Neyveli Lignite Corpn. Ltd. v. ACIT (2013) 212 Taxman 318 (Mad.)(High Court)

S.80-IA : Industrial undertakings – Infrastructure development – Tax component of sales price – Deduction is available

The assessee NLC was engaged in the business of mining and production of lignite and using them in the generation of electricity. Under Bulk Power Supply Agreement entered into between the assessee and State electricity board, the assessee agreed to sell the electricity generated by it. The tariff that was arrived at between the parties consisted of various components including tax liability on the income streams from the core activity of NLC. A reading of the agreement made it clear that in strict sense, there was no reimbursement of the tax liability by the recipient, but was treated as part of the tariff and whatever was done on the receipt of the statement of the tax payable by the assessee was that the tariff price payable on the electricity sold was finally reckoned with reference to the above said tax payment. In the proceedings under section 263, the Commissioner pointed out that the income tax liability of the assessee had been paid by the electricity boards and the amount received by the assessee was shown as receipt of the income and included for claiming deduction under section 80-IA. 

The Commissioner 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 80-IA. Tribunal confirmed the view of Commissioner under section 263. On appeal to the High Court, held that Under a bulk power supply agreement between assessee-electricity generating company and State Electricity Board, various components of tariff was to be charged for sale of electricity. Said agreement as well as relevant notification by Ministry of Power clarified that tax liability would be part of the tariff charged for sale of electricity from Thermal Power Generating Stations and it would not stand independent of the tariff charge. Further, there was no reimbursement from State Electricity Board of tax paid by assessee. Tariff could not be dissected to conclude that tax component specified as part of tariff was reimbursement of liability of assessee and, hence, it would not form part of income. Relief to be granted under section 80-IA, would not call for exclusion of tax component in sale price of electricity. In favour of assessee. (A.Y. 2001-02).