Income Tax Appellate Tribunal - Delhi
Sial Sbec Bioenergy Ltd. vs Deputy Commissioner Of Income Tax on 26 March, 2004
Equivalent citations: (2004)83TTJ(DELHI)866
ORDER
Y.K. Kapur, J.M.
1. These two appeals have been filed one by the assessee being ITA No. 5461/Del/ 2003 and the other filed by the Revenue being ITA No. 1007/Del/2004 challenging the order of the CIT(A) dt. 2nd Dec., 2003, on the grounds detailed below :
ITA No. 5461/Del/2003"1. The learned CIT(A) has erred on the facts and circumstances of the case and in law in upholding the action of the AO to allow depreciation under Section 32 of the IT Act, 1961 ('the Act'), even though the claim, being optional in view of the Supreme Court's decision in the case of CIT v. Mahendra Mills (2000) 243 ITR 56 (SC), the appellant-company had opted not to claim the same.
2. The learned CIT(A) has also erred on the facts and in law in upholding the action of the AO in not accepting that steam is one of the forms of power and, therefore, income from generation of steam is eligible for deduction under the provisions of Section 80-IA(4)(iv)f which is applicable to an undertaking engaged in generation of power.
3. In any case and without prejudice to the above, the learned CIT(A). should have held that the income derived from supply of steam is income derived from an undertaking engaged in generation of power and is thus eligible for deduction under Section 80-IA(4)(iv) of the Act.
4. In any case and without prejudice to the other grounds, even if it is assumed (though not admitted) that receipts from steam are not eligible for deduction under Section 80-IA, the learned CIT(A) should have held that the said receipts ought to be reduced from the cost of generation of power for the purposes of computing the income of the undertaking.
5. In any case and without prejudice to the other grounds, the learned CIT(A) has also erred in upholding the action of the AO in not correctly estimating the expenses incurred against receipts eligible for deduction under Section 80-IA, in as much as, since the entire expenses incurred by the appellant have been incurred for the production of steam, the same should be considered as expenses against eligible receipts and not at 10 per cent as estimated by the AO, which, in any case, is much too less.
6. In any case and without prejudice to the other grounds, the learned CIT(A) should have accepted the contention of the appellant to reduce the gross receipts for the year by Rs. 3,82,59,074 being the amount excess-credited in the books on the basis of the interim arrangement which was retrospectively revised in the following year and income in respect of which never accrued or arose in the hands of the appellant-company.
7. The learned CIT(A) has also erred on the facts and circumstances of the case and in law in upholding the order of the AQ charging interest under Section 234B of the Act.
8. The order of the learned CIT(A) to the extent indicated above is contrary to facts, law and the principles of natural justice.
9. The appellant craves leave to add, alter, amend and/or modify any of the grounds of appeal at or before the hearing of the appeal."ITA No. 1007/Del/2004
"1. On the facts and in the circumstances of the case, the learned CIT(A) has erred in directing the AO to include a sum of Rs. 2,07,48,226 in the gross receipts eligible for deduction under Section 80-IA of the IT Act, 1961 by admitting additional evidence in contravention of Rule 46A of the IT Rules, 1962."
2. To begin with, we propose to take the appeal filed by the assessee. The facts available on record are that the assessee is a company incorporated under the Companies Act and claims to be in the business of generation and supply of power. For the asst. yr. 2000-01, the assessee filed its return of income. In the return of income so filed the assessee claimed deduction under Section 80-IA of the IT Act on account of the fact that it is engaged in the business of generation and distribution of power. The return was processed under Section 143(1)(a), but later on the record transpires that the case was taken up for scrutiny after obtaining necessary instructions in accordance with the law from the CIT concerned. The sources of income so disclosed by the assessee in the return of income filed was that it receives certain amount from supply of power to SBEC Sugar Ltd. According to the assessee, after whatever power is consumed by the SBEC Sugar Ltd., the surplus power left is supplied to the UP State Electricity Board, Needless to say that the supply to both the concern and the UPSEB had the same rate. Apart from the receipts generated through the supply of power, the assessee also received some amount on account of supply of steam to SBEC Ltd. The assessee claimed deduction under Section 80-IA for these receipts on the grounds that they pertain to the supply of power as according to the assessee the steam so supplied is a power and falls within the parameters of Section 80-IA of the IT Act. On these receipts also the assessee claimed 100 per cent deduction. Apart from this, the assessee in the return of income filed did not deduct the allowable depreciation as per the IT Act. The Revenue felt that the assessee has purposely not claimed depreciation just to inflate its non-taxable income. In this background the investigations were carried out by the AO. The first issue which the AO took and ultimately was confirmed by the CIT(A) was with regard to the claim of depreciation. The AO felt that as the assessee is obliged to claim depreciation and he having not done so, the AO issued a questionnaire to the assessee as to why the depreciation be not first deducted from the income before arriving at the final income which may be eligible under Section 80-IA. The assessee contended before the AO that in view of the judgment of the apex Court in CIT v. Mahindra Mill (2000) 243 ITR 56 (SC), it is optional for the assessee to claim or not to claim depreciation. According to the assessee it was contended by the assessee before the AO that it was the choice of the assessee as according to the law it cannot be forced to claim depreciation.
3. The contention raised by the assessee before the AO did hot find favour as the AO felt that in view of Expln. 5 added to Section 32 by the Finance Act, it is obligatory on the assessee to claim depreciation and if not claimed the AO will first deduct the depreciation and then arrive at the figure. Though the Expln. 5 added to Section 32 is available in the Act, w.e.f. 1st April, 2002, the AO felt that this Explanation is retrospective in operation. The reason for AO to say so seems to be that the AO was of the opinion that the Explanation is clarificatory and being clarificatory it is to be retrospective. For saying so, the AO has relied upon the judgment of the Madras High Court reported in the case of K.A. Ramaswamy Chettiar v. CIT (1996) 220 ITR 657 (Mad). The AO ignored the contention of the assessee that the law prevailing at the time of filing of the return was the one which was settled by the judgment of the apex Court in Mahendra Mills' case (supra) and the same should be the law applicable in the year under consideration. According to the assessee, the Explanation to Section 32 should be made operative only from the day mentioned in the Act and not otherwise.
4. Somehow the contentions raised by the assessee did not find favour with the AO and he calculated the depreciation and after deducting the same arrived at a taxable income.
5. The appeal by the assessee to the CIT(A) on this issue also failed and that is how the matter has travelled before us. The learned counsel for the assessee at the threshold while addressing us on ground No. 1 contended that authorities below have fallen in error in applying the Explanation with retrospective effect, which according to learned Authorised Representative was not the intention of the legislature. The learned counsel would contend that when the legislature has made the Explanation operative from a particular date, it cannot be extended backward. The learned counsel contended that in view of the ratio of the Supreme Court in Mahendra Mills' case (supra) it was optional for the assessee to claim the same or not to claim the same. The learned counsel contended that there is no dispute left now that this Explanation is prospective and for this he relied upon the judgment of the Kerala High Court in CIT v. Kerala Electric Lamp Works Ltd. (2003) 129 Taxman 549 (Ker), wherein this particular Explanation has been held to be prospective. After referring to various judgments, our attention was drawn to para 13 of the said report appearing at pp. 557 and 558 of the report which is in the following terms :
"13. In this connection the Finance Bill, 2001 clearly spells out that this amendment will take effect from 1st April, 2002 and will, accordingly, apply in relation to the asst. yr. 2002-03 and subsequent years. Clause 21 of the Finance Bill seeking to amend Section 32 of the IT Act relating to depreciation is reproduced as hereunder :
'Sub-clause (a) seeks to insert a new Expln. 5 in Clause (ii) of Sub-section (1) of the said section so as to clarify that the provisions of Sub-section (1) of Section 32 shall apply whether or not the assessee has claimed the deduction for depreciation in computing his total income.
Sub-clause (b) seeks to substitute Sub-section (2) so as to provide that where full effect cannot be given to the depreciation allowance in any previous year owing to there being no profits or gains chargeable for that previous year or owing to the profits or gains chargeable being less than the allowance, the depreciation allowance or part thereof to which effect has not been given shall be added to the amount of allowance for depreciation for the following previous year, or for the succeeding previous years till such time the full effect has been given to the depreciation allowance claimed by the assessee.' These amendments will take effect from 1st April, 2002, and will accordingly apply in relation to asst. yr. 2002-03 and subsequent years."
To the arguments raised by the learned Authorised Representative, the learned Departmental Representative relied upon the orders of the authorities below, on this issue.
6. We have heard the parties on the issue of claim for depreciation and gone through the material on record and are of the view that the judgment of the Kerala High Court holding that the Explanation is prospective and not retrospective applies with full force to the present case. The Revenue has not brought to our notice any other view of any other High Court holding to the contrary. We also here itself make it clear that in a taxing Act one has to look merely at what has clearly been said and there is no room for any intendment.
7. In view of the observations of the apex Court in Mahendra Mills' case (supra) which held that it is for the assessee to claim or not to claim depreciation and in view of the judgment of the Kerala High Court in Kerala Electric Lamp Ltd. (supra) there is no iota of doubt in our mind that the assessee was well within his right if it exercised its option of not claiming depreciation. Merely because an Explanation has been inserted in the section which as held by Kerala High Court to be of prospective in nature, we feel that depreciation was wrongly reduced by authorities below from the profits of the company and, therefore, we have no hesitation in allowing ground No. 1 of the appeal filed by the assessee.
8. This brings us to ground Nos. 2-4 of the appeal filed by the assessee. A perusal of the aforesaid grounds of appeal would reveal that they all revolve around the fact as to whether the steam is a form of power and thus falls within the ambit of Section 80-IA or not. These three grounds are interrelated and once the answer to the said question whether steam is an energy and one form of power or not, is given either in the affirmative or in the negative, then the aforesaid grounds shall find an answer automatically.
9. To adjudicate the said grounds, it is necessary, to revert to a few facts available on the record. Undoubtedly, the assessee is into the business of generation of power. For the generation of power, the assessee uses bagasse and water. For generating power the bagasse is burnt in the boiler and the heat generated is used to heat up the water in the boiler to raise steam. The steam so generated has high temperature and pressure. The steam is then transferred to the inlet of steam turbine through the pipes, The energy available in the steam is used to rotate the turbine. The rotation of the turbine then rotates the alternator which generates electrical energy. To this extent there is no dispute as the Revenue has not contradicted these facts or process. The dispute is that the steam after being used to rotate the turbine is drawn up from the turbine outlet as exhaust system. This steam gives thermal energy which is used in the sugar plant at various stages to heat sugar juices for evaporation of water in juices to produce final sugar. According to the assessee, the evaporation of water in juices takes place by way of transfer of thermal heat energy from low pressure exhaust steam to the juices. The case of the assessee is that the receipts which have been received through the supply of steam are eligible for deduction under Section 80-IA(iv). The case of the Revenue is that the steam not being power within the meaning of Section 80-IA(iv) the receipt so generated through the supply of steam are not eligible under Section 80-IA(iv) of the IT Act. We may, at this stage, itself refer to the provisions of Section 80-IA(iv) which are1 relevant for our purposes and which reads as under :
"An undertaking which :
(a) Set up in any part of India for the generation or generation and distribution of power if it begins to generate power at any time during the period beginning on first day of April, 1993 and ending on 31st day of March, 2006.
(b) Starts transmission or distribution by allowing a network of new transmission or distribution lines at any time during the period beginning on first day of April, 1999 and ending on 31st March, 2006.
Provided that the deduction under this section to an undertaking under Sub-section (b) shall be allowed only in relation to profits derived from laying of such network of new lines of transmission or distribution."
10. A perusal of the aforesaid section would reveal that for an undertaking (which the assessee is) to be eligible for deduction under Section 80-IA(iv), the following conditions need to be fulfilled :
(i) it is set up in any part of India;
(ii) it is set up for generation or generation and distribution of power.
11. We are not referring to the other parts of the section quoted above for the simple reason that they are not relevant for the purposes of the present controversy before us.
12. The moot question that arises for our consideration is as to whether the steam generated by the assessee which rotates the turbine and in the end generate electricity when taken out and used for other processes, is a form of power and thus a power or not. The Revenue has understood the power to be the one which pertains to electricity while the case of the assessee is that power is an energy and it can be any form of energy, be it electrical, thermal, wind or any other form energy which shall qualify and be eligible for deduction under Section 80-IA(iv) of the IT Act. The assessee also contended that any form of energy produced or generated and/or generated and distributed shall fall within the ambit of expression "power" used in Section 80-IA(iv) and the Revenue so generated shall qualify for the benefit of Section 80-IA.
13. In this background the assessee contended that the steam so taken out from the turbine which is low pressure steam and is used in various mechanism for producing sugar is a form of energy and if it is a form of energy then any receipts so received would qualify for deduction under Section 80-IA. The assessee contended that the word power is not defined in the IT Act. Since it is not defined in the IT Act, then first and the foremost that can be done is to take recourse to the dictionary meaning. According to the assessee, the dictionary meaning given to the power is the energy and once the power means the energy, then it can be any form of energy. The assessee contended that steam is definitely an energy, then any receipts so generated would qualify for deduction under Section 80-IA(iv). Referring to the Webster's Dictionary the learned counsel contended that in that dictionary steam is defined as "energy" referring further to Webster's Abridged Dictionary, at p. 1391, the learned counsel contended that the steam has been defined to mean 'power or energy'. After having referred to Webster's Dictionary, the learned counsel contended that since the steam is equated with the power it is a form of energy and power being also energy, the revenue so generated would qualify for deduction under Section 80-IA. Advancing his case further, the learned counsel contended that apart from the fact that the Webster's defines steam as the form of power or energy, he referred to the Oxford English Dictionary to clarify as to what power means. The learned counsel contended that the power in Oxford English Dictionary is defined as mechanical or electrical energy or any form of energy or force available for application to work (as that of gravitation, running water, wind, steam, electricity). Advancing his arguments further the learned counsel contended that undoubtedly the steam is an energy, but to what is an energy, the learned counsel contended that energy is defined as ability of a matter to do work, According to the learned counsel, energy is the capacity for doing work and is available in potential energy, mechanical energy, thermal energy and is available in the form of potential energy and mechanical energy.
14. After having referred to the dictionary meaning of the word steam, power and energy, the learned counsel contended that the steam is understood in common parlance as a form of energy and has been held to be so by various Courts. The first judgment on which the learned counsel for the assessee placed reliance was the one reported in 1991 Vol. II (SC) (1) for the proposition that the apex Court has also taken the word steam under the Factories Act as a form of power. Referring to another judgment of the apex Court reported in 1997 (6) SCC 420 which was under the Municipal Corporation Act, the learned counsel contended that here also the steam has been equated with power. According to the learned counsel, the steam and power are one or the other form of energy and giving steam a different treatment would be contrary to the spirit of the statute. Apart from the aforesaid two judgments the learned counsel for the assessee placed reliance on another judgment of the Kerala High Court reported in 47 STC 68 (Ker) for the proposition that in this case the Court has treated steam as power. The other judgment to which reliance was placed by the learned counsel was the one reported in AIR 1962 SC 29 wherein also, the steam has been held to be a form of power.
15. After having referred to certain judicial precedents, the learned counsel contended that in the IT Act there earlier used to be a Section 80E which dealt with deductions in respect of profit and gains from specified industries in the case of certain companies. According to the learned counsel, the said section stands deleted by the Finance Act, 1967. According to the learned counsel, the reference to this section is made for the limited purpose that in Section 80E the legislature intended the word generation or distribution of electricity or any other form of power. According to the learned counsel, when the legislature intended the word power to be used in conjunction with electricity, they have in their wisdom used it so, but in Section 80-IA, the word electricity having not been used, the power is to be read as a whole in its wider perspective and the scope of the section cannot be narrowed down. In this background, the learned counsel stressed that unless and until the legislature has used a particular word, putting that word in the section would not be desirable. In this background, the learned counsel referred to Sections 10(23)(f), 33B. (provisions pertaining to rehabilitation), Section 72A(7)(a)(3) (provisions relating to carry forward and set off of cumulative loss and unabsorbed depreciation allowance in amalgamation or demerger), Section 10(6) as inserted in the year 1961 and omitted by Finance Act, 1993, Section 10(5)(b) prior to its omission by Finance Act, 2002, Section 32A investment allowance, Section 80RRA. References to these sections were made purposely to demonstrate that the word electricity has been used in those sections whereas it has not been used in the Section 80-IA "intentionally". The idea of not mentioning the word electricity in Section 80-IA(iv) is only for the purpose that the legislature wanted to give the power a wider meaning and once the legislature has not incorporated the word electricity in the section, according to the learned counsel, the Courts cannot put in.
16. To the arguments raised by the learned counsel for the assessee the learned Departmental Representative contended that the energy and power are interchangeable expressions and though the learned Departmental Representative accepted that the dictionaries have defined the energy and power to be the two names of the same entity, but in technological terms these are very different. According to the learned Departmental Representative, energy is defined as capacity to do work. Advancing his arguments further, on 9th March, 2004 the learned Departmental Representative submitted a note in which he explained the relationship between energy and power.
16A. According to the learned Departmental Representative, steam is neither an energy nor power, but it is only a carrier of heat energy and when it is heated to high temperature under high pressure, energy is stored in it. The learned Departmental Representative would contend that this energy can be converted into work by feeding the steam into an engine or a turbine. Steam is not capable of doing any work if it is not fed into engine or turbine. Also, according to the learned Departmental Representative, the power being the rate of doing the work, there can be no power if no work is being done. The learned Departmental Representative also contended that transfer of low pressure steam from the boiler to evaporate water from the cane juice through the medium of steam is transfer of heat energy only and in this process of evaporation of water from cane juice no work is done by the steam and, therefore, no power is generated or distributed.
17. We have heard the parties on this issue and taken ourselves through the record and find that the argument of the learned Departmental Representative which have been referred to above and placed before us through the note of 9th March, 2004, supports the case of the assessee.
18. When we put to test the arguments raised by the learned Departmental Representative and compare the work done by the steam with that of electrical energy, we find that both of them are capable of producing same end results. Examining further this concept of producing sugar, we say that for producing sugar there could be deployment of electrical energy also but the assessee instead of deploying electrical energy has put to use the thermal energy. If the assessee has given preference to one form of energy over the other and both are capable of producing the same results, then one fails to understand as to how could one be termed as power (which is also an energy) and the other (steam) not a source of energy (not a power) when both are capable of doing the same work. We, therefore, say that there is an inherent fallacy in the argument of the Revenue on this aspect of the matter.
19. The learned Departmental Representative during the course of hearing contended that steam is not capable of doing work, We feel this is also not correct for the reason that the energy is used in relation to work and the work the steam does in the present case is that it evaporates water from the cane juices to bring the end product called sugar, We must say that steam has definitely produced the results by doing work and is thus can be said to be nothing, but a form of power and thus is power. For example, there may be electricity in the wires, but unless it is connected to a machine it cannot bring the result. Similarly, in this case, unless and until the steam is put into turbine and rotates the boiler, it cannot bring results. After that when the steam is taken out from the turbine through exhaust, it is used in another capacity for evaporating water from juices and thus is a source of power which helps in evaporation and production of sugar.
20. Not only this, when the steam after having been used to rotate the turbine gives thermal energy. It is this energy which is used in the sugar plant at various stages to heat the sugar juices for evaporation to produce final sugar. The Revenue has not disputed that the evaporation of the water in the juices takes place by way of transfer of thermal energy from low pressure exhaust steam to the juices. If the steam energy (thermal energy) helps in producing final sugar, we fail to understand as to why it cannot be termed as energy and energy being power cannot be termed as power.
21. Not only this, the learned Departmental Representative could not bring to our notice any case law on the point which says that steam is not a form of power, though the learned counsel for the assessee has brought to our notice certain decisions which have been referred to above, which equate steam with power. When we examine this issue further, the AO on p. 48 of his remand report has admitted the steam to be a form of power with the observations, "no one is disputing the dictionary meaning and the Courts' pronouncements that the steam is a form of power". Once the AO has himself admitted that there are pronouncements, which uphold the factum of steam to be a form of power, we fail to understand as to how could the authorities below form a different opinion contrary to the pronouncements of the Courts.
22. We must say here itself that before the authorities below there were judicial pronouncements holding steam to be a form of power. The dictionary meaning of the word power were also before the authorities below and if the authorities below were not satisfied with the explanation of the assessee they should have sought for some expert advice. The authorities being not experts in the field and not having taken any expert advice, then in that case they could not ignore the judicial pronouncements explaining the meaning of steam and also the pronouncements equating the steam with power.
23. The authorities below having not done so, the order passed by them holding steam not to be power cannot be sustained. The view we take finds a support from the judgment of the apex Court in the case of Saraswati Industrial Syndicate v. CIT (1999) 237 ITR 1 (SC).
24. Examining the reasons of the authorities further that it is the low pressure steam and that kind of a steam cannot be taken as a form of power, we find that even this reasoning is without any basis. We say so for the reason that there is a particular voltage at which electricity is supplied. Invariably there is a low voltage in the electricity. It does not mean that as there is low voltage it ceases to be electricity or it ceases to be a form of power. This electricity though at low voltage still gives some results. But, in this case, the admitted position is that low pressure steam which is used in the sugar plant in various stages to heat the sugar juices for evaporation produces the final sugar. The heat energy is being supplied and the sugar juices are being given treatment through the heat energy to bring the final product of the sugar. The assessee in this case is using low pressure steam to its advantage. Assuming that the assessee uses electricity instead of steam and brings same results, then what is wrong with the assessee when he uses the steam and brings the same results. The basic concept which one must understand is as to how same end product has been brought through the deployment of energy that is material and not, the form of energy be it a form of mechanical, electrical or thermal energies and if the end results are brought through the thermal energy produced through the steam, we feel that this is definitely a form of power which would be falling within the ambit of expression power used under Section 80-IA(iv) of the IT Act.
25. We must here itself say and as admitted by the Departmental Representative that energy is capacity to do work. In this case, the steam definitely produces thermal energy, which evaporates water from cane juices to produce sugar. Therefore, steam produced/extracted from turbine has a capacity of producing thermal energy which evaporates water from sugarcane juices to produce sugar, and "can definitely be qualified as power", and therefore, definitely be eligible for the benefit available under Section 80-IA(iv).
26. Examining this issue from another angle, from the point of view of interpretation of statute, we feel that as the word power used in Section 80-IA(iv) has not been defined in the statute, then the common parlance meaning as per the dictionary is normally taken into account. It was in this background we have discussed the dictionary meaning of the word power so given in the Webster's and Oxford dictionary in earlier part of this order. It is also a settled position that the meaning of such words as emerging from cognate statute are also indicative of the meaning of those words and it was in this background we have referred to some judgments.
27. We may, here itself, refer to the judgment of the apex Court in the case of State of Orissa v. Titagur Paper Mills Co. Ltd. (1985) TLR 2948 where the apex Court has observed that "dictionary meaning of a word cannot be looked at where the word has been statutorily defined or judicially interpreted, but where there is no such definition or interpretation, the Court may take the aid of dictionaries to ascertain the meaning of the word in common parlance bearing in mind that a word is used in different senses according to its context and a dictionary meaning gives all the meanings of a word, and the Court has, therefore, to select the particular meaning which is relevant to the context in which it has to interpret the word".
28. To the similar effect is the judgment of the Kerala High Court reported in the case of CIT v. Casino (P) Ltd. (1973) 91 ITR 289 (Ker), wherein the Kerala High Court has held "word used in a statute is sometimes not defined. To constitute such a word, its natural meaning according to concept, the usage of English speech must be given to it in preference to any specific or technical meaning. The context in which term appears and the nature of enactment is also of relevance in understanding the meaning of the term."
29. When we apply the principles of interpretation of statutes to the present case, we find that the word power has to be given a meaning which is in common parlance and in common parlance the word power shall mean the energy only. The energy can be of any form, be it mechanical, be it electrical, be it wind or be it thermal. The steam produced by the assessee on the principle of interpretation of statute shall only be termed as power and shall qualify for the benefits available under Section 80-IA(iv).
30. The assessee during the course of hearing referred to the provisions of Section 80-IA(1) which are in the following terms :
"Where the gross total income of an assessee includes any profits and gains derived by an industrial 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, deduction of an amount equal to 100 per cent of the profits and gains derived from such business for 10 consecutive assessment years."
31. After having referred to this section, the learned counsel for the assessee contended the receipts from the supply of steam are the receipts from the business and, therefore, on this score also the assessee would be entitled to the benefit of Section 80-IA(iv) of the IT Act, The assessee in support of his arguments relied upon Pandian Chemicals Ltd. v. CIT (2002) 254 ITR 562 (Mad) and submitted that since the receipt is from the business of the assessee, the same should be eligible for benefit under Section 80-IA. To the arguments raised by the assessee, the learned counsel relied upon the judgment of the apex Court reported in Pandian Chemicals Ltd. v. CIT (2003) 262 ITR 278 (SC) for the proposition that the income so generated should be derived from an industrial undertaking, but not attributable to the industrial undertaking.
According to the learned Departmental Representative, there has to be a direct nexus between the source and the industrial undertaking which is not in the present case.
32. To the said arguments of the learned Departmental Representative, the learned counsel for the assessee contended that the judgment in the case of Pandian Chemicals (supra) was under Section 80HH and not under Section 80-IA. After having said so, the learned counsel contended that the scope of income under Section 80HH is very narrow than that of Section 80-IA. The learned counsel would further contend that under Section 80HH the income of an assessee has to be derived from an industrial undertaking while under Section 80-IA the income of the assessee includes any profits and gains derived by an industrial undertaking or enterprise from any business referred to in Sub-section (4). The word "any business appearing in Section 80-IA according to the assessee is very important and in this background, the learned counsel contended that the scope of income under Section 80-IA is much more wider than the one under Section 80HH. After having said so, the learned counsel contended that the receipts so received by the assessee from the generation of steam would qualify for deduction under Section 80-IA as it is an income from the business of the assessee. To conclude, the learned counsel submitted that the income derived from the supply of steam is income derived from an undertaking engaged in the generation of power and in support of this reliance was placed by the learned counsel on the judgment in the case of Pandian Chemicals Ltd. v. CIT (supra), in the case of Fenner (India) Ltd. v. CIT (2000) 241 ITR 803 (Mad) and CIT v. Sundaram Industries (2000) 253 ITR 396 (Mad).
33. Referring to another judgment in the case of ITO v. Polytech Cable Products (1985) 11 ITD 20 (Hyd), the learned counsel contended that the profits and gains derived from the undertaking means the industrial undertaking must itself be direct source of profit or gain. After having referred to this judgment the learned counsel contended that the income from steam is an income derived by an industrial undertaking and nothing else. Another argument that was raised during the course of hearing was that if there are two views possible that whether the receipts derived by the assessee is a receipt from business or not then the view in favour of the assessee should be followed and for this he relied upon the judgment of the apex Court in the case of CIT v. Vegetable Products (1973) 88 ITR 192 (SC) and in the case of Bajaj Tempo v. CIT (1992) 196 ITR 188 (SC).
34. We have heard the parties on this issue and examined the record and find that the assessee is into the business of generation of power. The generation of power takes place when bagasse is burnt in a boiler and heat generated is used to heat up the water in the boiler and generates steam. The steam so generated is at high temperature and pressure. This steam is then transferred into an inlet of steam turbine through pipes. The energy available in steam is used to rotate the turbine, the turbine then rotates the alternator which generates electrical energy. The steam after being used to rotate turbine is drawn from the turbine outlet and then finally used. In this background, we feel that the steam so generated is generated by the industrial undertaking and the receipt would be the receipt from the business of the industrial undertaking within the meaning of Section 80-IA which would qualify for this benefit. The assessee, therefore, succeeds on this account also.
35. In view of the discussion above, we feel that the steam is a form of energy and is thus power that would qualify for the deduction under Section 80-IA of the IT Act.
36. Before we part with, we feel that the observations of the authorities below that it is only the electrical form of energy which qualifies for deduction under Section 80-IA, with reference to the provisions of Electricity Act, was not correct especially when the legislature has not used the word electricity, the Courts have invariably been defined the steam to be a form of power and equated the same with power or at par with power. In view of the above, we have no hesitation in allowing ground Nos. 2-4 of the appeal.
37. This brings us to ground No. 5 of the appeal through which the assessee has made a grievance that the learned CIT(A) has erred in upholding the action of the AO in not correctly estimating the expenses incurred against receipts eligible for deduction under Section 80-IA, as, according to the assessee the entire expenses incurred by the appellant have been incurred for the production of steam, the same should be considered as expenses against eligible receipts. On this ground both the parties relied upon the arguments while they were addressing us on ground Nos. 2-4 of the appeal. Undoubtedly, the entire business of the assessee in generation of power is based on the generation of steam because once the steam is generated at a high temperature and pressure, this steam is transferred to inlet of steam turbines through pipes which rotates the turbine. The rotation of the turbine then rotates the alternator and then produces energy. Fundamentally, we must understand that it is the rotation of the turbine through the steam and unless and until the steam is generated nothing could move. Steam admittedly is a form of power and expenses that are incurred for generation of steam ought to have been reduced from the receipt of the same. This ground of appeal, therefore, calls for no further discussion and stands allowed.
38. This brings us to the ground No. 6 of the appeal wherein the assessee has made a grievance that the authorities below should have accepted the contention of the appellant to reduce the gross receipt for the year by Rs. 3,82,59,074 being the amount excess credited in the books on the basis of interim arrangements which were retrospectively revised in the following year and the income in respect of which never accrued or arose in the hands of the appellant-company.
39. To adjudicate this ground, the case of the assessee that it entered into a conversion contract on 1st Dec., 1998 with SSL. This contract provided the terms and conditions for conversion. The project of SSL was financed by PICUP. Under the contract of 10th Dec., 1998 the financial terms of the contract were to be confirmed by PICUP as per Article 18 of the said contract. According to the said contract the levy of charges of this conversion contract could not be effective till PICUP had approved the same, As the matter was pending with PICUP, the assessee and SSL arrived at an interim arrangement on 26th Aug., 1999 under which it was agreed that the rate for supply of electricity would be worked out irrespective of the provisions of Article 7 of the conversion contract. Under this interim arrangement, the parties agreed that they would pay and receive Rs. 236 per metric ton from thermal energy and for electrical energy it was to be charged at the same rate at which electricity was supplied to UPSEB. The receipts in the books of account were made on the basis of this interim arrangement. It is also on the record that this fact was duly disclosed in the audited accounts attached to the balance sheet. In view of certain objections raised by the PICUP, the interim arrangement was subsequently revised and under the revised arrangement it was agreed that instead of the rates already agreed to, the payment would be made @ 75 per cent metric ton for thermal energy instead of Rs. 236 per metric ton. In view of the new interim arrangement it was decided that the excess amount amounting to Rs. 3,82,59,074 though included in the gross receipt for the year would not form part of the income and was, therefore, reduced from the gross receipt for the next year, i.e. 2001-02. The assessee also undisputedly has brought this fact in its balance sheet as well.
40. During the course of assessment proceedings, this fact was brought to the notice of the AO through the letter of the assessee and it was submitted to the AO through the said letter that income for the year ending 31st March, 2000 be reduced to this extent. The reverse entry is made in the subsequent year. The assessee tried to impress upon the AO that the tax has to be levied on the real income and it was the case of the assessee before the AO that the income to the extent of Rs. 3,82,59,074 never accrued in the hands of the company.
41. The contentions raised by the assessee before the AO did not find favour and he brought the said excess amount to tax, as income of the assessee.
42. The appeal by the assessee before the CIT(A) did not find favour and that is how the matter has come up before us. During the course of hearing on this ground of appeal, the assessee contended that once this receipt was not the income of the assessee, then how could it be taxed. According to the assessee they have categorically brought these facts of the interim arrangements and the revised arrangements which revised agreement was with retrospective effect to the notice of the authorities below and also depicted the same by appending note to their balance sheet which has been ignored. Not only this, the assessee contended during the course of hearing that in the next year the said entries were reversed which action of the assessee, according to the assessee was acceptable as per accounting standards set up by the Institute of Chartered Accountants.
43. After having said so, the learned counsel for the assessee contended that the AO is duty-bound to judicially exercise power and tax that receipt which pertains to the assessee only and in this case in view of the revised agreement with retrospective effect, the question of the said receipt belonging to the assessee was beyond any conception. Not only this, it was contended before us that if the AO does not judicially exercise his power and does not bring the right income to tax, he would be failing in his duty and such an act on the part of the AO needs to be corrected by this forum.
44. To the arguments raised by the learned Authorised Representative, learned Departmental Representative relied upon the orders of the authorities below.
45. We have heard the parties, taken ourselves through the record which depicts and finds that the agreements, i.e., the interim arrangement and the revised arrangement, which have been referred to by the assessee during the course of hearing were before the authorities below. Not only this, the assessee had also appended the note to the balance sheet of the relevant year indicating that in view of the revised agreement no income can be said to have accrued to the assessee on the basis of the original agreement. That apart, the Revenue has not doubted the genuineness of these agreements. No material worth its name has been placed by the Revenue before, which would contradict or dissuade us to hold that this agreement of revision was not genuine and was prospective and not retrospective. The Revenue has also not disputed stakes of the PICUP and also that the agreements inter se were to be approved by PICUP. The Revenue has also not brought any material on the record to contradict the stand of the assessee that it was after the intervention of the PICUP which had stakes in the other company that the original interim arrangement was revised and that too with retrospective effect. The assessee has in the subsequent years reversed the entries also. In this background, we feel that the said receipt never accrued to the assessee and, therefore, the said amount could not be added to the income of the assessee for the year under consideration.
46. The law on this issue that it is only that income which had accrued to an individual that can be subjected to taxation and the income which has not accrued cannot be taxed. We may here itself refer to the judgment of the apex Court in the case of Godhra Electricity Supply Co. v. CIT (1997) 225 ITR 746 (SC), wherein it has been held that it is a real income which can be subjected to tax and not the income which has not accrued to the individual. To the similar effect is the other judgment of the apex Court reported in the case of CIT v. Raman & Co. (1968) 67 ITR 11 (SC).
47. When we apply the ratio of these decisions to the facts of the present case, which admittedly are that under an interim arrangement the parties agreed that steam shall be supplied at a certain rate. Admittedly, this agreement was subject to approval by the PICUP. Admittedly, the PICUP had not approved the rate obviously for the reason of their financial involvements because they felt that if these rates are acted upon, there would be lesser profit and consequently that would affect their stakes. Consequent to the intervention by the PICUP the rates were revised retrospectively. Once the rates were revised retrospectively, the income which might have accrued to the assessee has not accrued. Merely because an income might have accrued or not accrued cannot be a ground to tax the receipt which was not assessee's own. It is the real income which in law is liable to be taxed. The difference that had accrued on account of interim arrangement and the revised arrangement could not and by no stretch of imagination be said to be the income of the assessee. The assessee has clearly said so in the document placed before the authorities below. They have also reversed the entries in the subsequent years. We, therefore, feel that the differential amount that had surfaced on account of the interim arrangement and the revised arrangement which revised the rates retrospectively by no stretch of imagination could be said to be the income of the assessee and under no circumstances could be subjected to taxation.
48. Consequent to the above, these grounds raised by the assessee also succeed and are hereby allowed.
49. This brings us to ground Nos. 7, 8 and 9 of the grounds of appeal. Ground Nos. 8 and 9 are general while ground No. 7 is consequential.
50. In view of the discussion above, the appeal filed by the assessee succeeds and is hereby allowed.
ITA No. 1007/Del/200451. This brings us to the appeal filed by the Revenue by which the Revenue has made a challenge to the order of the CIT(A) that he has erred by admitting additional evidence contrary to the provisions of Rule 46A and directing the AO to include a sum of Rs. 2,07,48,226 in the gross receipt eligible for deduction under Section 80-IA. During the course of hearing, learned Departmental Representative while addressing us on this ground contended that the CIT(A) has entertained additional evidence in contravention of Rule 46A. The learned Departmental Representative would contend that the admission of this evidence has caused prejudice to the case of the Revenue.
52. To the arguments raised by the learned Departmental Representative, learned Authorised Representative contended that the CIT(A) had not admitted any additional evidence. That apart, it was contended by the learned Authorised Representative that no prejudice has been caused to the Revenue because of the fact that the CIT(A) had obtained a remand report from the AO. The learned Authorised Representative contended that the said remand report finds a place at pp. 44-54 of the paper book wherein the AO has himself admitted that though no new facts or new issues have been raised by the assessee in its written submissions dt. 8th July, 2003 before the CIT(A) and hence the assessment order in itself would have been sufficient to look for answers to the points mooted by the assessee.
53. We have heard the parties on this issue and find that the AO had been provided with ample opportunity and his comments were called for on all issues pending before the CIT(A) to which he has replied back stating that no new issues have been raised by the assessee. That apart, in the light of the fact that the comments were called and the remand report was submitted by the AO wherein he himself admits that no new facts have been brought forward by the assessee, it is extremely unfair on the part of the Revenue at this stage to come out and say that the additional evidence has been admitted contrary to the rules. We must say that this statement by the Revenue is not correct and have no hesitation in observing that no new evidence at all has been admitted. That apart, the record transpires that the AO had reduced a sum of Rs. 2,07,48,226 from the receipt eligible for deduction under Section 80-IA{iv) on the ground that as per conversion agreement entered into between the appellant-company and SBEC Sugar Ltd. dt. 10th Dec., 1998, 50 per cent of the receipts from UPSEB were to be paid to SSL who was to supply bagasse and water free of cost to the assessee. The AO felt that there is a close proximity between the two and, therefore, according to the AO, the assessee was following only those terms of the conversion agreement which were favourable to the assessee and ignoring the terms which were not favourable for claiming higher deduction. Before the CIT(A), the assessee contended that the SSL did not pay upfront fee on the . objection from PICUP from whom SSL had obtained a loan of Rs. 8 crores and also the fact that the assessee-company entered into power purchase agreement directly with UPSEB. It was in this background that the terms of agreement were changed and the rates were reduced. The CIT(A), therefore, held that the AO was not justified in reducing a sum of Rs. 2,07,48,226 from the gross receipts eligible for deduction under Section 80-IA with the following observations :
"The contentions raised by the appellant in the written submission/rejoinder as well as submissions made by the AO have been considered. In view of the fact that the payment of upfront fee was not paid by SSL on objections from PICUP from whom SSL had obtained a loan of Rs. 8 crores and also the fact that the appellant-company had entered into the power purchase agreement directly with UPSEB it was logical that the terms of the conversion agreement called for a change, A perusal of the copy of the letter dt. 26th Aug., 1999 wherein the SSL agreed to pay @ 236 per metric ton for steam and at a rate payable by UPSEB were the resultant changes. As such, taking into account the totality of circumstances it is held that the AO was not justified in reducing a sum of Rs. 2,07,48,226 from the gross receipts eligible for deduction under Section 80-IA of the IT Act. The appellant succeeds on this ground."
54. The Revenue has a grievance to the said finding of the CIT(A) and is in appeal before us. In view of our finding in the appeal of the assessee that these agreements were justified and the change in rate were called for on objection from PICUP and also keeping in mind that the agreements are held to be genuine, we find ourselves in difficulty to take a different view than the one taken by the CIT(A). We also observe that there was no additional evidence admitted by the CIT(A) as all these facts were already disclosed through the annexures annexed to the balance sheet appended to the return.
55. Consequent to the above, the appeal filed by the Revenue fails and is hereby dismissed.