CIT v. Jindal Steel & Power Ltd.

Case snapshot

Sections / provisions: 80IA

Questions before the Court / Tribunal

• Captive power market value and depreciation option: The reported Supreme Court judgment addresses the market value of electricity for section 80IA purposes and the taxpayer's depreciation-option position. A carbon-credit issue was reportedly not adjudicated because of the way the Revenue challenge was framed.

Material facts and background

(Commissioner of Income Tax, Hisar Vs. M/s Jindal Steel and Power Ltd). That was an appeal by the revenue on the same issue against the order dated 31.3.2006 passed by the Tribunal in the case of the assessee itself i.e. ITA No.3663/Del/2005 for the assessment year 2000-2001. Insofar allowance of deduction under Section 80 IA of the Act is concerned, the High Court answered the question against the revenue as it was submitted at the bar that the issue already stood covered by the previous decision against the revenue. 11.

Respondent assessee has filed counter affidavit. It has

contended that the only issue to be considered is whether deduction claimed by the assessee under Section 80 IA of the Act should be computed by taking Rs. 2.32 per unit being the price at which electricity was sold to the State Electricity Board as the market value of the electricity or the price of Rs. 3.72 per unit being charged by the

State Electricity Board for supply of electricity to the industrial consumers including the assessee. 11.1.

Assessee had claimed deduction under Section 80 IA in

respect of its two undertakings engaged in generation of power at Raigarh (Chhattisgarh). Power produced in the captive power plants was primarily for use by the respondent assessee in its steel plants. Availability of electricity from the state grid was not adequate to meet the requirements of the assessee. In order to ensure uninterrupted power supply which was crucial for attaining operational efficiency, the captive power generating units were set up by the assessee to meet the power requirements of its manufacturing units. 11.2.

It is stated that power generated from the captive power

Appellant / assessee submissions

argued by learned counsel for the appellant at the time of hearing. The first additional issue is whether the Income Tax Appellate Tribunal could ignore compliance to statutory provision relating to exercise of option to adopt Written Down Value (WDV) method in place of straight line method while computing depreciation on the assets used for power generation. This additional issue has been raised by the revenue in Civil Appeal No.13771 of 2015 (Commissioner of Income Tax Vs. M/s Jindal Steel and Power Ltd.). Revenue has also raised the issue of expenditure in Civil Appeal No.7425 of 2019 (Commissioner of Income Tax Vs. M/s Reliance Industries Ltd.). The expenditure claimed by the assessee was disallowed by the assessing officer which was affirmed by the first appellate authority i.e., Commissioner of Income Tax (Appeals). On appeal by the assessee, the Income Tax Appellate Tribunal set aside the order of the Commissioner of Income Tax (Appeals) which decision has been affirmed by the High Court. The third additional issue relates to what is called carbon credit – whether

Mr. Rupesh Kumar, learned counsel for the appellant

1948 as well as the successor Electricity Act, 2003, learned counsel for the assessee submits that under the statutory regime prevalent at the relevant point of time, the State Electricity Board had virtual monopoly in the matter of generation and distribution of electricity. Though there was provision for generation of electricity for selfconsumption, the power purchase agreement entered into between the assessee and the State Electricity Board is traceable to such statutory framework. Such a contract can be termed as a captive contract as the assessee had no other option but to accept the terms and conditions including the rate offered by the State Electricity Board. In such a captive contract, the State Electricity Board is certainly the dominant partner. The price as per such contract, therefore, cannot be termed as the market value of electricity. In fact, the explanation below the proviso to sub-section (8) of Section 80 IA defines the market value as the price at which the goods in question would ordinarily fetch in the open market. Therefore, the market value in such circumstances can only be the rate at which the State Electricity Board was supplying electricity to the...

Revenue / respondent submissions

revenue representing the appellants; Mr. S. Ganesh and Mr. Percy Pardiwala, learned senior counsel as well as Mr. D. Nageswar Rao, learned counsel for the respondent assessee. 4.

reliance placed by Mr. Rupesh Kumar, learned counsel for the revenue on the definition of the expression “market value” as defined in the explanation below sub-section (6) of Section 80 A of the Act is totally misplaced inasmuch as sub-section (6) was inserted in the statute with effect from 01.04.2009 whereas in the present case we are dealing with the assessment year 2001-2002 when this provision was note even borne. 34.

Court / Tribunal analysis and reasoning

assessee to the State Electricity Board was governed by an agreement entered into between the assessee and the State Electricity Board. This agreement was voluntarily entered into by the two parties i.e. the assessee and the State Electricity Board. It was a voluntarily agreement without any element of compulsion or force. Nobody had compelled the assessee to agree to the price fixed by the State Electricity Board. He submits that there is no evidence to prove that the contracted rate of electricity of Rs. 2.32 per unit was imposed upon the assessee by the State Electricity Board. Therefore, the assessing officer was justified in treating Rs. 2.32 per unit as the fair market rate. 12.4.

explanation thereto. He submits that the expression “market value” has been defined in relation to any goods or services sold or supplied to mean the price that such goods or services would fetch if those were sold by the undertaking or unit or enterprise or eligible business in the open market, subject to statutory or regulatory restrictions. Applying the above provision to the present case, he submits that the price at which surplus electricity was supplied by the assessee to the State Electricity Board was subject to the power purchase agreement which was a statutory arrangement. Therefore, the price paid by the State Electricity Board to the assessee for supply of excess electricity would be the market value which would mean that Rs. 2.32 per unit would be the market value of electricity supplied by the assessee to its captive industrial units. In this connection, learned counsel has also placed reliance on Circular No.5/2010 dated 03.06.2010 of the Central Board of Direct Taxes which clarifies that the explanation to sub-section (8) of Section 80 IA has been amended retrospectively from 01.04.2003 onwards to the effect that Section 80 IA would not apply to a business referred...

provides for deduction in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development etc. Assessee has industrial units for which uninterrupted power supply was required. Power supply by the State Electricity Board was found to be inadequate. Therefore, assessee had set up its own captive power plants to supply electricity to its industrial units. Surplus power was supplied to the state grid for which a power purchase agreement was entered into by the assessee with the State Electricity Board. Assessee had claimed deduction under this provision and while computing the deduction had taken the price at which electricity was supplied by the State Electricity Board to the industrial consumers including the assessee as the market value and not the price paid by

distribution of power is entitled to claim deduction under Section 80 IA of the Act. Respondent assessee fulfils the conditions for claiming such deduction and is, therefore, entitled to claim such deduction. Sub-section (8) of Section 80 IA provides that for the purpose of deduction under Section 80 IA, profits and gains of eligible business are to be computed as if the transfer was done on the market value on that date. Proviso to Section 80 IA(8) requires the assessing officer to compute the profits and gains in the manner provided. If the assessing officer finds difficulty while computing in such manner, he is

submits that adoption of the rate of Rs. 2.32 per unit by the revenue was purely on a presumptive basis. He submits that the industrial units of the assessee are the consumers. The captive power plants of the assessee supplies electricity to the industrial units. Had the industrial units not obtained power from the captive power plants of the assessee, then it would have had to purchase power from the State Electricity Board. State Electricity Board was supplying electricity to the industrial consumers at the rate of Rs. 3.72 per unit. Therefore, the industrial units of the assessee would have had to pay the aforesaid amount for electricity. In such situation, Tribunal was fully justified in holding that the rate at which electricity was supplied by the State Electricity Board to the industrial consumers was the market value of electricity supplied by the captive power plants of the assessee to its industrial units. He further submits that the rate at which the assessee had supplied surplus electricity to the State Electricity Board i.e. Rs. 2.32 per unit could not be termed as the market value in as much as that was the contracted price as per the power purchase agreement. Being...

Operative decision and relief

preferred appeal before the High Court of Chhattisgarh under Section 260A of the Act. From a reading of the High Court order dated 15.11.2016, we find that the only issue raised by the revenue before

the High Court was relating to disallowance of deduction by the assessing officer under Section 80-IA (4) (iv) of the Act. Question of carbon credit being capital receipt or not was not raised. In other words, revenue had accepted the decision of the Tribunal as regards carbon credit and did not challenge the said decision before the High Court. In fact, in the proceedings dated 11.09.2009 it was agreed by both the sides (including the revenue) that the only question which arose for consideration of this Court was as regards interpretation of Section 80-IA of the Act. Therefore, the issue relating to carbon credit was not raised or urged by the revenue. If that be the position, revenue would be estopped from raising the said issue before this Court at the stage of final hearing. That apart, there is no decision of the High Court on this issue against which the revenue can be said to be aggrieved and which can be assailed.

decline to answer this question raised by the revenue and leave the question open to be decided in an appropriate proceeding. 56.

Authorities and precedents appearing in the judgment

• No reliable precedent list was extracted automatically; use the full judgment for the citation chain.

This list is machine-assisted from the judgment text and is not a substitute for checking the full citation chain in the PDF.

Ratio and legal principle

The decision turns on Captive power market value and depreciation option. The operative result is classified as Quashed / set aside. Read the rule only with the statutory version, factual findings and precedent chain recorded in the full judgment.

Why this judgment matters

The case is relevant to taxpayers, advisers and litigators dealing with Captive power market value and depreciation option. Its practical value lies in the interaction between the statutory text, the evidentiary record and the procedural route followed in this case.

Practitioner action points

• Use the judgment as a fact-specific precedent: match the statutory version, assessment period, procedural stage and evidentiary record before relying on the result.
• Check whether a later High Court/Supreme Court order has affirmed, reversed, distinguished or rendered the decision academic.
• For litigation, attach the full judgment/order to the working paper and cite the paragraph/page supporting the proposition rather than relying on a headnote alone.

Full judgment and source trail

Read / download the authenticated official judgment PDF

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