While ruling on a very significant legal point pertaining to Income Tax Rules, we see that the Supreme Court in a most learned, landmark, laudable and latest judgment titled Commissioner of Income Tax vs M/s Jindal Steel & Power Limited in Civil Appeal No. 13771 of 2015 and others in Neutral Citation No.: 2023 INSC 1053 that was pronounced as recently as on December 6, 2023 in the exercise of its civil appellate jurisdiction has observed that there is no requirement under the second proviso to sub-rule (1A) of Rule 5 of the Income Tax Rules 1962 that any particular mode of computing the claim of depreciation has to be opted for before the due date of filing of the return. The Court hastened to add that the only requirement is that the option has to be exercised before filing of the return. We thus see that the Apex Court upheld the view expressed by the Tribunal and the High Court.

At the very outset, this brief, brilliant, bold and balanced judgment authored by Hon’ble Mr Justice Ujjal Bhuyan for a Bench of the Apex Court comprising of Hon’ble Ms Justice BV Nagarathna and himself sets the ball in motion by first and foremost putting forth in para 1 that:
There are three special leave petitions in this batch, viz., SLP (C) No.15564 of 2020, SLP (C) No.5871 of 2020 and SLP (C) No.792 of 2021. Leave in these special leave petitions are therefore granted.

Needless to say, the Bench states in para 2 that:
Core issue raised in this batch of civil appeals being identical, those were heard together and are being disposed of by this common judgment and order.

To put things in perspective, the Bench envisages in para 4 that:
All the appeals are by the revenue assailing orders of various high courts dismissing its appeals filed under Section 260A of the Income Tax Act, 1961. The core and common issue raised in all the appeals is the re-computation of deduction under Section 80 IA of the Income Tax Act, 1961 by the assessing officer which was set aside by the Income Tax Appellate Tribunal and upheld by the High Courts by accepting the contention of the assessee. Revenue is aggrieved as it contends that the re-computation of deduction made by the assessing officer was interfered with by the Income Tax Appellate Tribunal and affirmed by the High Courts without appreciating the fact that the profits of eligible business of captive power generation plants of the assessees were inflated by adopting an excessive sale rate per unit for power supply to the assessees own industrial units for captive consumption as opposed to the rate per unit at which power was supplied by the assessees to the power distributing companies i.e. the State Electricity Boards which is contended to be the market rate.

4.1. Additionally, there are three other issues which were argued by learned counsel for the appellant at the time of hearing. The first additional issue is whether the Income Tax Appellate Tribunal could ignore compliance to statutory provision relating to exercise of option to adopt Written Down Value (WDV) method in place of straight line method while computing depreciation on the assets used for power generation.

This additional issue has been raised by the revenue in Civil Appeal No.13771 of 2015 (Commissioner of Income Tax Vs. M/s Jindal Steel and Power Ltd.). Revenue has also raised the issue of expenditure in Civil Appeal No.7425 of 2019 (Commissioner of Income Tax Vs. M/s Reliance Industries Ltd.). The expenditure claimed by the assessee was disallowed by the assessing officer which was affirmed by the first appellate authority i.e., Commissioner of Income Tax (Appeals).

On appeal by the assessee, the Income Tax Appellate Tribunal set aside the order of the Commissioner of Income Tax (Appeals) which decision has been affirmed by the High Court. The third additional issue relates to what is called carbon credit – whether it is a capital or revenue receipt. This additional issue has been raised in Civil Appeal No.9917 of 2017 (Assistant Commissioner of Income Tax Vs. M/s Godawari Power and Ispat Pvt. Ltd.) and also in Civil Appeal No.8983 of 2017 (Assistant Commissioner of Income Tax Chhattisgarh Vs. M/s Godawari Power and Ispat Pvt. Ltd.).

Be it noted, the Bench notes in para 43 that:
In the instant case, there is no dispute that the assessee had claimed depreciation in accordance with sub-rule (1) read with Appendix-I before the due date of furnishing the return of income. The view taken by the assessing officer as affirmed by the first appellate authority that the assessee should opt for one of the two methods is not a statutory requirement. Therefore, the revenue was not justified in reducing the claim of depreciation of the assessee on the ground that the assessee had not specifically opted for the WDV method.

It is worth noting that the Bench 44 that:
A similar issue was examined by this Court in CIT Vs. GR Govindarajulu, (2016) 16 SCC 335, wherein it has been held that the law does not mention any specific mode of exercising such an option. The only requirement is that the option has to be exercised before filing of the return. In that case, assessee had set apart a sum of Rs. 32 lakhs to be spent for charitable purposes in the following year and claimed deduction of the entire amount under Section 11 of the Act which deals with income from property held for charitable or religious purposes.

This claim of the assessee was denied by the assessing officer on the ground that no option for this purpose was exercised by the assessee before filing of the return. Though the assessee had stated so in the return itself, that was not treated as exercising the option in a valid manner. All the appellate authorities answered this issue in favour of the assessee.

When the revenue approached this Court by way of civil appeal, this Court opined that the law does not mention any specific mode of exercising the option. The only requirement is that the option has to be exercised before filing of the return. This Court held that if the option is exercised when the return is filed, that would be treated as in conformity with the requirement of Section 11 of the Act.

Most significantly, the Division Bench minces just no words to propound in para 45 that:
Applying the aforesaid principle to the facts of the present case, we are in agreement with the view expressed by the Tribunal and the High Court that there is no requirement under the second proviso to sub-rule (1A) of Rule 5 of the Rules that any particular mode of computing the claim of depreciation has to be opted for before the due date of filing of the return.

All that is required is that the assessee has to opt before filing of the return or at the time of filing the return that it seeks to avail the depreciation provided in Section 32 (1) under subrule (1) of Rule 5 read with Appendix-I instead of the depreciation specified in Appendix-1A in terms of sub-rule (1A) of Rule 5 which the assessee has done. If that be the position, we find no merit in the question proposed by the revenue. The same is therefore answered in favour of the assessee and against the revenue.

It cannot be lost sight of that the Bench observes in para 54 that:
We may mention that before the Tribunal in Civil Appeal No. 9917/2017, the assessee had questioned amongst others the finding of CIT (A) confirming the decision of the assessing officer that an amount of Rs. 4,47,75,122.00 realised on account of carbon credit had no direct and immediate nexus with the income of the power division and hence did not qualify for deduction under Section 80-IA (4) (iv) of the Act. On due consideration, 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 out of such technology and plant and machinery which contribute to reduction of greenhouse gases. That apart, 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.

As a corollary, the Bench then hastens to add in para 55 propounding that, Against the aforesaid decision of the Tribunal, revenue preferred appeal before the High Court of Chhattisgarh under Section 260A of the Act. From a reading of the High Court order dated 15.11.2016, we find that the only issue raised by the revenue before the High Court was relating to disallowance of deduction by the assessing officer under Section 80-IA (4) (iv) of the Act.

Question of carbon credit being capital receipt or not was not raised. In other words, revenue had accepted the decision of the Tribunal as regards carbon credit and did not challenge the said decision before the High Court. In fact, in the proceedings dated 11.09.2009 it was agreed by both the sides (including the revenue) that the only question which arose for consideration of this Court was as regards interpretation of Section 80-IA of the Act.

Therefore, the issue relating to carbon credit was not raised or urged by the revenue. If that be the position, revenue would be estopped from raising the said issue before this Court at the stage of final hearing. That apart, there is no decision of the High Court on this issue against which the revenue can be said to be aggrieved and which can be assailed. In the circumstances, we decline to answer this question raised by the revenue and leave the question open to be decided in an appropriate proceeding.

Finally and as a corollary, the Bench concludes by directing in para 56 that, For the aforesaid reasons, the civil appeals are hereby dismissed. However, there shall be no order as to cost.

In essence, the Apex Court has very rightly held that there is no requirement that any particular mode of computing claim of depreciation has to be opted before due date of filing return. Of course, it thus certainly merits no reiteration that all the Courts must definitely abide by what the Apex Court has held in this leading case! No denying it!

Sanjeev Sirohi, Advocate,
s/o Col (Retd) BPS Sirohi, A 82, Defence Enclave,
Sardhana Road, Kankerkhera, Meerut – 250001, Uttar Pradesh