LI Network
Published on: December 08, 2023 at 21:54 IST
The Supreme Court has clarified the method for computing deductions under Section 80–IA of the Income Tax Act, 1961.
The court emphasized that, for the purpose of determining deductions related to profits and gains from industrial undertakings or enterprises engaged in infrastructure development, the market value of electricity should be based on the rate at which the State Electricity Board supplies power to consumers.
The case involved M/s Jindal Steel & Power Limited, which had established captive power generating units supplying electricity to its industrial units and surplus electricity to the State Electricity Board.
The dispute arose when the Revenue insisted on computing the deduction based on the price at which the Assessee supplied electricity to the State Electricity Board.
The bench, comprising Justice B. V. Nagarathna and Justice Ujjal Bhuyan, dismissed the Revenue’s appeal, stating that the market value of electricity should not be compared to the rate at which it was supplied to the State Electricity Board. Instead, the rate at which the State Electricity Board supplies power to consumers should be considered as the market value for computing deductions under Section 80-IA.
The background of the case involves the Assessee claiming deductions under Section 80-IA amounting to Rs. 80,10,38,505 in relation to profits from its power generating units.
The dispute arose when the Assessing Officer argued that the market value of electricity should be the rate at which the Assessee supplied power to the State Electricity Board.
The dispute went through various levels of appeal, with the Supreme Court ultimately upholding the High Court’s decision to dismiss the Revenue’s appeal.
The Supreme Court clarified that the term “market value” for Section 80-IA purposes refers to the price determined in the open market between a buyer and a seller, unaffected by any control or regulation.
The court emphasized that the contracted price between the Assessee and the State Electricity Board, at Rs. 2.32 per unit, does not reflect the normal course of trade and competition.
In conclusion, the Supreme Court ruled that the market value of electricity, for the purpose of computing deductions under Section 80-IA, should be based on the rate at which the State Electricity Board supplies power to industrial consumers. The decision reaffirms the High Court’s order and dismisses the appeal filed by the Revenue.