Summary
The Supreme Court upheld valuation of electricity transferred from captive power plants to industrial units at the State Electricity Board’s consumer tariff for Section 80-IA deduction, rather than its lower purchase tariff. It also upheld the depreciation option exercised through the return and allowance of professional fees on the evidence. It declined to decide the capital-or-revenue character of carbon-credit receipts because Revenue had not challenged that issue before the High Court.
Issues
- Which tariff represents market value of captive electricity transfers under Section 80-IA(8).
- Whether claiming written-down-value depreciation in the return validly exercised the option under Rule 5(1A).
- Whether professional expenses could be disallowed solely on retracted statements without cross-examination.
- Whether Revenue could raise the carbon-credit issue for the first time at final hearing before the Supreme Court.
Provisions considered
- Section 80-IA(1), (4) and (8), including Explanation to subsection (8), Income-tax Act, 1961For the assessment regime in issue, market value meant the ordinary open-market sale price. The industrial-consumer tariff was the proper comparator; the Board’s constrained purchase price for surplus power was not. (¶¶ 15–15.8, 17–31, 34)
- Sections 43 and 43A, Electricity (Supply) Act, 1948The then applicable statutory and contractual restrictions placed the Board in a dominant buying position. Its tariff for surplus electricity did not reflect a competitive open-market transaction. (¶¶ 16–17, 26, 29)
- Rule 5(1) and (1A), second proviso; Appendices I and IA, Income-tax Rules, 1962No particular form for exercising the depreciation option was prescribed. The timely return claiming depreciation under Appendix I sufficiently exercised the option. (¶ 35–45)
- Section 80A(6), Income-tax Act, 1961Its later insertion meant Revenue could not apply this market-value definition to assessment year 2001–2002. (¶ 33)
Held
- Market value under Section 80-IA(8) requires an open-market comparison. Under the regime and power purchase agreement involved, the producer could sell surplus power only to the Board and lacked real bargaining scope. The Board’s contracted purchase rate therefore did not establish market value for captive supplies. (¶¶ 22–26, 29)
- The industrial units would otherwise have purchased power at the Board’s consumer tariff. That tariff, Rs.3.72 per unit in the lead case, was the appropriate comparator for captive supplies, rather than the Rs.2.32 rate paid by the Board. The decision relied on by Revenue involving a different statutory and factual setting was distinguishable. (¶¶ 27–32, 34)
- Revenue could not rely on Section 80A(6), inserted with effect from 1 April 2009, to govern the assessment year 2001–2002 at issue. (¶ 33)
- The requirement to exercise the depreciation option in time was satisfied by the assessee’s timely claim in its return. Rule 5(1A) prescribed no separate form or particular mode, and no waiver of the timing requirement was involved. (¶ 40–45)
- Disallowance of professional fees rested solely on statements later retracted by affidavit and subsequent testimony affirming the services. The assessing officer gave no cogent reason to reject the later account and denied cross-examination. The Tribunal’s evidence-based allowance warranted no interference. (¶ 46–52)
- Revenue had not appealed the Tribunal’s treatment of carbon-credit receipts to the High Court; there was consequently no adverse High Court decision on that issue to challenge. The Court declined to entertain it at final hearing and expressly left the capital-or-revenue question open. (¶ 53–55)
Result
All civil appeals dismissed; no order as to costs. The question whether carbon-credit receipts are capital or revenue receipts was left open for an appropriate proceeding.