TMI Blog2016 (1) TMI 412X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for making steel at its works at Raigharh in the State of Chhattisgarh. During the year, the assessee company also started operation of power at its plant for captive consumption of power. The return of income was filed on 21.10.2005 declaring an income of ₹ 4,51,27,183/- under the normal provisions of the Income-tax Act, 1961 (hereinafter the Act ) and book profit of ₹ 82,97,30,572/- u/s 115JB of the Act. The case was processed u/s 143(1) of the Act. The assessee s case was selected for scrutiny and notice u/s 143(2) was issued on 07.08.2006. Subsequently, notice u/s 142(1) of the Act along with questionnaire was also issued on 06.07.2007. In response to these notices, the assessee filed the requisite details / information. The assessment was completed u/s 143(3) of the Act at a total taxable income at ₹ 10,16,78,149/- by making two disallowances i.e. disallowance of additional depreciation of ₹ 5,64,30,426/- and disallowance u/s 14A of the Act of ₹ 1,20,540/-. 3. Aggrieved, the assessee preferred an appeal to the first appellate authority. The CIT (A) upheld the disallowance of additional depreciation made by the AO and also while upholding th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letters dated 20.11.2007 and 28.11.2007. The AO considered the submissions of the assessee wherein assessee had claimed that activity of generation of power and activity of manufacturing/producing of article or thing is same. The AO observed that assessee had ignored the fact that on one hand all the articles or things were tangible, could be handled/touched and could be stored but the electricity or energy being intangible was not capable of being subjected to physical handling or storage, hence by no means energy could be considered as article or thing . He observed that this distinction between the manufacturing undertaking and undertakings engaged in generational power was maintained throughout in the income tax legislation. According to AO, this fact become further evident if one went through the various deductions/exemptions granted to the power sector in the history of Income tax legislation. And,the activity of manufacturing or production of article or thing was always treated differently from the other activities like construction, mining, hotel business, generation of power and other infrastructure projects. After observing few sections where benefit was intended to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided under the Act. He noted that section 32(1)(vi) (as stood prior to 01.04.1998) provided for additional depreciation but that it categorically specified both businesses i.e. generation of power and manufacture of production or an article or thing. Thus, the Commissioner held that additional depreciation was inadmissible to NTPC and he held that AO incorrectly allowed additional depreciation and, therefore, he set aside AO s order and directed the latter to withdraw the additional depreciation of ₹ 187,55,71,000/-. The other issue on which the Commissioner found fault with the AO to exercise his revisional power under section 263 was with regard to the tariff of electricity wherein the Commissioner observed that CERC was tasked by law to regulate the tariff of electricity generating companies owned or controlled by the Central Government. NPTC has issued total sales bills of ₹ 23,066.30 crores to its customers in terms of CERC s existing norms. CERC s final norm fixation order was not made during the year. Yet NTPC revised the sales downwards to ₹ 22,128 crores and did not take into account a sum of ₹ 938.30 crores. According to the Commissioner, AO p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of these attributes. It has no volume and it does not occupy any space, no weight or no mass can be attributed to it. The learned counsel for the assessee in order to appraise us the meaning of expression manufacture and production made reference to the decision of Hon'ble Supreme Court in the case of Sesa Goa Ltd. and India Cine Agency (supra) 18. In the case of India Cine Agency, Hon'ble Supreme Court has considered the judgment rendered in the case of Sesa Goa (supra) and all other decisions on the point which contemplate the meaning of expression manufacture as well as production . The relevant discussion made by the Hon ble Court reads as under: 2. As noted above, the core issue is whether activity undertaken was manufacture or production. 3. In Black s Law Dictionary (5th Edition), the word manufacture has been defined as, the process or operation of making goods or any material produced by hand, by machinery or by other agency; by the hand, by machinery, or by art. The production of articles for use from raw or prepared materials by giving such materials new forms, qualities, properties or combinations, whether by hand labour or machine . Thus by pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... character. The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes manufacture takes place and liability to duty is attracted. Etymologically the word manufacture properly construed would doubtless cover the transformation. It is the transformation of a matter into something else and that something else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known as such from that point of view, is a question depending upon the facts and circumstances of the case. (See Empire Industries Ltd. v. Union of India [1985] 3 SCC 314). x x x x x x x x x x x x x x x x x x x x x x 19. In this case, assessee was carrying on business of conversion of Jumbo Rolls of photographic films into small flats and rolls in desired sizes. It claimed deduction under sec. 80-HH and 80-I as well as investment allowance under sec. 32AB. The controversy arose whether conversion of jumbo rolls into small sizes amounts to manufacture or production, eli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in respect of its activity of generation, distribution, sale and supply of electric energy? 20.1 In order to decide whether Madhya Pradesh Electricity Board is a dealer or not, Hon ble Court took into consideration the definition of dealer as given in the two acts referred in the question and observed that the definition contemplates that any person who carries on the business of buying, selling, supplying or distributing the goods as a dealer . The 30 expression goods are defined by section 2(d) of the Act, 1947 according to which all kinds of moveable properties other than actionable claim . and include material articles and commodities whether or not to be used in the construction, fitting out, improvement or repair of immoveable property. According to the Hon ble Court, the definition of expression goods contained in section 2(g) of the Act No. 11 of 1959 has almost similar. In the light of these definitions, Hon ble Court has examined whether electricity can be termed as a goods. The discussion made by the Hon ble Court in the judgment reads as under: The reasoning which prevailed with the High Court was that a well defined distinction existed between the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ataka, Kerala, Tamilnadu and the State of Goa in pursuance of contract of sales occasioning interstate movement of electricity. The Andhra Pradesh Government wanted to levy of duty on 32 certain sales of electric energy. According to the understanding of Andhra Pradesh Government, section 3 of their Sales-tax Act provides that every distributor of electric energy and every producer shall subject to certain exceptions pay every month to the State Government a duty calculated at the rates specified in the table appended thereto on the units of electric energy sold or supplied to a consumer or consumed by himself for his own purpose or for the purpose of his township or colony during the preceding months. Similar steps were taken by the Madhya Pradesh Government for the plants situated in its territorial jurisdiction. The question arose whether electricity sold to other states would be amenable to duties. The Hon ble Court in that context considered, what is an electric energy and made following observations: Before we deal with the constitutional aspects let us first state what electricity is, as understood in law, and what are its relevant characteristics. It is settled with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as some hypothesis is necessary for explaining the phenomena observed, it has been assumed to be a highly subtle, imponderable fluid, identical with lightning, which pervades the pores of all bodies, and is capable of motion from one body to another. This characteristic quality of electric energy was judicially noticed in Indian Aluminium Co. etc. etc. Vs. State of Kerala Ors (1996) 7 SCC 637. Vide para 25 this court has noted, Continuity of supply and consumption starts from the moment the electrical energy passes through the meters and sale simultaneously takes place as soon as meter reading is recorded. All the three steps or phases (i.e. sale, supply and consumption) take place without any hiatus. It is true that from the place of generating electricity, the electricity is supplied to the substation installed at the units of the consumers through electrical higher-tension transformers and from there electricity is supplied to the meter. But the moment electricity is supplied through the meter, consumption and sale simultaneously take place. as soon as the electrical energy is supplied to the consumers and is transmitted through the meter, consumption takes place simultane ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of the Hon'ble Supreme Court wherein Hon ble Court has explained what is manufacture or production and what is electricity. Learned DR at the time of hearing, had made reference to the order of the ITAT, Chennai and the judgment of the Hon'ble Supreme Court in the case of NC Budhiraja. As far as the judgment of the Hon'ble Supreme Court in the case of N.C. Budhiraja is concerned that has been considered by the Hon'ble Supreme Court itself in the case of Indian Cine Agency (supra). The ITAT in the case of Tamilnadu Chlorates has considered the admissibility of deduction under section 80-HH and in that test held that electricity is not an article. The ITAT has not dealt with these two judgments extensively rather simply observed that decision in the case of Madhya Pradesh Electricity Board was given in the context of the 37 language of a particular statute. The only discussion made by the ITAT with regard to these two judgments of the Hon'ble Supreme Court reads as under: 6. Reference was made to the decisions of Apex Court rendered in the case of M.P. Electricity Board 35 STC 188 (sic). In this case it was held that electricity is goods within the meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X
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