THE issues before the Bench are - Whether production of steam can be construed as generation of power and Sec 80IA benefits cannot be denied even if such steam is utilised for internal manufacturing process and Whether market value of the goods transferred in cases, where provisions of section 80-IA(8) are applicable, has to be determined having regard to the price charged in uncontrolled transaction. And the verdict goes in favour of the assessee.
The assessee is a public Ltd Company. It is engaged in the business of manufacturing of paper boards and optic cables etc, it is also engaged in operation of wind mills at Tamil Nadu and generating powers. Assessee claimed deduction under section 80IA in respect of its power generating plant no 1-5 and also claimed deduction of 80-IA in respect of plant number 6 where the assessee was generating electricity with the help of steam. The AO denied the claim of the assessee vis-à-vis all the units mainly on the grounds that the power generated by the assessee was not sold to outsider and the units were captive power consumption based. Secondly, the generation of steam was not generation of power within the meaning of section 80-IA of the Act. Besides this the AO also estimated the market value of electricity transferred by the power unit to other units and took the view that the assessee ought to have reduced the value of excise and other duties, which were embodied in the state electricity charges, from the notional charges received from the other units. The CIT (A) partly allowed the appeal of the assessee, however sustained the order of the AO qua the deduction of section 80-IA and estimation of market value of electricity.
On appeal, the ITAT held that,
++ in this year, the claim for deduction is mainly with regard to unit no.3, 4 and 5 which has already been considered by the Tribunal on similar set of facts and similar reasons given by the Assessing Officer and the Commissioner (Appeals) in the earlier years;
++ there being no deviation of facts and material on record we, therefore, respectfully following the earlier year’s precedence, hold that the claim for deduction under section 80IA with respect to power units no.2, 3, 4 and 5 will continue to be allowable as deduction. Thus, ground no.1 raised by the assessee is allowed;
++ the statute contemplates "generation of power" or "generation and distribution of power". The moot question before us is, whether the steam generated by the assessee, which rotates the turbine for running of machines used for its manufacturing process and also steam alone, is a form of power or not. The case of the learned Commissioner (Appeals) is that the meaning of power as contemplated in the statute is generation of electricity alone, whereas the case of the counsel before us is that the power is a form of energy which can be electrical, mechanical, thermal or any other form of energy. The Income Tax Act, 1961, does not define the word "power". The new Oxford Dictionary of English defines the word "power" as "energy" that is produced by mechanical, electrical or other means which is used for operating device. Otherwise also, generation of steam is a kind of energy which can be converted into mechanical or electrical energy from which power is generated. To say that the generation of power is only restricted to generation of electricity alone, is too narrow a view. The term "power" encompasses a whole range of energy generated in various forms to run machines, devices, etc. This precise issue had also come up for consideration before the Tribunal in several cases cited supra. The Tribunal in Sial SBEC Bio Energy Ltd, while deciding the issue whether generation of steam amounts to generation of power or not for the purpose of deduction under section 80IA, has referred catena of decisions;
++ similarly, in the decision of DCIT v/s Maharaja Shri Umed Mills Ltd., the Tribunal held that like electricity, steam is also a form of power which is eligible for relief under section 80IA(4);
++ from the aforesaid decisions, it can be inferred that the generation / production of steam is also a form of power and the Unit-6 which is an undertaking set-up for generation of steam for its manufacturing process can be said to be for generation of power. The basis on which the Commissioner (Appeals) has tried to distinguish the decision of Sial SBEC Bio Energy Ltd. is very superficial. What needs to be seen is, whether generation of steam can be said to be generation of power or not, then, the finding and the conclusion drawn by the Tribunal in the aforesaid decision after referring to the catena of decisions and various other provisions clearly clinches the point;
++ in the Explanation to section 80IA(8), the "market value" has been defined as a price that such goods or services would ordinarily fetch in the open market. Fetching of the price in the open market has to be seen from the factors which are determined through negotiation between the parties and mutual agreement as arrived at a price which is acceptable between the buyer and the seller in the open market conditions i.e., in an unrelated and uncontrolled transactions. Open market conditions refers to the conditions and price available for the public at large. In the present case, the market value of supply of electricity by power unit of the assessee to the paper division of the assessee has to be seen from the angle, if the paper unit has to purchase the electricity directly from the Karnataka Electricity Board (as both the power units as well as the paper units are situated in Karnataka), then what is the price which would be paid by the paper unit to the Karnataka Electricity Board. The transfer of the price as contemplated in section 80IA(8) has to be seen having regard to the arm’s length condition i.e., what would be the price under uncontrolled transactions in the open market. If the paper division has been purchasing the electricity form the Karnataka Electricity Board at an average cost of Rs. 5.80, which fact is not in dispute, then the same price should be considered as market value for bench marking the price at which power units are supplying the electricity to the paper division. If the taxes and duties are part of the price at which the power / electricity is supplied by the Karnataka Electricity Board to the paper division, then the same price is the indicator of the market value which is fetchable in the open market. We do not find any reason for excluding the element of tax and duty while determining the "market value" of the electricity price per unit supplied by the power unit to the assessee as contemplated in sub-section (8) of section 80IA.
Facts of the case
The assessee is a public Ltd Company. It is engaged in the business of manufacturing of paper boards and optic cables etc, it is also engaged in operation of wind mills at Tamil Nadu and generating powers. Assessee claimed deduction under section 80IA in respect of its power generating plant no 1-5 and also claimed deduction of 80-IA in respect of plant number 6 where the assessee was generating electricity with the help of steam. The AO denied the claim of the assessee vis-à-vis all the units mainly on the grounds that the power generated by the assessee was not sold to outsider and the units were captive power consumption based. Secondly, the generation of steam was not generation of power within the meaning of section 80-IA of the Act. Besides this the AO also estimated the market value of electricity transferred by the power unit to other units and took the view that the assessee ought to have reduced the value of excise and other duties, which were embodied in the state electricity charges, from the notional charges received from the other units. The CIT (A) partly allowed the appeal of the assessee, however sustained the order of the AO qua the deduction of section 80-IA and estimation of market value of electricity.
On appeal, the ITAT held that,
++ in this year, the claim for deduction is mainly with regard to unit no.3, 4 and 5 which has already been considered by the Tribunal on similar set of facts and similar reasons given by the Assessing Officer and the Commissioner (Appeals) in the earlier years;
++ there being no deviation of facts and material on record we, therefore, respectfully following the earlier year’s precedence, hold that the claim for deduction under section 80IA with respect to power units no.2, 3, 4 and 5 will continue to be allowable as deduction. Thus, ground no.1 raised by the assessee is allowed;
++ the statute contemplates "generation of power" or "generation and distribution of power". The moot question before us is, whether the steam generated by the assessee, which rotates the turbine for running of machines used for its manufacturing process and also steam alone, is a form of power or not. The case of the learned Commissioner (Appeals) is that the meaning of power as contemplated in the statute is generation of electricity alone, whereas the case of the counsel before us is that the power is a form of energy which can be electrical, mechanical, thermal or any other form of energy. The Income Tax Act, 1961, does not define the word "power". The new Oxford Dictionary of English defines the word "power" as "energy" that is produced by mechanical, electrical or other means which is used for operating device. Otherwise also, generation of steam is a kind of energy which can be converted into mechanical or electrical energy from which power is generated. To say that the generation of power is only restricted to generation of electricity alone, is too narrow a view. The term "power" encompasses a whole range of energy generated in various forms to run machines, devices, etc. This precise issue had also come up for consideration before the Tribunal in several cases cited supra. The Tribunal in Sial SBEC Bio Energy Ltd, while deciding the issue whether generation of steam amounts to generation of power or not for the purpose of deduction under section 80IA, has referred catena of decisions;
++ similarly, in the decision of DCIT v/s Maharaja Shri Umed Mills Ltd., the Tribunal held that like electricity, steam is also a form of power which is eligible for relief under section 80IA(4);
++ from the aforesaid decisions, it can be inferred that the generation / production of steam is also a form of power and the Unit-6 which is an undertaking set-up for generation of steam for its manufacturing process can be said to be for generation of power. The basis on which the Commissioner (Appeals) has tried to distinguish the decision of Sial SBEC Bio Energy Ltd. is very superficial. What needs to be seen is, whether generation of steam can be said to be generation of power or not, then, the finding and the conclusion drawn by the Tribunal in the aforesaid decision after referring to the catena of decisions and various other provisions clearly clinches the point;
++ in the Explanation to section 80IA(8), the "market value" has been defined as a price that such goods or services would ordinarily fetch in the open market. Fetching of the price in the open market has to be seen from the factors which are determined through negotiation between the parties and mutual agreement as arrived at a price which is acceptable between the buyer and the seller in the open market conditions i.e., in an unrelated and uncontrolled transactions. Open market conditions refers to the conditions and price available for the public at large. In the present case, the market value of supply of electricity by power unit of the assessee to the paper division of the assessee has to be seen from the angle, if the paper unit has to purchase the electricity directly from the Karnataka Electricity Board (as both the power units as well as the paper units are situated in Karnataka), then what is the price which would be paid by the paper unit to the Karnataka Electricity Board. The transfer of the price as contemplated in section 80IA(8) has to be seen having regard to the arm’s length condition i.e., what would be the price under uncontrolled transactions in the open market. If the paper division has been purchasing the electricity form the Karnataka Electricity Board at an average cost of Rs. 5.80, which fact is not in dispute, then the same price should be considered as market value for bench marking the price at which power units are supplying the electricity to the paper division. If the taxes and duties are part of the price at which the power / electricity is supplied by the Karnataka Electricity Board to the paper division, then the same price is the indicator of the market value which is fetchable in the open market. We do not find any reason for excluding the element of tax and duty while determining the "market value" of the electricity price per unit supplied by the power unit to the assessee as contemplated in sub-section (8) of section 80IA.
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