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Commissioner of Income Tax vs. M/s Jindal Steel and Power Limited (and connected appeals)

Civil Appeal · 2023 INSC 1053Decided 6 Dec 2023
Civil Appeal No. 13771 of 2015
B.V. Nagarathna · Ujjal Bhuyan

Background

This was a batch of 15 tax appeals by the Revenue against various High Courts, all raising the same core question: companies (led by Jindal Steel and Power Ltd.) that ran their own "captive" power plants to supply electricity to their factories, and sold only the surplus to the State Electricity Board, had claimed a tax deduction under Section 80-IA calculated using Rs. 3.72 per unit, the price the State Electricity Board charged ordinary industrial consumers, as the "market value" of the electricity used internally. The tax department argued the true market value should instead be the lower Rs. 2.32 per unit that the companies themselves received for surplus power sold to the Electricity Board under a compulsory power-purchase agreement, which would sharply reduce their claimed deduction. Three smaller connected issues were also argued: whether a company must formally "opt" for a specific depreciation method before claiming it, whether a disallowed expense payment (to one Mr. S.K. Gupta) should be restored, and whether carbon-credit sale proceeds are capital or taxable revenue income.

Decision Breakdown

The Supreme Court held that "market value" under Section 80-IA(8) means the price of goods in a genuine open market shaped by free competition between willing buyers and sellers, and the Rs. 2.32/unit rate was not that, since it was a price fixed unilaterally by the monopoly State Electricity Board under a compulsory, non-negotiable statutory arrangement, essentially a forced sale with no bargaining power for the company. By contrast, Rs. 3.72/unit was the price the company's factories would have had to pay any ordinary consumer-facing supplier (the Electricity Board) for the same power in the open market, making it the correct benchmark, so the Tribunal and High Courts were right to accept the higher figure and the Revenue's appeals on this core issue were dismissed. On the depreciation issue, the Court held there is no legal requirement to formally declare a choice of depreciation method before the tax-return deadline: simply claiming the method in the return itself, on time, is sufficient compliance, following its earlier ruling in CIT vs. G.R. Govindarajulu. On the disputed expense payment, the Court upheld restoring the deduction because the tax officer relied only on a witness's initial statement while ignoring his prompt formal retraction and denied the taxpayer a chance to cross-examine him. On carbon credits, the Court declined to rule at all, since the Revenue itself never appealed that specific point to the High Court and could not raise it for the first time before the Supreme Court, leaving that legal question open for a future case.

Lesson Learnt

For tax purposes, the "market value" of goods transferred between a company's own divisions must reflect a genuinely competitive price available to an ordinary buyer or seller, not a price fixed by compulsion or monopoly power, and taxpayers generally only need to make and record an election (like a depreciation method) within the filing deadline, without any extra formal declaration, for it to be valid.

Official source (sci.gov.in)View Judgment (PDF)

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