TMI Blog2014 (8) TMI 558X X X X Extracts X X X X X X X X Extracts X X X X ..... IA - the Tribunal has passed an order of remand on the question of computation of profit and gain from business in terms of sub-section (8) to Section 80IA - the AO is competent to decide the question as per law and the hands and power of the AO have not been curtailed and the order does not give any specific or clear finding/direction – Decided against Revenue. - ITA Nos. 991/2010, 1078/2010, 1077/2010 1079/2010 & 535/2011 - - - Dated:- 31-7-2014 - Sanjiv Khanna And V. Kameswar Rao,JJ. For the Appellant : Mr. Kamal Sawhney For the Respondent : Mr. Mayank Nagi JUDGMENT Sanjiv Khanna, J. (Oral) These appeals by the Revenue pertaining to assessments years 2002-03, 2004-05, 2005-06 2006-07 and 2007-08 raise an identical question and, therefore, are being disposed of by this common decision. By order dated 23rd November, 2011, the following substantial questions of law were framed for adjudication:- (1) Whether the electricity unit is an undertaking for the purpose of Section 80-IA of the Income Tax Act, 1961? (2) Whether profit and gain from captive consumption of electricity supplied from the generator set and which cannot be sold to any third pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion under Section 80 IA of the Act. 7. Section 80IA (1), (5), (8) and (10) of the Act read as under:- 80-IA. (1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years. x x x x x xx 5) Notwithstanding anything contained in any other provision of this Act, the profits and gains of an eligible business to which the provisions of sub-section (1) apply shall, for the purposes of determining the quantum of deduction under that sub-section for the assessment year immediately succeeding the initial assessment year or any subsequent assessment year, be computed as if such eligible business were the only source of income of the assessee during the previous year relevant to the initial assessment year and to every subsequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 80-IA, were profits and gains derived by an undertaking or any enterprise from the specified activity. Further, the profits so derived should form part of the total income of the assessee. Thus sub-section (1) draws a distinction between profits and gains of an eligible undertaking, which was engaged in the business of generation or distribution and gross total income of the assessee in whose income such profits were included. This distinction between an assessee and eligible profits of an undertaking of an assessee, becomes clear when we examine sub-section (5). Said sub-section stipulated that the assessee shall prepare separate profit and loss accounts for the eligible undertaking. The accounts of the eligible undertaking as a separate entity had to be audited and prescribed report in Form No.10CCB was mandated to be furnished, for ascertaining the qualifying profits. Form No.10CCB prescribed by Rule 18BBB at serial No. 4 stipulates and required an assessee to give ownership status of the undertaking/enterprise in the following manner:- 4. Ownership status of the undertaking/enterprise: (a) Fully owned by assessee Yes No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that because of the close connection between the assessee carrying on the eligible business and any other person, or for any other reason the course of business between them was so arranged, that the business transactions between them produced to the assessee more than the ordinary profits expected to arise from such eligible business, the Assessing Officer shall compute the profits and gains of eligible business by taking into account profits reasonably deemed to have been derived therefrom. Though, sub-section (10) would not be directly applicable in the present case which relates to captive consumption, the provision postulates re-working of the profits in cases where more than expected profits stand declared by the eligible undertaking because of proximity and close connection between the eligible undertaking and the persons to whom goods and services were supplied. 11. A similar issue was raised before the Delhi High Court in CIT Vs. Orissa Cement Ltd. [2002] 254 ITR 412 (Delhi), where deduction under Section 80-I was claimed on profits derived from captive consumption of limestone excavated from mines and thereafter used for manufacture of cement in the plant of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- per ton of ore would be reflected in the profit and loss resulting from the sale of the steel. It is needles to add that if in a given case the mined product costs more than the market price of the commodity, there would be loss on the mining operation notwithstanding that there is a profit realised from the sale of the end product - steel, but these are matters of calculation not relevant at the present stage, for we are endeavouring to ascertain whether there could in law be a profit when the mined ore is converted into steel in the mills of the mining-company. It thus factually the profit from the mine or from the mining operation is imbedded in the profit from the sale of the steel is there any principle of law which prevents effect being given to this factual position? The learned Attorney-General submitted that in such a situation the profit is not a real or an actual profit but is one which is merely notional, and that when the Act spoke of a profit it meant an actual, real and realised profit and not a merely notional profit . We find ourselves unable to accept this submission. We start with the premise that by the sale of the end product a real profit has been re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ituents which go to make it up. Undoubtedly, in order to ascertain the profits from the mine there would have to be a disintegration of the gross profits which finally emerge from the sale of the finished steel or steel products. What we desire to point out is that this involves no disintegration of the business affording scope for the contention based upon the principle that a person cannot trade with himself, but the one far removed from it, viz., whether when a profit has been made as a conjoint result of different but integrated operations, the profits so derived could be broken up so as to permit the attribution of specific amounts of profit to each or any of the several operations or activities. 12. Thereafter, the Supreme Court in Tata Iron and Steel Co. Ltd. (supra) noticed and went into the question whether there was anything in law which prohibits/bars ascertainment of profit and loss attributable to each line of activity, where the sale of the final end product has resulted in profit or loss for the entire venture. Contra argument raised on behalf of the Revenue was rejected for the reasons given in the paragraph which has been quoted in the decision of the Delhi Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of its product or power generated to an outsider cannot be the manner in which the provisions contained in section 80-IA(1) can be interpreted. The expression 'derived' used in the said section 80-IA(1) in the beginning as well as in the last part of sub-section (4) makes it abundantly clear that such profit or gain could be obtained by one's own consumption of the outcome of any such undertaking or business enterprise as referred to in sub-section (4) of section 80-IA. The dictionary meaning of the expression 'derive' in the New Oxford Dictionary of English states 'obtaining something from a specified source'. In section 80-IA(1) also no restriction has been imposed as regards the deriving of profit or gain in order to state that such profit or gain derived only through an outside source alone would make eligible for the benefits provided in the said section. 9. Therefore, there is no difficulty in holding that captive consumption of the power generated by the assessee from its own power plant would enable the respondent/assessee to derive profits and gains by working out the cost of such consumption of power inasmuch as the assessee is able to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tata Iron and Steel Ltd (supra) decided the case by applying the principle of disintegration of ultimate profits realized on sale of final product. 15. In view of the aforesaid discussion, it has to be held that the finding of the Tribunal that the profits derived by the respondent-assessee s power generation unit would be eligible for deduction as a separate undertaking under Section 80IA, but has referred to the decision in West Coast Paper Mills Ltd. vs. Asstt. Commissioner of Income Tax [2006] 286 ITR (AT) 252 (Mum.) is correct. The substantial questions of law mentioned above are accordingly answered in favour of the respondent-assessee and against the appellant Revenue. 16. At this stage, learned counsel for the appellant Revenue has submitted that the Tribunal has passed an order of remand on the question of computation of profit and gain from business in terms of sub-section (8) to Section 80IA. Learned counsel for the respondent-assessee submits that the Assessing Officer is competent to decide the said question as per law and the hands and power of the Assessing Officer have not been curtailed and the present order does not give any specific or clear finding/direc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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