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TMI Blog2020 (2) TMI 1483X X X X Extracts X X X X X X X X Extracts X X X X ..... d to apply out of this income and an amount which by the nature of obligation cannot be said to be part of the income of the assessee. Where by an obligation, income is diverted before it reached the assessee, it is deductible ; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, in law, does not follow. The second payment is merely an obligation to pay another a portion of one's income, which has been received and is since applied. The first is a case in which the income never reaches the assessee, who even if he were to collect it, does so, not as part of his income, but for and on behalf of the person to whom it is payable. In our view the regulato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicant-company was incorporated on September 18, 2008 with the object to carry on all or any of the business of production, manufacture, generation, conversion, transformation, processing, storing, supply, distribution of electricity, all forms of energy and any such products and by-products, etc. RInfra is a licensee for carrying out the business of distribution and retail supply of electrical energy within the area of supply as specified in the licence for distribution and retail supply of electricity issued by the Maharashtra Electricity Regulatory Commission (MERC). The present licence is valid till August 15, 2036. 3. MERC is the regulatory authority which determines the tariff to be charged to consumers by power distribution under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsidered as Regulatory asset , i. e., deferred recovery in the revenue gap. The right to recover the said amount accrues only when MERC approves the same. This amount is charged and recovered from consumers in terms of the MERC tariff order permitting to recover in a given time frame subsequently. 4. RInfra submits the annual revenue requirement to cover both the costs incurred and a reasonable return on capital base. MERC while fixing up the tariff redraws upon the profitability based on allowance or disallowance of certain item of expenses and income. The gap arising on account of such disallowance by MERC, once allowed by the Appellate Authority, which is adjusted in the subsequent tariff order issued by MERC is considered as Regulat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arashtra Electricity Regulatory Commission (MERC). 7. RInfra's various appeals are pending before the Appellate Tribunal for Electricity and the Supreme Court of India in respect of disallowances made by MERC on various issues/the revenue requirement filed by RInfra for tariff determination. The issues pending adjudication once approved fully/partially in either one or more or all cases will result into recovery from consumers. The sum recoverable which will be determined only after the judicial decisions are made, are basically costs incurred by RInfra but not recovered from consumers through tariff. 8. AEML has agreed that the GTD undertakings and the assets in relation thereto will not include RAUA, all of which are deemed to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of recovered RAUA passed on/paid to RInfra ought to be allowed as business expenditure incurred by AEML for its business of distribution of electricity. Submissions of the Revenue 11. The Revenue in its report dated July 10, 2019 at para 2.5.4, has observed as under : In the instant case of issue covered under RAUA is with respect to the expenditure incurred by the company and the same has been accounted by RInfra. However MERC while approving the tariff has disapproved the same and is pending before ATE/Supreme Court. Further, since the amount of RAUA once decided by ATE/Supreme Court should form part of recovery of the cost incurred by RInfra and the same cannot in anyway be considered as revenue of REGSL on transfer of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l risks in respect of RAUA during the relevant period of functioning of RInfra and AEML had no role to play, the profit should also be attributed to RInfra. Decision 14. In determining whether there has been diversion of income by over- riding title, it is the nature of the obligation which is the decisive fact. There is a difference between an amount which a person is obliged to apply out of this income and an amount which by the nature of obligation cannot be said to be part of the income of the assessee. Where by an obligation, income is diverted before it reached the assessee, it is deductible ; but where the income is required to be applied to discharge an obligation after such income reaches the assessee, the same consequence, i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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