Supreme Court rules on “market value” for inter- divisional transfer for incentive deduction

 This Tax Alert summarizes a two-judge bench Supreme Court (SC) ruling, dated 6 December 2023, in a batch of appeals with the lead case being of the Indian taxpayer. The main issue under consideration before the SC was on determination of market value for profit-linked incentive deduction for transfer of power by the Taxpayer from its captive power generation units (PGU) to its manufacturing units (MU). The SC held that in such a case the rate at which the State Electricity Board (SEB) supplied power to the industrial consumers, and not the rate at which PGU sold its surplus power units to the SEB, which is a statute driven rate, must be regarded as the market value for the purposes of determining profit-linked incentive deduction.

Further, on the issue as to the manner of exercising the option to claim depreciation under Written Down Value (WDV) method in respect of assets used in the PGU, the SC noted that while the Income Tax Laws (ITL) provides that depreciation on such assets is allowable under Straight Line Method (SLM), the Taxpayer has an option claim depreciation under WDV method, where such option is exercised by the Taxpayer before the due date of filing its return of income (ROI). As per the SC in absence of a specific mode for exercising the option, the claim made in the ROI filed by the Taxpayer itself would suffice to grant depreciation under the WDV method