In a significant verdict, the Supreme Court has clarified the computation of deductions under Section 80-IA of the Income Tax Act, 1961, specifically regarding the determination of the market value of electricity. The case, *Commissioner Of Income Tax v M/s Jindal Steel & Power Limited,* revolved around M/s Jindal Steel & Power Limited’s claim for deductions in respect of profits generated by its captive power generating units.

The Assessee, engaged In electricity generation and industrial manufacturing, supplied surplus electricity to the State Electricity Board. The crux of the dispute lay in assessing the market value of electricity for computing the deductions under Section 80-IA of the Income Tax Act.

Initially, the Revenue contended that the market value for computing deductions should be the rate at which the Assesseesupplied electricity to the State Electricity Board, i.e., Rs. 2.32 per unit. However, the Assessing Officer reduced the deduction, stating that the market value should be the rate at which the Assessee supplied electricity to its industrial units, set at Rs. 3.72 per unit.

The High Court and the Tribunal, in separate instances, held that the market value should be determined by considering the rate at which the State Electricity Board supplied power to consumers in the open market. The Supreme Court’s bench comprising Justice B. V. Nagarathna and Justice Ujjal Bhuyan upheld these findings.

The Court clarified that the concept of “market value” pertains to the price arrived at between a buyer and a seller in an open market, devoid of regulation or control, determined by the economics of demand and supply. Highlighting that the Assessee’s contractual agreement with the State Electricity Board fixed the price at Rs. 2.32 per unit without negotiation room for the Assessee, the Court emphasized that this pricing did not reflect a competitive market scenario.

Section 80-IA of the Income Tax Act, 1961, facilitates tax deductions for eligible industrial undertakings or enterprises involved in infrastructure development or specific industries like power generation, telecommunications, etc. This provision allows these entities to claim a percentage of their profits and gains as deductions from their total income over a specified duration, generally ranging from five to ten consecutive assessment years, provided they meet stipulated criteria regarding commencement of operations, adherence to regulatory norms, and maintenance of proper accounts. The primary aim of this section is to encourage investment, promote growth in vital sectors, and foster the development of essential infrastructure and industries by providing tax incentives to eligible businesses.

The verdict determined that the market value of electricity supplied by the Assessee to its industrial units should be calculated based on the rate at which the State Electricity Board supplied power to consumers in the open market, dismissing the idea that the rate of power sold to a supplier (the Assesseeselling to the State Electricity Board) should be considered the market rate.

Therefore, the Court upheld the High Court’s decision and dismissed the Revenue’s appeal. The conclusion mandates that for computing deductions under Section 80-IA of the Income Tax Act, the market value of electricity supplied by the State Electricity Board to industrial consumers should be considered.

This ruling sets a precedent for determining the market value of electricity, emphasizing the importance of assessing market rates under normal trade conditions while computing deductions, ensuring a fair evaluation for income tax purposes.

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