TMI Blog2013 (1) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... ne by the recipients. viz, the State Electricity Boards The tax component is very much part of the sale of electricity from the Thermal Power Generating Stations and the mere fact that a component of the tariff makes a reference to the tax liability with reference to income streams mentioned in clause 6, it does not make such a component as not income to be excluded in considering the relief under Section 80IA/80IB. Therefore, the Commissioner committed serious error in dissecting the tariff to come to the conclusion that the tax component specified as part of the tariff is reimbursement of the liability of the assessee and hence it would not form part of the income. There will be no ground to sustain the plea of the Revenue that the relief to be granted u/s 80IA calls for exclusion of the tax component in the sale price of electricity. In favour of assessee - Tax Case (Appeal) No.1317 of 2005 - - - Dated:- 16-7-2012 - MRS. CHITRA VENKATARAMAN AND MR. K.RAVICHANDRABAABU JJ. For appellants: Mr. R. Vijayaraghavan For respondent: Mr. T.R. Senthilkumar Standing Counsel for Income Tax JUDGMENT (Judgment of the Court was made by CHITRA VENKATARAMAN,J.) The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e:- (a) the tax payable on the return on Equity and Internal Resources relating to Mine II and Power Station 11 adopted in the tariff calculations and the grossed up tax thereon. (b) the actual tax assessed for the above streams, whichever is less. 6.3. The income tax allocated to the Recipients shall be in proportion to their energy drawals during the year to which the income tax pertains to. 6.4. NLC shall estimate its liability for income tax that will fall due for payment as advance tax every quarter and also the income and tax relating to Mine II and Power Station II and the tax recoverable from the Recipients and allocate it among the Recipients in the combined ratio of allocation of capacity of Power Station II (Stage 1) and Power Station II (Stage II) indicated in para 1.1. NLC shall claim the advance tax liability allocated to the Recipients by presenting a statement specifying the date on which the advance payment is due and the amount thereof. The Recipients shall pay the amount specified in the statement as payable by them atlleast three days prior to the due date for payment of advanced tax in respect of each quarter as prescribed under the Income Tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26th March 2001 in accordance with Section 13 of the Electricity Regulatory Commission Act, 1998, prescribing the terms and conditions on the tariff fixation. Paragraph 1.4 states that the generation tariff under the Regulations shall be determined station wise and transmission tariff shall be determined line-wise, sub-station-wise, etc., and aggregated to regional tariff. It also contemplated maintaining separate tax escrow account for the beneficiaries. Clause 14 is on tax escrow account. Chapter 2 deals with the rate of energy charges. Clause 2.12 refers to tax on income. It states that tax on income from core activity, viz., the activity of generation and transmission of electricity of the Generating Company is to be computed as an expense and shall be recoverable by the generating company from the beneficiaries. "Any under or over recoveries of tax shall be adjusted every year on the basis of certificates of statutory auditors." The proviso to the said clause states that the tax on any income streams other than income from core-activity, if any, accruing to the Generating Company shall not constitute as a pass through component in the tariff. Tax on such other income shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceipt of the income and included for claiming deduction under Section 80IA. The Commissioner of Income Tax viewed that the receipt of the income tax by way of reimbursement was not an income from the manufacturing or production activity. Consequently, no deduction under Section 80IA or 80IB is to be allowed. Thus, the Commissioner of Income Tax issued the notice under Section 263. 8. The assessee resisted the said proceedings and pointed out that the recovery of the income tax was only a component of two part tariff for sale of power. The notification issued by the Ministry of Power dated 30th March 1992 in exercise of the powers conferred on the Central Government under Section 43A(2) of the Electricity Supply Act, 1948, thus provided for the various components of the tariff to be charged on the sale of electricity. The power purchase agreement entered into between the parties thus rested on the notification issued by the Ministry of Power. As regards the claim of the Commissioner that the payment of income tax was nothing but reimbursement of the assesssee's tax liability, the assessee pointed out that income tax was one of the components of the tariff and it was not reimbur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld come for reimbursement by recipient. Thus, the receipt for the reimbursement of the income tax of an unit could never exceed the actual income tax liability of that unit. If the income was totally tax free, then, the question of considering any tax liability for reimbursement did not arise. In the light of the reasoning, no adjustment need be made for the time being in the power generation activity. However, if the reimbursement amount was also eligible for deduction under Section 80IA, then the Assessing Officer had to make the adjustments in the income of both the activities, while giving effect to the order of higher judicial authorities. Aggrieved by this, the assessee went on appeal before the Income Tax Appellate Tribunal which concurred with the view of the Commissioner of Income TAx (Appeals). Aggrieved by the same, the present appeal has been filed by the assessee before this Court. 10. Learned counsel appearing for the assessee referred to the Bulk Power Supply Agreement between NLC and State Electricity Boards and pointed out that the tariff fixation in the agreement has to necessarily go by the notification issued by the Ministry of Power dated 30th March 1992. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the internal resources relating to Mine II and Power Station II there is difficulty in working out the individual unit's liability and no exception could be taken to the claim made by the assessee. 13. Per contra, learned Standing Counsel appearing for the Revenue supported the order of the Commissioner as well as the Tribunal and contended that the Tribunal had rightly rendered a finding that there was only reimbursement of tax paid by the assessee and no infirmity could be seen in the order of the Tribunal. 14. Heard the learned counsel appearing for the assessee as well as the learned standing counsel appearing for the Revenue and perused the material available on record. 15. We agree with the submissions made by the learned counsel for the assessee. As rightly pointed out by learned counsel for the assessee, the Revenue does not dispute the genuineness of the Bulk Power Supply Agreement between NLC and the State Electricity Board dated 18.2.1999. The Revenue also does not dispute the fact that the Notification issued by Ministry of Power dated 30.3.1992 provides for the various components of the tariff to be charged for the sale of electricity by the Generating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties is guided by the Notifications issued by the Ministry of Power, Government of India and the deliberations between the parties also pointed out the guidelines, under which the agreement themselves were entered into, we do not think there exists any justification in the contention of the Revenue to treat the tax payment shown under clause 6 of the agreement as an independent payment not connected with the tariff charged on the supply of energy. At the risk of repetition, we would say that the tax component is very much part of the sale of electricity from the Thermal Power Generating Stations and the mere fact that a component of the tariff makes a reference to the tax liability with reference to income streams mentioned in clause 6, it does not make such a component as not income to be excluded in considering the relief under Section 80IA/80IB. In the circumstances, we hold that there is no such reimbursement of tax paid by NLC from the State Electricity Board. On the other hand the tariff component is quantified in terms of the liability met by the NLC which by no stretch of imagination could convert such a payment by the recipient as a tax liability of the recipient. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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