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TMI Blog2004 (3) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... me 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 ste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the undertaking. 5. In any case and without prejudice to the other grounds, the learned CIT(A) has also erred in upholding the action of the AO in not correctly estimating the expenses incurred against receipts eligible for deduction under s. 80-IA, in as much as, since the entire expenses incurred by the appellant have been incurred for the production of steam, the same should be considered as expenses against eligible receipts and not at 10 per cent as estimated by the AO, which, in any case, is much too less. 6. In any case and without prejudice to the other grounds, the learned CIT(A) should have accepted the contention of the appellant to reduce the gross receipts for the year by Rs. 3,82,59,074 being the amount excess-credited in the books on the basis of the interim arrangement which was retrospectively revised in the following year and income in respect of which never accrued or arose in the hands of the appellant-company. 7. The learned CIT(A) has also erred on the facts and circumstances of the case and in law in upholding the order of the AO charging interest under s. 234B of the Act. 8. The order of the learned CIT(A) to the extent indicated above is contrary to fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and ultimately was confirmed by the CIT(A) was with regard to the claim of depreciation. The AO felt that as the assessee is obliged to claim depreciation and he having not done so, the AO issued a questionnaire to the assessee as to why the depreciation be not first deducted from the income before arriving at the final income which may be eligible under s. 80-IA. The assessee contended before the AO that in view of the judgment of the apex Court in CIT vs. Mahindra Mill (2000) 159 CTR (SC) 381 : (2000) 243 ITR 56 (SC), it is optional for the assessee to claim or not to claim depreciation. According to the assessee it was contended by the assessee before the AO that it was the choice of the assessee as according to the law it cannot be forced to claim depreciation. 3. The contention raised by the assessee before the AO did not find favour as the AO felt that in view of Expln. 5 added to s. 32 by the Finance Act, it is obligatory on the assessee to claim depreciation and if not claimed the AO will first deduct the depreciation and then arrive at the figure. Though the Expln. 5 added to s. 32 is available in the Act, w.e.f.1st April, 2002, the AO felt that this Explanation is retros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clause 21 of the Finance Bill seeking to amend s. 32 of the IT Act relating to depreciation is reproduced as hereunder: 'Sub-cl. (a) seeks to insert a new Expln. 5 in cl. (ii) of sub-s. (1) of the said section so as to clarify that the provisions of sub-s. (1) of s. 32 shall apply whether or not the assessee has claimed the deduction for depreciation in computing his total income. Sub-cl. (b) seeks to substitute sub-s. (2) so as to provide that where full effect cannot be given to the depreciation allowance in any previous year owing to there being no profits or gains chargeable for that previous year or owing to the profits or gains chargeable being less than the allowance, the depreciation allowance or part thereof to which effect has not been given shall be added to the amount of allowance for depreciation for the following previous year, or for the succeeding previous years till such time the full effect has been given to the depreciation allowance claimed by the assessee. These amendments will take effect from1st April, 2002, and will accordingly apply in relation to asst. yr. 2002-03 and subsequent years. To the arguments raised by the learned Authorised Representative, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... team is used to rotate the turbine. The rotation of the turbine then rotates the alternator which generates electrical energy. To this extent there is no dispute as the Revenue has not contradicted these facts or process. The dispute is that the steam after being used to rotate the turbine is drawn up from the turbine outlet as exhaust system. This steam gives thermal energy which is used in the sugar plant at various stages to heat sugar juices for evaporation of water in juices to produce final sugar. According to the assessee, the evaporation of water in juices takes place by way of transfer of thermal heat energy from low pressure exhaust steam to the juices. The case of the assessee is that the receipts which have been received through the supply of steam are eligible for deduction under s. 80-IA(iv). The case of the Revenue is that the steam not being power within the meaning of s. 80-IA(iv) the receipt so generated through the supply of steam are not eligible under s. 80-IA(iv) of the IT Act. We may, at this stage, itself refer to the provisions of s. 80-IA(iv) which are relevant for our purposes and which reads as under: An undertaking which: (a) Set up in any part of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ionary meaning. According to the assessee, the dictionary meaning given to the power is the energy and once the power means the energy, then it can be any form of energy. The assessee contended that steam is definitely an energy, then any receipts so generated would qualify for deduction under s. 80-IA(iv). Referring to the Webster s Dictionary the learned counsel contended that in that dictionary steam is defined as energy referring further to Webster s Abridged Dictionary, at p. 1391, the learned counsel contended that the steam has been defined to mean power or energy . After having referred to Webster s Dictionary, the learned counsel contended that since the steam is equated with the power it is a form of energy and power being also energy, the revenue so generated would qualify for deduction under s. 80-IA. Advancing his case further, the learned counsel contended that apart from the fact that the Webster s defines steam as the form of power or energy, he referred to the Oxford English Dictionary to clarify as to what power means. The learned counsel contended that the power in Oxford English Dictionary is defined as mechanical or electrical energy or any form of energy or fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel, when the legislature intended the word power to be used in conjunction with electricity, they have in their wisdom used it so, but in s. 80-IA, the word electricity having not been used, the power is to be read as a whole in its wider perspective and the scope of the section cannot be narrowed down. In this background, the learned counsel stressed that unless and until the legislature has used a particular word, putting that word in the section would not be desirable. In this background, the learned counsel referred to ss. 10(23)(f), 33B (provisions pertaining to rehabilitation), s. 72A(7)(a)(3) (provisions relating to carry forward and set off of cumulative loss and unabsorbed depreciation allowance in amalgamation or demerger), s. 10(6) as inserted in the year 1961 and omitted by Finance Act, 1993, s. 10(5)(b) prior to its omission by Finance Act, 2002, s. 32A investment allowance, s. 80RRA. References to these sections were made purposely to demonstrate that the word electricity has been used in those sections whereas it has not been used in the s. 80-IA intentionally . The idea of not mentioning the word electricity in s. 80-IA(iv) is only for the purpose that the leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deployment of electrical energy also but the assessee instead of deploying electrical energy has put to use the thermal energy. If the assessee has given preference to one form of energy over the other and both are capable of producing the same results, then one fails to understand as to how could one be termed as power (which is also an energy) and the other (steam) not a source of energy (not a power) when both are capable of doing the same work. We, therefore, say that there is an inherent fallacy in the argument of the Revenue on this aspect of the matter. 19. The learned Departmental Representative during the course of hearing contended that steam is not capable of doing work. We feel this is also not correct for the reason that the energy is used in relation to work and the work the steam does in the present case is that it evaporates water from the cane juices to bring the end product called sugar. We must say that steam has definitely produced the results by doing work and is thus can be said to be nothing, but a form of power and thus is power. For example, there may be electricity in the wires, but unless it is connected to a machine it cannot bring the result. Simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hem holding steam not to be power cannot be sustained. The view we take finds a support from the judgment of the apex Court in the case of Saraswati Industrial Syndicate vs. CIT (1999) 152 CTR (SC) 470 : (1999) 237 ITR 1 (SC). 24. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e particular meaning which is relevant to the context in which it has to interpret the word . 28. To the similar effect is the judgment of the Kerala High Court reported in the case of CIT vs. Casino (P) Ltd. (1973) 91 ITR 289 (Ker), wherein the Kerala High Court has held word used in a statute is sometimes not defined. To constitute such a word, its natural meaning according to concept, the usage of English speech must be given to it in preference to any specific or technical meaning. The context in which term appears and the nature of enactment is also of relevance in understanding the meaning of the term. 29. When we apply the principles of interpretation of statutes to the present case, we find that the word power has to be given a meaning which is in common parlance and in common parlance the word power shall mean the energy only. The energy can be of any form, be it mechanical, be it electrical, be it wind or be it thermal. The steam produced by the assessee on the principle of interpretation of statute shall only be termed as power and shall qualify for the benefits available under s. 80-IA(iv). 30. The assessee during the course of hearing referred to the provisions of s. 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded that the scope of income under s. 80-IA is much more wider than the one under s. 80HH. After having said so, the learned counsel contended that the receipts so received by the assessee from the generation of steam would qualify for deduction under s. 80-IA as it is an income from the business of the assessee. To conclude, the learned counsel submitted that the income derived from the supply of steam is income derived from an undertaking engaged in the generation of power and in support of this reliance was placed by the learned counsel on the judgment in the case of Pandian Chemicals Ltd. vs. CIT, in the case of Fenner (India) Ltd. vs. CIT (2000) 160 CTR (Mad) 141 : (2000) 241 ITR 803 (Mad) and CIT vs. Sundaram Industries (2000) 253 ITR 396 (Mad). 33. Referring to another judgment in the case of ITO vs. Polytech Cable Products (1985) 11 ITD 20 (Hyd), the learned counsel contended that the profits and gains derived from the undertaking means the industrial undertaking must itself be direct source of profit or gain. After having referred to this judgment the learned counsel contended that the income from steam is an income derived by an industrial undertaking and nothing else. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 80-IA, as, according to the assessee the entire expenses incurred by the appellant have been incurred for the production of steam, the same should be considered as expenses against eligible receipts. On this ground both the parties relied upon the arguments while they were addressing us on ground Nos. 2-4 of the appeal. Undoubtedly, the entire business of the assessee in generation of power is based on the generation of steam because once the steam is generated at a high temperature and pressure, this steam is transferred to inlet of steam turbines through pipes which rotates the turbine. The rotation of the turbine then rotates the alternator and then produces energy. Fundamentally, we must understand that it is the rotation of the turbine through the steam and unless and until the steam is generated nothing could move. Steam admittedly is a form of power and expenses that are incurred for generation of steam ought to have been reduced from the receipt of the same. This ground of appeal, therefore, calls for no further discussion and stands allowed. 38. This brings us to the ground No. 6 of the appeal wherein the assessee has made a grievance that the authorities below should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t income for the year ending31st March, 2000be reduced to this extent. The reverse entry is made in the subsequent year. The assessee tried to impress upon the AO that the tax has to be levied on the real income and it was the case of the assessee before the AO that the income to the extent of Rs. 3,82,59,074 never accrued in the hands of the company. 41. The contentions raised by the assessee before the AO did not find favour and he brought the said excess amount to tax, as income of the assessee. 42. The appeal by the assessee before the CIT(A) did not find favour and that is how the matter has come up before us. During the course of hearing on this ground of appeal, the assessee contended that once this receipt was not the income of the assessee, then how could it be taxed. According to the assessee they have categorically brought these facts of the interim arrangements and the revised arrangements which revised agreement was with retrospective effect to the notice of the authorities below and also depicted the same by appending note to their balance sheet which has been ignored. Not only this, the assessee contended during the course of hearing that in the next year the said en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue that it is only that income which had accrued to an individual that can be subjected to taxation and the income which has not accrued cannot be taxed. We may here itself refer to the judgment of the apex Court in the case of Godhra Electricity Supply Co. vs. CIT (1997) 139 CTR (SC) 564 : (1997) 225 ITR 746 (SC), wherein it has been held that it is a real income which can be subjected to tax and not the income which has not accrued to the individual. To the similar effect is the other judgment of the apex Court reported in the case of CIT vs. Raman Co. (1968) 67 ITR 11 (SC). 47. When we apply the ratio of these decisions to the facts of the present case, which admittedly are that under an interim arrangement the parties agreed that steam shall be supplied at a certain rate. Admittedly, this agreement was subject to approval by the PICUP. 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 revise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44-54 of the paper book wherein the AO has himself admitted that though no new facts or new issues have been raised by the assessee in its written submissions dt.8th July, 2003before the CIT(A) and hence the assessment order in itself would have been sufficient to look for answers to the points mooted by the assessee. 53. We have heard the parties on this issue and find that the AO had been provided with ample opportunity and his comments were called for on all issues pending before the CIT(A) to which he has replied back stating that no new issues have been raised by the assessee. That apart, in the light of the fact that the comments were called and the remand report was submitted by the AO wherein he himself admits that no new facts have been brought forward by the assessee, it is extremely unfair on the part of the Revenue at this stage to come out and say that the additional evidence has been admitted contrary to the rules. We must say that this statement by the Revenue is not correct and have no hesitation in observing that no new evidence at all has been admitted. That apart, the record transpires that the AO had reduced a sum of Rs. 2,07,48,226 from the receipt eligible for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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