative of the character of receipt in the hands of the assessee company and our own decision in case of Hindustan Zinc (2018 (1) TMI 758 - ITAT JAIPUR) wherein we have examined the Rajasthan Investment Promotion policy 2003 in context of electricity duty exemption, we affirm the action of the ld CIT(A) and hold the receipt on account of electricity duty exemption as capital receipt. Hence, the same cannot be brought to tax in the hands of assessee company under the normal computational provisions as well as while determining the books profits under section 115JB of the Act. - Decided against revenue

Issues Involved:

1. Disallowance under Section 80-IA for transfer price adjustment of power captively consumed.
2. Disallowance of Education Cess.
3. Disallowance of profit on sale of investment and fixed assets while computing book profit under Section 115JB.
4. Treatment of sales tax subsidy as capital receipt.
5. Treatment of electricity duty exemption as capital receipt.

Issue-wise Detailed Analysis:

1. Disallowance under Section 80-IA for Transfer Price Adjustment of Power Captively Consumed:

The assessee claimed deduction under Section 80-IA on power undertakings by considering the market value at annual average landed cost (AALC) of electricity purchased from the Grid for its Jaipur unit. The AO reduced the claim by adopting a lower transfer price based on the average cost of electricity purchased by all units in Rajasthan. The CIT(A) affirmed this disallowance, stating that the AALC of Jaipur unit does not represent the relevant geographical area. The Tribunal, however, referenced previous decisions and the Rajasthan High Court's ruling, stating that the assessee has the discretion to adopt any market value available and that the AO cannot substitute this value with another. The matter was remanded back to the AO for fresh examination considering Section 80A(6), which overrides Section 80-IA(8).

2. Disallowance of Education Cess:

The assessee claimed deduction for education cess and secondary and higher education cess as revenue expenses under Section 37. The AO disallowed this, treating the cess as additional surcharge. The CIT(A) upheld this view. The Tribunal referenced its decision in Chambal Fertilizers & Chemicals Limited, affirming that education cess is an additional surcharge and thus disallowable under Section 40(a)(ii). The Tribunal also noted the Supreme Court's decision in SRD Nutrients Private Limited, which held that education cess partakes the character of tax.

3. Disallowance of Profit on Sale of Investment and Fixed Assets while Computing Book Profit under Section 115JB:

The assessee excluded profits from the sale of investments and fixed assets while computing book profit under Section 115JB. The AO and CIT(A) disallowed this exclusion, referencing the Tribunal's decision in the assessee's own case for AY 2008-09. The Tribunal upheld the disallowance, following the precedent set in the earlier decision.

4. Treatment of Sales Tax Subsidy as Capital Receipt:

The Revenue challenged the CIT(A)'s decision to treat sales tax subsidy as a capital receipt. The Tribunal referenced the Rajasthan High Court's decision in the assessee's favor, which held that the subsidy was for capital investment purposes and thus a capital receipt. The Tribunal affirmed the CIT(A)'s order, dismissing the Revenue's appeal.

5. Treatment of Electricity Duty Exemption as Capital Receipt:

The Revenue also challenged the CIT(A)'s decision to treat electricity duty exemption as a capital receipt. The Tribunal noted that the electricity duty exemption was received under the Rajasthan Investment Promotion Policy 2003, similar to the sales tax subsidy. The Tribunal referenced its decision in Hindustan Zinc Ltd., where electricity duty exemption was held as a capital receipt. The Tribunal affirmed the CIT(A)'s order, holding the receipt as capital in nature and not includible in book profit under Section 115JB.

Conclusion:

The Tribunal provided a detailed analysis for each issue, referencing previous decisions and relevant legal provisions. The appeals were disposed of with directions for fresh examination where necessary, and the orders of the CIT(A) were largely affirmed.

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