ACIT, CIRCLE- 25(1), NEW DELHI vs. TATA POWER DELHI DISTRIBUTION LTD. (FORMELY KNOWN AS NORTH DELHI POWER LTD.), NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E”: NEW DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA No.4097 & 4098/Del/2017 (Assessment Years: 2011-12 & 2012-13) M/s. Tata Power Delhi Distribution Vs. Addl. CIT, Ltd, NDPL House, Hudson Lines, Range-16, Kingsway Camp, Delhi- 110009 New Delhi (Appellant) (Respondent) PAN: AABCN6808R

ITA No.4453 & 4454/Del/2017 (Assessment Years: 2011-12 & 2012-13) Addl. CIT, Vs. M/s. Tata Power Delhi Distribution Range-16, Ltd, NDPL House, Hudson Lines, New Delhi Kingsway Camp, Delhi- 110009 (Appellant) (Respondent) PAN: AABCN6808R

Assessee by : Ms. Shashi M. Kapila, Adv Sh. Pravesh Sharma, Adv Shri R. R. Maurya, Adv Revenue by: Sh. Subhra Jyoti Chakraborty, CIT DR Date of Hearing 27/09/2023 Date of pronouncement 05/10/2023

O R D E R Per Bench 1. The appeal in ITA Nos. 4097 & 4098/Del/2017 filed by the assessee and ITA Nos. 4453 & 4454/Del/2017 filed by the Revenue for AYs 2011-12 & 2012-13, arises out of the order of the

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Commissioner of Income Tax (Appeals)-15, New Delhi, [hereinafter referred to as ‘ld. CIT(A)’, in short] in Appeal No.236/16-17, A.Y. 2011-12 dated 30.03.2017 and 213/16-17/(165/15-16) dated 24.03.2017 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 30.03.2014 by the Assessing Officer, Addl. CIT, Range-16, New Delhi (hereinafter referred to as ‘ld. AO’).

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Particulars (Rs. in Lakhs) Commission on Delhi Vidyut Board arrears 3.11 collection Commission on collection of Energy tax for MCD 379.52 Maintenance Charges of streetlights received 1557.85 from MCD: Miscellaneous income relating to meters 227.80 Miscellaneous income which is integral part of 331.56 Distribution business: Total 2499.84

“That on the facts and in the circumstances of the case, the ld Assessing Officer erred in law in taxing book profits of Rs. 303.91 Crores under Section 115JB of the Act.”

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“5. We have carefully considered the case records. The appellant company is a joint venture of the Government of Delhi and Tata Power Ltd, registered under the Companies Act, 1956. Since 2002, the appellant is engaged in the business of distribution of electricity in the North Delhi Districts of the National Capital, set up in terms of Delhi Electricity Reforms Rules [Transfer Scheme] Rules 2001.

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Though the Kerala State Electricity Board, a statutory corporation constituted by virtue of section 5 of the Electricity (Supply) Act, 1948 answers the description of an Indian company and therefore a company within the meaning of section 2(17) of the Income-tax Act, 1961it is not a company for the purpose of the Companies Act, 1956. It is not obliged to either to convene an annual general meeting or place its profit and loss account in such general meeting. On the other hand, under section 69 of the Electricity (Supply) Act, 1948, the Board is obliged to keep proper accounts, including the profit and loss account, and prepare an annual statement of accounts, balance sheet, etc. in such form as may be prescribed by the Central Government and notified in the Official Gazette. Such accounts of the Board are required to be audited by the Comptroller and Auditor-General of India or such other person duly authorised by the Comptroller and Auditor-General of India. The accounts so prepared along with the audit report are required to be laid annually before the

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State Legislature and also to be published in the prescribed manner.

At the earliest point of time when section 1151 was introduced, the section expressly excluded from its operation bodies like the Electricity Board. Though such express exclusion is absent in section 1153A, the Central Board of Direct Taxes issued Circular No. 762 dated February 18, 1998 excluding bodies like the Electricity Board from the operation of the section. Circular No. 762 not only is binding on the Department, but also explains the purpose in introducing section 1153A which was to tax zero-tax companies. The CBDT understood that companies engaged in the business of generation and distribution of electricity and enterprises engaged in developing, maintaining and operating infrastructure facilities, as a matter of policy, are not brought within the purview of section 1153A for the reason that such a policy would promote the infrastructural development of the country. Such an understanding of the CBDT is binding on the Department. Section 1153B, which is substantially similar to section 1153A cannot have a different purpose and need not be interpreted in a manner different from the understanding of the CBDT of section 1153A.

Where the computation provision could not be applied in a particular case, it is indicative of the fact that the charging section also would not apply.

The Electricity Board or bodies similar to it, which are totally owned by the Government, either State or Central, have no shareholders. Profit, if at all, made would be for the benefit of entire body politic of the State. Therefore the enquiry as to the mischief sought to be remedied by the amendment becomes irrelevant. Therefore, the fiction fixed under section 11538 cannot be pressed into service against the Electricity Board while making the assessment of the tax payable under the Income-tax Act." 8. Finding parity of facts with the facts of the judgment of the Hon'ble Kerala High Court [supra], respectfully following the finding of the Hon'ble High Court, we hold that the provisions of section 115JB of the Act are not applicable to the appellant company. The Assessing Officer is directed accordingly. The additional ground raised by the assessee is allowed.”

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approved by the Hon'ble Supreme Court which is reported in 447 ITR 193 dated 16.08.2022.

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“4. We have given thoughtful consideration to the submissions advanced by the learned counsel for the Revenue. The questions of law that have been urged for our consideration as also the gounds of challenge made out in the memorandum of appeal are relating only to (i) additions made on account of derecognised revenue and (ii) for deleting the disallowance deduction made under Section 80 IA of the Act. No other ground has been urged and we have therefore proceeded to consider the merits of the submissions with respect to the aforenoted issues only. The first addition relating to recognition of the revenue is on account of efficiency gain. The learned Tribunal after considering the facts of the case have applied the ratio of the decision of the Supreme Court in Poona Electric Supply Company Limited vs. CIT (1965) 57 ITR 521, wherein the Apex Court has deliberated upon the concept of commercial profits viz-a-viz clear profits. On the basis of this principle, the Court has held that the amount transferable for the benefit of the consumers do not form part of the assesee's real profit and for the purpose of calculating the taxable income, such amount has to be deducted from its total income. On the strength of this reasoning, the Tribunal has relied upon the decision of the Coordinate Bench in Assessment Year 2006- 07 and held that since the Respondent-assessee has no right to appropriate the efficiency gain amount and that such amount is at the disposal of DERC, the amount has to be reduced from the profits and loss account. The observations of the Tribunal on this aspect are as under

"15. We find that similar facts were considered by the co- ordinate bench in assessment year 2006-07 in ITA N.o. 4848/DEL/2010 and 5026/DEL/2010. The relevant findings of the co-ordinate bench read as under: "17. It is, therefore, clear from the arguments advanced before us that the question involved in this matter is whether the disputed Rs.91.13 crores could be brought to tax by treating it as the application of the income after its accrual. This aspect requires a reading of the provisions of the Delhi Electricity Reforms Act, 2000 with the notifications issued and the orders passed by the DERC As could be seen from the Delhi Electricity Reforms Act, 2000, it received the assent of the President of India on 6.3.2001 and promulgated by way of Notification dated 8.3.2001. Section 2(c) of the Act defines the commission to mean the Delhi Electricity Regulatory

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Commission. The Act constitutes the Commission. It empowers the Government to issue directions to the Commission in the matter of policy involving public interest from time of time regulating the discharge of the commission functions. In turn, by virtue of Section 28 of the Act, the holder of the license (1.e. assessee) is under obligation to observe the methodologies and procedure specified by the Commission from time to time in calculating the expected revenue from charges which it is permitted to recover pursuant to the terms of its license and in designing tariffs to collect those revenues. The Commission is also empowered to prescribe the terms and conditions for determination of the licensee's revenues and tariffs by regulations duly published in the official Gazette and in such other manner as the Commission considers appropriate. In this respect, it is provided that the Commission shall be guided by the following parameters, namely:- the financial principles and their application provided in the Sixth Schedule to the Act, 1948 read with sections 57 and 57- A of the said Act, the factors which would encourage efficiency, economic use of the resources, good performance, optimum investments and other matters which the Commission considers appropriate keeping in view the salient objects and purposes of the provisions of this Act, and the interest of the consumers. 18. In exercise of the powers conferred by Section 12 and other applicable provisions of the Act, the GNCTD issued Notification No. F.11(119/(8)/2001- Power in the month of November 2001. In this Notification vide paragraph 8, the Government considered the necessity of effective re- organization of the DVB and the sale of 51% equity shares in the distribution companies. The assessee is one of the entities, who participated in the bid, became successful for the lowest annual target loss was awarded 51% of equity. Vide para 12, this Notification prescribes that in the years between 2002-03 and 2006-07 in the event of actual AT &C loss of a distribution licensee for any particular year is better ie lower than the level proposed in the bid, the distribution licensee shall be allowed to retain 50% of the additional revenue resulting from such better performance and the balance 50% of additional revenue from such better performance shall be counted for the purpose of tariff fixation. Para 13 of such Notification provides that all expenses that shall be permitted by the Commission, tariffs shall be determined in such a way that the distribution licensees earn, at least, 16% return on the issued and paid up capital and free reserves (excluding consumar contribution and revaluation reserves but including share premium and retained profits outstanding at the end of any particular year) provided

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that such share capital and free reserves have been invested into fixed or any other assets etc. 19. Para 16 of this Notification sums up the mandate in this Notification in the following terms: (a) The AT&C loss programme is to be as per the bid submitted by the purchaser (selected bidder) as per para 11 above. (b) Distributin licensees shall be entitled to retain 50% of the additional revenues from any AT&C loss reduction over and above then level proposed in the bid by the Purchaser (selected bidder) and this shall not be counted as revenue for the purpose of tariff fixation for the succeeding years. The balance 50% of the excess efficiency gain shall be counted as revenue for the purpose of tariff fixation. (c) Distribution licensees earn at least, 16% return on the issued and paid up capital and free reserves (d) The amount agreed to be made available by the Government to TRANSCO will be as a loan for the particular year. 20. In deference to this Notification, the DERC in its order passed in July 2005 at paragraph 4.2 observed that for the Asstt. Year 2004-05, the assessee had achieved AT&C loss level lower than the minimum bid level specified by the GNCTD, accordingly the provisions of the policy directigns and the GNCID's clarification have been applied to determine the extent of additional revenue to be retained by the DISCOM and that it will be passed down to the consumers while determining the annual revenue requirement the utilities. It is further observed that in case of the assessee as the over achievement in AT&C loss reduction is more than the minimum level target the entire additional revenue as a result of AT and C loss reduction up to minimum level with respect to bid level, and 50% of the additional revenue beyond minimum level has been considered as additional revenue for the purpose of ARR determination and balance 50% of the savings beyond minimum level has been approved to be retained by the assessee. 21. Basing on this, we are convinced that the assessee is under statutory obligation to meet the targets of reduction of A&TC losses and when the AT&C loss level reached by the assessee in that particular year is better i.e. lower than the level prescribed in the bid, the assessee shall be entitled to 50% of the additional revenue resulting from such purpose. This 50% becomes the regular taxable income of the assessee and insofar as this income is concerned, for this Asstt. Year 2006-07 also, there is no dispute. The balance 50% of this additional revenue, which is mandatory to be counted for the purpose of tariff fixation, which is called as the efficiency gain' Page | 10

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will be taken into consideration by the DERC while permitting the tariff of the future years to be determined so as to see that the assessee would earn at least 16% return on the issued and paid up capital and free reserves. The Notification issued in November 2001, referred to above, is clear in its mandate that this 50% efficiency gain shall be reckoned as revenue for the purpose of tariff fixation and the assessee is under obligation to follow the mechanism of fixation of tariff by the DERC 22. In Puna Electricity Supply Company Ltd vs. CIT (1965) 56 ITR 521 (SC), the Hon'ble Apex Court considered a similar situation where the licensee like the assessee was obligation to set apart some amount and transfer it to the consumer benefit reserve account which represents a rebate to the customers of the excess amount collected from them. Hon'ble Apex Court held that there are two types profits in such cases ie. Commercial profits and clear profits governed by two different enactments. Commercial profits are arrived at on commercial principle whereas the other is regulated by the statute. The clear profits could be determined only after excluding the amount statutorily transferred to represent the rebate to the customers of the excess amount collected from them. Finally the Hon' ble Apex Court held that the amount. transferrable for the benefit of the consumers do not form part of the assessee's real profit; and for the purpose of calculating the taxable income, such amount have to be deducted from its total income. 23. Record speaks that this decision was brought to the notice of the learned CIT(A) but he distinguished the same stating that in such case the assessee was crediting the excess amount in a separate account called "Consumer Benefit Reserve Account" and they were part of the excess amount paid to it and reserve to be returned to the consumers; whereas in the case of the assessee, the assessee is not required to return the excess amount to the consumers and on the contrary, the assessee is the beneficial owner of the amount which it could use the way it likes. On this premise, learned CIT(A) held that the decision in the case of Puna Electricity Supply Co. Ltd (supra) has no application to the facts of the present case. 24. On a careful consideration the factual matrix involved in both the cases and the reasoning of the Hon'ble Apex Court in reaching the conclusion, we are of the considered opinion that the approach of the learned CIT(A) is incorrect. In the preceding paragraphs, we have noted that the assessee is under a statutory obligation to set apart 50% of the excess amount generated due to the overreaching of the targets for the purpose of the consideration of the DERC to fix the future Page | 11

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tariffs either to give relief to the consumers or otherwise. A reading of the statute, notification and the orders of the DERC clearly indicates that the assessee is not free to use this efficiency gain amount the way it likes. Whether or not a separate account is opened, when this amount is separately shown under this head in the books, it makes little difference in so far as the application of the ratio of Puna Electricity Supply Co. Ltd. (supra) is concerned. Crux of the matter is that the assessee in both the cases has no right to appropriate the efficiency gain' amount and such amount is at the disposal of the DERC though not physically but in respect of utilization thereof. We, therefore, are convinced that the ratio of Puna Electricity Supply Co. Ltd (supra) is squarely applicable to the case of the assessee before us and on that score, we allow the contention of the assessee that they have rightly reduced the efficiency gain amount their profit and loss account." 5. We feel that in view of the factual situation discussed above, the approach adopted by the Tribunal in applying the ratio of the decision of the Supreme Court in Poona Electric Supply Company Limited vs. CIT (supra) is wholly justified and does not call for any interference. Accordingly the ground of challenge urged by the revenue on this aspect is rejected.”

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transfer scheme. It was submitted that as and when a consumer applies for an electric connection, he is required to make a refundable security deposit with the assessee company. In accordance with the transfer scheme, the opening balance sheet of the assessee company prepared as on 1.7.2002 recognized the liability towards 'refundable consumer security deposit' to the tune of Rs. 1000 lakhs. The said sum of Rs. 1000 lakhs represents the 'refundable consumer security deposit' collected by the erstwhile Delhi Vidyut Board (DVB), which pursuant to the transfer scheme stood transferred to the assessee company on the ground that the consumers has also been taken over by the assessee company. However, later on when the assessee company engaged an independent agency to validate the sample data in digitized form of consumer security deposit received by the erstwhile DVB from its consumers, the amount of liability came as a huge surprise to the assessee company, which was to the tune of Rs. 6244 lakhs. The assessee company is of the view that it is not liable for the 'consumer security deposit' received by the erstwhile DVB in excess of the 'consumer security deposit' transferred to it by way of the transfer scheme i.e. Rs. 5244 lakhs (Rs. 6244 lakhs reduced by Rs. 1000 lakhs). Thereafter, the assessee company agitated the issue before the Delhi Electricity Regulatory Commission (DERC), which by its order dated 24.4.2007 upheld the contention of the assessee company and asked the Government of NCT of Delhi (GNCTD) to direct the Delhi Power Company Limited (DPCL, a new avatar of erstwhile DVB) to transfer such excess amount of 'consumer security deposit' to the assessee company; and till the time such direction is issued, to transfer an amount equivalent to 6 per cent on an annual basis, being a specified rate in the supply code, on such excess amount of security deposit, to the assessee company Note: As per clause 16(vi) of the Delhi Electric Supply Code and Performance

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Standards Regulations, 2007 issued by DERC, through a notification in the official gazette, which came into force from 18.4.2007 interest @ 6 per cent is payable on consumer security deposit received from all consumers. The GNCTD refused to honour the advice of DERC on the ground that they are not bound by it. Consequently, the assessee company has preferred a writ petition before the Hon'ble Delhi High Court. Pursuant to above, the assessee company has provided for an interest expense aggregating to Rs. 1640.99 lakhs for the previous year ending on 31.3.2011 on the opening balance of security deposit, security deposit received by TPDDL (formerly NDPL) itself on or after 1.7.2002 and on the such excess 'consumer security deposit' for which a writ-petition has been preferred by the assessee company before the Hon'ble Delhi High Court. In case, the assessee company's contention is upheld by the Hon'ble Delhi High Court, an amount of Rs. 192.07 lakhs would stand recoverable from DPCL towards the interest cost of such excess amount of 'consumer security deposit'. Moreover, if the assessee company's contention is upheld by the Hon'ble Delhi High Court, then whole of the interest recoverable from DPCL would be offered for tax as income in that year itself.

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“Section 47. (Power to require security): (1) Subject to the provisions of this section, a distribution licensee may require any person, who requires a supply of electricity in pursuance of section 43, to give him reasonable security, as may be determined by regulations, for the payment to him of all monies which may become due to him - (a) in respect of the electricity supplied to such persons; or (b) where any electric line or electrical plant or electric meter is to be provided for supplying electricity to person, in respect of the provision of such line or plant or meter, and if that person fails to give such security, the distribution licensee may, if he thinks fit, refuse to give the supply of electricity or to provide the line or plant or meter for the period during which the failure continues. (2) Where any person has not given such security as is mentioned in sub- section (1) or the security given by any person has become invalid or insufficient, the distribution licensee may, by notice, require that person, within thirty days after the service of the notice, to give him reasonable security for the payment of all monies which may become due to him in respect of the supply of electricity or provision of such line or plant or meter. (3) If the person referred to in sub-section (2) fails to give such security, the distribution licensee may, if he thinks fit, discontinue the supply of electricity for the period during which the failure continues. (4) The distribution licensee shall pay interest equivalent to the bank rate or more, as may be specified by the concerned State Commission, on the security referred to in sub-section (1) and refund such security on the request of the person who gave such security. (5) A distribution licensee shall not be entitled to require security in pursuance of clause (a) of sub-section (1) if the person requiring the supply is prepared to take the supply through a pre-payment meter.” (emphasis supplied by us) 18. From the above, it could be seen that the interest is payable by the assessee as a discharge of its statutory obligation. Further, the Hon'ble Delhi High Court pursuant to the Writ had passed an interim order in WP(C) NO. 2395/2008 dated 26.03.2008 by directing the petitioner (i.e. assessee ) to continue to refund the security deposit

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and pay interest to consumer in accordance with law. The assessee herein had merely discharge its statutory obligation in consonance with the provisions of section 47 of the Electricity Act, 2003 and in consonance with the directions of the Hon'ble Delhi High Court. This certainly would become an expenditure incurred wholly and exclusively for the purpose of business of the assessee and hence, allowable as deduction. Accordingly, ground Nos. 3(1) and 3(2) raised by the assessee are allowed.

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a) Where electricity bills are not received by the consumer within the due date and LPSC are levied on those bills, consumer may file a petition before court of law seeking waiver of LPSC and the court may order the waiver of such charges. Also company itself waive off LPSC in suitable cases ;

b) The collection drive undertaken by the assessee company for recovery of old outstanding electricity bills by getting the LPSC waived off.

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having first degree nexus with the profits by the eligible unit and accordingly would be eligible for deduction u/s 80IA of the Act. The ld CIT(A) had rightly granted relief in this regard, which, in our considered opinion, does not call for any interference. Accordingly, ground raised by the revenue is dismissed.

Order pronounced in the open court on 05/10/2023.

-Sd/- -Sd/- (Kul Bharat) (M Balaganesh) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 05/10/2023 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi