C.I.T.AJMER vs. M/S RSWM LTD.

Judgment 12/05/2017

This appeal is before us to examine correctness of the judgment dated 30.03.2009 passed by the Income Tax Appellate Tribunal, Jodhpur Bench, Jodhpur in Income Tax Appeal No.371/JU/2008 against the assessment year 2000-2001. By the order aforesaid, learned Tribunal while dismissing the appeal preferred by the Revenue affirmed the order passed by learned Commissioner of Income Tax(Appeals). Learned Income Tax Appellate Tribunal after discussing the entire issue on merits arrived at the conclusion that income from generation of power, may that be in the nature of captive generation, make the assessee entitled for deduction under Section 80-IA of the Income Tax Act, 1961 in respect of notional

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income from generation of electricity which was captively consumed by the assessee itself in another unit of the same company. The discussion made by learned Tribunal in the judgment impugned reads as follows:- “7. On careful analysis of the order passed by the AO, it is seen that the AO has not at all considered the intention of the provisions contained in Section 115JA(ii) and Section 80IA. Provisions contained in Section 115JA(ii) is only a fictional provision to arrive at the tax leviable against the assessee which is not having any taxable income as per the provision contained therein. In contrast thereto, the provisions contained in Section 80IA is a substantive provision granting tax exemption to companies which are established to generate or generate and distribute power. Provisions contained in Section 115JA(ii) is self contained provision starting with non obstante clause having over riding effect over all other provisions of the Act. So, the application of analogy of u/s 80IA in toto by considering the provisions of sec. 115JA(ii) is not permissible under law. The provision contained in Section 115JA(ii) being self contained provision having over riding effect on all other provisions of the Act, it is to be strictly construed in its application. The provisions contained in clause (4) of the Explanation attached to sub- section (2) of sec. 115JA(ii) clearly mandates that the book profit is to be reduced by the profit derived by an industrial undertaking from the business of generation or generation and distribution of power. A plain reading of this provision clearly indicates that the profit derived by the industrial undertaking from generating of power or distributing power is to be (3 of 7) [ITA-115/2011]

reduced from the book profit arrived as per the provision of sec. 115JA(ii). Undisputedly, the term ‘business’ is defined in sec. 2(13) of the I.T. Act which is an inclusive definition comprehending trade, commerce or manufacture or any adventure or concern in the nature of trade, commerce or manufacture. This clause clearly shows that the activity of ‘manufacture’ is also a business by applying this definition to the provision contained in Explanation (4) to sub-section (2) of sec. 115JA(ii). There is no requirement for sale of commodity in order to constitute a business as mentioned therein. Impliedly, the manufacture itself is a business. Undisputedly, in the case in hand, the assessee has produced power in two units during the period under consideration and supplied the entire generated power for running of other units of the assessee. So, this is a business as contemplated in the said provision. It was further found that the assessee is maintaining separate books of account for each and every unit and preparing profit and loss account and balance sheet separately and thereafter it is preparing consolidated profit and loss account and balance sheet for the purpose of annual report to be placed before the general body meeting enclosing thereto the unit-wise profit and loss account and balance sheet as certified by the authorized person required under law applicable thereto. Therefore, as the assessee is found to have NIL tax liability, it has calculated the book profit for the purpose of levy of minimum alternate tax payable on profit as per the consolidated profit and loss account [including profit of all seven units] consisting of power generating units also and reducing therefrom the profits of power generating units and dividend income. This claim of the assessee

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is found to be in accordance with the language and tenor of the provisions contained in sec. 115JA(ii).

Hence the claim of the assessee is found as correct. The other view taken by the AO has set aside by the ld. CIT(A) is incorrect.

sec.115JAA of the Act. He is also found to have limited his power of making increases and reductions as provided for in Explanation to Sec. 115JAA of the Act. The book profit as computed in accordance with provisions of Part 2 and 3 of Schedule 6 of the Company’s Act, 1966 has been increased in terms of explanation provided under that section and thereafter he has reduced rightly the amount of profits derived by industrial undertaking from business of generation or generation and distribution of power in terms of reductions as provided for in the same Explanation. This Explanation does not explicitly say that only that amount of profit derived by industrial undertaking is to be reduced that is credited to the profit and loss account. Even if the amount is not specifically credited to the profit and loss account, it was sufficient that such amount of profit found part of the consolidated profit and loss account of the assessee as he had transferred the electricity at cost and by way of commercial accounting to its other units formed a part of the consolidated profit and loss account drawn by the assessee, book profit of which is found to have been taken as a basis for computing deemed income for the year under consideration. Hence we are of the considered opinion that the ld. CIT(A)’s order is not infirm in any way requiring any interference. Hence the same is hereby upheld by finding the issue raised by the department as devoid of merits and dismiss the same.”

It is submitted by Mr. Sanjay Jhanwar, learned counsel appearing on behalf of assessee that the issue under adjudication is no more res integra in view of the judgment of Hon’ble Supreme

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Court in Civil Appeal No.3461/2010; Commissioner of Income Tax, Delhi Vs. M/s. DCM Shriram Consolidated Ltd. This Court under the order dated 28.04.2011 formulated a substantial question of law in following terms: “Whether the Tribunal was justified in holding that assessee is entitled to claim deduction as prescribed under Section 80-IA of the Income Tax Act amounting to Rs.12,16,25,631/- for the assessment year under consideration?” Consolidated Ltd; IT Appeal No.1187/2005 decided on 21.11.2008, arrived at the conclusion that generation of electricity by setting up a fully independent and identifiable industrial undertaking and use of that captive power for its own other unit is also required to be dealt with as per provisions of Section 80-IA and is entitled for the deduction in the same terms. The order aforesaid came to be affirmed by the Hon’ble Supreme Court in bunch of appeals led by Civil Appeal No.3461/2010; Commissioner of Income Tax, Delhi Vs. M/s. DCM Shriram Consolidated Ltd. On perusal of the facts and all legal aspects of the matter, we are satisfied that the issue involved in this appeal is also required to be decided in terms of the judgment referred above. In view of it, this appeal preferred by the revenue is dismissed with conclusion that Tribunal rightly declared the assessee entitled to claim deduction as prescribed under Section 80-IA of the (7 of 7) [ITA-115/2011]

Income Tax Act, 1961 and even for the purpose of computing the books of account as per Section 115-JA of the Income Tax Act, 1961. (VINIT KUMAR MATHUR)J. (GOVIND MATHUR)J. Ramesh/23