The Supreme Court has ruled in favour of Jindal Steel and Power in the company’s dispute with the income tax department.

The case related to a 2001 assessment. Jindal Steel, which owned and operated a captive power plant, sold electricity to its group companies at ₹3.72 a kWhr — the tariff at which the Madhya Pradesh Electricity Board sold power to industrial units. But Jindal Steel sold the surplus power back to the board at ₹2.32, the rate the board had fixed. 

The income tax department’s claim was that Jindal Steel had inflated its profit by ₹1.40 a unit (the difference between ₹3.72 and ₹2.32) to claim tax exemptions for profits from electricity sales, under Section 80 IA of the IT Act. Jindal Steel had claimed deduction of ₹80 crore. 

The SC agreed with Jindal Steel that the “rate fixed by the State Electricity Board for purchase of surplus power from the assessee cannot be treated as the market price of power” — a view that had been held earlier by the Income Tax Appellate Tribunal and the High Court of Punjab and Haryana. (Jindal Steel’s captive plant was located in Hisar, Haryana.) 

Carbon credits

The apex court also had to consider whether Jindal Steel’s earnings from sale of carbon credits were ‘capital receipts’ or taxable ‘revenue’. 

The court did not go into the question, on the grounds that the IT department had not raised this point earlier, but observed that the issue had been settled in other cases. 

“(The Income Tax Appellate) Tribunal vide the order dated 31.03.2016 held that carbon credit is generated under the Kyoto Protocol and because of international commitments. Carbon credit emanates from such technology and plant and machinery which contribute to reduction of greenhouse gases. Carbon credits are also meant to promote environmentally sound investments which are admittedly capital in nature. Therefore, Tribunal held that carbon credit is a capital receipt,” the ruling stated.

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Published on December 17, 2023