DELHI TRANSCO LIMITED vs DELHI ELECTRICITY REGULATORY COMMISSION & Ors

Judgement in Appeal No.15 of 2018
IN THE APPELLATE TRIBUNAL FOR ELECTRICITY
(Appellate Jurisdiction)
APPEAL No. 15 OF 2018
th
Dated: 20 April, 2026
Present: Hon`ble Ms. Seema Gupta, Officiating Chairperson
Hon`ble Mr. Virender Bhat, Judicial Member
IN THE MATTER OF:
DELHI TRANSCO LIMITED,
Shakti Sadan Building, Kotla Road,
New Delhi – 110002. … Appellant(s)
VERSUS
1. DELHI ELECTRICITY REGULATORY COMMISSION
Through its Secretary ,
Vinayamak Bhavam C-Block,
Malviya Nagar,
New Delhi-110017.
2. BSES Rajdhani Power Limited,
Through its Chairman and Managing Director,
BSES Bhawan, Nehru Place,
New Delhi – 110 019.
3. BSES Yamuna Power Limited,
Through its Chairman and Managing Director
Shakti Kiran Building,
Karkardooma,
Delhi – 110 092.
4. Tata Power – Delhi Distribution Limited,
Through its Chairman and Managing Director,
Grid Sub Station Building,
Hudson Lines, Kingsway Camp,
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Judgement in Appeal No.15 of 2018
Delhi – 110 009.
5. New Delhi Municipal Council,
Through its Secretary,
Palika Kendra, Parliament Street,
New Delhi – 110001.
6. Military Engineers Services,
Through its Chairman and Managing Director,
Ministry of Defence,
Government of India,
New Delhi – 110010. …. Respondents
Counsel on record for the Appellant(s) : Mr. Pradep Misra
Mr. Manoj Kumar Sharma
for App. 1
Mr. Dhananjay Baijal
Counsel on record for the Respondent(s) :
for Res. 1
Mr. Amit Kapur
Mr. Anuplam Varma
Mr. Rahul Kinra
Mr. Nikhil Sharma
Mr. Aditya Gupta
Mr. Aditya Ajay
Mr. Girdhar Gopal Khattar
Mr. Yash Srivastava
Ms. Adamya Ojha
Mr. Vaibhav Sharma
for Res.2,3 & 4
JUDGEMENT
PER HON’BLE MRS. SEEMA GUPTA, OFFICIATING CHAIRPERSON
1. The present Appeal has been filed by Delhi Transco Limited , challenging
the order dated 31.08.2017 in Petition No. 18/2017 (“Impugned Order” ) passed
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Judgement in Appeal No.15 of 2018
by the Delhi Electricity Regulatory Commission, dealing with the truing up of the
financials of the Appellant for the period Financial Year - FY 2012-13 TO FY 2015-
16 and the Aggregate Revenue Requirement for FY 2016-17 to 2020-21.
2. The Appellant-Delhi Transco Limited is Company incorporated under the
Companies Act, 1956 and is engaged in the business of transmission of electricity
in the National Capital Territory of Delhi.
3. The Respondent No.1 is Delhi Electricity Regulatory Commission (herein
after referred as “State Commission/DERC” ) exercising powers and
discharging functions under the provisions of the Electricity Act, 2003 in the state
of Delhi.
4. The Respondent No.2; the BSES Rajdhani Power Limited (“BRPL”),
Respondent No.3; the BSES Yamuna Power Limited (“BYPL”) , Respondent
No.4; the Tata Power – Delhi Distribution Limited (“TPDDL”) and Respondent
No.5 ; the New Delhi Municipal Corporation (“NDMC”) are the distribution
Licensees, undertaking distribution of electricity in different areas in the State of
Delhi. The Respondent No.6 is Military Engineers Services.
Background & Factual matrix of the Case: As noted from the Appeal Paper
Book
5. The Appellant, has been initially, vested with the functions of Transmission
and Bulk supply of electricity pursuant to the unbundling of the Delhi Vidyut Board
(DVB) under the provisions of the Delhi Electricity Reform Act, 2000 and the
Statutory Transfer Scheme notified by the Government of NCT of Delhi under the
said Act as was prevalent at the relevant time. Besides Transmission of electricity,
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Judgement in Appeal No.15 of 2018
Appellant was also undertaking the Bulk Purchase and Sale of electricity to
distribution licensees (Respondent Nos. 2 to 6).
6. Since 01.04.2007, the Appellant is responsible solely for the Transmission
of Electricity in the NCT of Delhi, including roles related to the State Transmission
Utility (STU) and the State Load Dispatch Centre (SLDC).
7. In 2016, the Appellant filed Petition No. 18/2017 with the State Commission
seeking to true up financials for FY 2012-13 to FY 2015-16 and for the ARR for
FY 2016-17 to FY 2020-21. The State Commission admitted the petition on
26.05.2017 and a public notice was issued for stakeholder comments, and
hearing held on 19.07.2017. Vide its Order dated 31.08.2017, the State
Commission Trued up the financial of the Appellant for FY 2014-15 and FY 2015-
16, and has determined Annual Revenue Requirements and Transmission tariff
for FY 2017-18. Aggrieved by the Order dated 31.08.2017, Appellant has filed
present appeal contending that the State Commission did not adequately account
for revenue requirements as stipulated in the MYT Regulations 2011 and Tariff
Regulations 2017.
DISCUSSION AND ANALYSIS
8. Heard Mr. Pradeep Mishra, learned counsel on behalf of the Appellant, Mr
Dhananjay Baijal, learned counsel on behalf of the State Commission, and Mr.
Rahul Kinra, learned counsel for the Respondent No 2 to 4, perused the
Impugned Order dated 31.08.2017, written submission filed by the parties. The
Appellant, is aggrieved by incorrect computations in the Impugned Order on
following issues:
1) Administrative and General Expenses
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Judgement in Appeal No.15 of 2018
2) Return on Capital Employed
3) Non-Tariff Income; (i) inclusion of entire short term open Access (ii)
considering the amount earned in the previous year 2015-16 which had
one-time adjustments
4) Income Tax on revenue requirements
5) Operation and Maintenance Expenses; Non consideration of impact of the
Pay revision, salary paid to the staff deputed from IPGCL, staff being
recruited
Our consideration and views on each of these issues are deliberated in following
paragraphs:
ISSUE NO 1 : ADMINISTRATIVE AND GENERAL EXPENSES
9. It has been contended on behalf of Appellant that the State Commission
while calculating A&G Expenses for FY 2012-13 to FY 2015-16 has erroneously
considered the base amount to be Rs. 19.20 Crore as against the Appellant’s
submissions of Rs. 22.19 Crore for FY 2011-12 based on audited financial
statements. No reasons have been given for such reduction. This has a
consequential impact on all future years from FY 2011-12.
10. The State Commission submitted that calculation of A&G expenses is
taken from audited accounts as Rs 19.38 Crore in the Impugned Order and
submitted following details.

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11. It is also affirmed on behalf of State Commission that it has already been
submitted in its reply that “ Appellant has submitted the A&G expenses as Rs
22.19 Crore against A&G expenses of Rs 21.54 Crore as indicated in financial
statement for FY 2011-12. It is submitted that it is open to the Commission to
reconsider this issue on the basis of audited financial statements in subsequent
tariff orders and therefore this issue requires no interference by this Tribunal at
this stage” .
12. We are unable to understand the rational/ logic in this statement of State
Commission that though the value of A&G expenses is taken from the Audited
accounts, still it is open to reconsider the same based on the audited financial
statements. However, it is unnecessary for us to delve further into the issue as
considering the submissions made on behalf of the State Commission, the issue
is remanded to the State Commission to reconsider the calculation of A&G
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Judgement in Appeal No.15 of 2018
expenses for base year FY 2011-12 based on audited financial accounts, if not
already done.
13. The Appellant has additionally claimed Rs. 3.38 Crore as water charges for
the year 2014-15 as Delhi Jal Board has claimed arrears. This amount was not
included in the base year and in Para 3.29 of the Impugned Order, same has
been disallowed on the ground that it is a part of base year A&G expenses.
14. It has been contended on behalf of State Commission that in terms of
DERC Transmission tariff Regulations 2011, O&M is a controllable factor and is
treated normatively and any surplus/deficit on controllable parameters is to the
licensee’s account; A&G is not an automatic pass-through merely because a
figure is claimed. Reliance was placed on the Judgement of the Delhi High Court
“Tata Power Delhi Distribution Ltd. v. DERC , 2016 SCC OnLine Del 4165” ,
in which while examining DERC’s MYT framework in the context of Distribution
licensees, it has been upheld that O&M costs are deemed controllable and the
scheme does not permit the licensee to carry forward unrecouped O&M beyond
the normative allowances. The O&M framework for transmission licensees is peri-
materia with the distribution regulations. It is further submitted that this Tribunal
in its judgement dated 28.01.2025 in Appeal No. 301/2015 has held that it was
bound by the Regulations and the Delhi High Court’s interpretation which hold
that O&M expenses is a controllable parameter and no true-up is permissible and
that the true-up stage cannot be used to revisit basic premises. It is submitted
that the Appellant’s claim of Water Charges, is an attempt to load base-year-
related costs again in later years and unless the Appellant demonstrates through
audited account segregation that the liability pertains to a period not already
reflected in base-year allowances, same cannot be accepted as a pass-through.
15. In the scheme of things, Operation and Maintenance (O&M) expenses fall
squarely within the category of controllable factors. It is incumbent upon the
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Judgement in Appeal No.15 of 2018
licensees to prudently manage their affairs within the normative charges as
determined by the Regulatory Commission. The submission of the State
Commission that any additional charges, over and above the normative
allowances, can only be entertained if such charges demonstrably pertain to a
period not already subsumed in the base year allowances, merits acceptance. In
the present case, the Appellant has not placed any material before this Tribunal
to establish the precise period to which the arrears of water charges relate to, nor
has it been shown that such arrears were not already accounted for in the base
year allowances. In the absence of such substantiation, the claim of the Appellant
cannot be sustained.
16. We therefore find no infirmity in the reasoning adopted by the State
Commission. The disallowance of the additional water charges (arrears) is in
consonance with the applicable regulatory framework and the settled principles
governing controllable costs. Accordingly, the issue is decided against the
Appellant, and the Impugned Order is upheld to the extent of disallowance of the
arrears of water charges as claimed.
ISSUE NO 2 : RETURN ON CAPITAL EMPLOYED
17. It is submitted on behalf of Appellant that for the FY 2008-09, the State
Commission has taken the correct opening RBB of Rs. 638.52 Crore and after
adding the additional capitalization of Rs. 119.14 Crore and the change in working
capital of Rs. 2.36 Crore and reducing the depreciation of Rs. 36.81 Crore, the
resultant figure should be Rs. 723.22 Crore and not Rs. 714.38 Crore, as
reflected in Table 36 of Impugned Order. This is an arithmetical mistake which
needs to be corrected for the year 2008-09 and also all consequential corrections
for the future years thereafter including for the year 2017-18 for which the tariff is
determined; the State Commission has deviated from the MYT Regulations, 2011
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Judgement in Appeal No.15 of 2018
and Tariff Regulations, 2017 for the calculation of ROCE and same is to be
calculated as per the formulae given under the MYT Regulations, 2011 and Tariff
Regulations, 2017.
18. There appears to be no dispute with regard to such arithmetic error as
observed from the Table 36 of the Impugned Order and the State Commission,
in its reply, has also admitted as under:
“ It is humbly submitted that the impact of change in working capital of previous year
is seemingly not reflected in the subsequent year computation of RRB closing. It is
submitted that the same will be considered by the Commission in its subsequent
tariff order and does not require the interference of the Hon'ble Tribunal at this stage ”
19. However, the State Commission has not made any submissions whether
as to such arithmetic error has been corrected in its subsequent tariff Orders. In
the absence of such clarity, we find it appropriate to remand this issue to State
Commission with a direction to rework the RRB closing for the period from FY
2008-09 till FY 2017-18, if not done already.
NON-TARIFF INCOME;
ISSUE NO 3 :
Inclusion of entire short term open Access charges as Non-tariff Income
20. It is submitted on behalf of the Appellant that in terms of Regulation 6.13
of the MYT Regulations, 2011, 25% of the short term Charges for the period FY
2012-13 to FY 2015-16 is to be retained by the Appellant and only 75% is to be
considered as non-tariff income. The said Regulation was followed till the FY
2013-14, however, for the FY 2014-15 and FY 2015-16, entire shot-term open
access charges has been included in the non-tariff income. It is further contended
that State Commission has erred by including an amount of Rs. 1.33 Crore and
Rs. 0.90 Crore for FY 2014-15 and FY 2015-16 respectively, as Open Access
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Judgement in Appeal No.15 of 2018
charges of SLDC as income of the Appellant despite SLDC being a statutory
and separately-approved function and Revenue Requirements of SLDC is
separately considered and approved, distinct from the Appellant
21. With regard to inclusion of short-term open access charges in Non tariff
Income, it is submitted on behalf of the State Commission that non-tariff income
must reduce ARR; the Commission is duty-bound to capture incidental incomes
from audited accounts. Regulation 5.24 defines non-tariff income broadly to
include incidental income arising from the electricity business (including
miscellaneous receipts), and Regulation 5.25 mandates that such amounts be
deducted from ARR. The approach adopted by the Respondent Commission in
the Impugned Order is, therefore, in consonance with the statutory objective of
consumer protection, ensuring that incidental income does not translate into an
additional burden on consumers.
22. It is apposite to reproduce Regulation 6.13 and 5.24 of the MYT
Regulations, 2011 .
“5.24 All incomes being incidental to electricity business and derived by
the Licensee from sources, including but not limited to profit derived from
disposal of assets, rents, delayed payment surcharge and miscellaneous
receipts from the Beneficiaries shall constitute Non-Tariff Income of the
Licensee.
6.13 : 25% of the charges collected from the short term open access
customer shall be retained by the transmission licensee and the balance
75% shall be considered as non tariff income and adjusted towards
reduction in the transmission service charges payable by the long term and
medium term users.”
23. Regulation 6.13 explicitly stipulates that “25% of the charges collected from
the short-term open access customer shall be retained by the transmission
licensee and the balance 75% shall be considered as non-tariff income and
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Judgement in Appeal No.15 of 2018
adjusted towards reduction in the transmission service charges payable by the
long-term and medium-term users.” The language of this provision leaves no
scope for ambiguity; it clearly mandates that only 75% of such charges are to be
treated as non-tariff income, while the remaining 25% is to be retained by the
licensee.
24. By contrast, Regulation 5.24 is a general provision, which provides that
incidental incomes derived from sources such as disposal of assets, rents,
delayed payment surcharge, and miscellaneous receipts shall constitute non-
tariff income. This clause is residuary in nature, intended to capture incidental
revenues not otherwise specifically dealt with in the Regulations.
25. Applying the settled principle of statutory interpretation generalia
specialibus non derogant (the general does not derogate from the specific),
Regulation 6.13, being a special provision governing the treatment of short-term
open access charges, must prevail over the general clause in Regulation 5.24.
To include the entire quantum of short-term open access charges as non-tariff
income under Regulation 5.24 would not only disregard the specific
apportionment mandated under Regulation 6.13 but would also amount to a
contravention of the regulatory framework.
26. Accordingly, the correct and legally permissible interpretation is that only
75% of the charges collected from short-term open access customers shall be
considered as non-tariff income. Any attempt to subsume the entire amount under
Regulation 5.24 is impermissible in law and contrary to the express mandate of
Regulation 6.13.
27. With regard to inclusion of open access charges of SLDC in the Income of
the Appellant, it is submitted on behalf of the State Commission that the
Transmission Tariff Regulations, 2011 contemplate segregation of Transmission
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Judgement in Appeal No.15 of 2018
and SLDC related functions and, where a transmission licensee carries other
business (including SLDC-related functions), the ARR is to be supported by an
appropriate allocation statement. The Appellant cannot claim “retention” while
accounts/functions remain unsegregated contrary to regulatory intent. The
Appellant cannot be permitted to selectively invoke the beneficial aspect of
retention under Regulation 6.13 while simultaneously continuing to operate SLDC
as part of its own accounts, contrary to the separation directions; such a position
would defeat the principles of prudence and transparency underlying the
regulatory framework. In this factual and regulatory setting, the Respondent
Commission’s interim approach, capturing such receipts from audited statements
under non-tariff income of the licensee, while allowing SLDC ARR on provisional
basis pending separation, cannot be characterised as illegality. It is an interim
mechanism to avoid consumer prejudice and prevent double counting and is in
full consonance with the requirement of the Respondent Commission to exercise
prudence in tariff determination.
28. It is not in dispute that ARR of the Appellant functioning as SLDC is
undertaken by State Commission separately, albeit on provisional basis. Such a
calculation of ARR for SLDC, in our view would consider expenses as well as
income attributable to the SLDC, however open access income of SLDC is also
included as income for the Appellant under non tariff income in the Transmission
business for the year under consideration i.e FY 2014-15 and FY 2015-16. We
are unable to countenance the submission of State Commission that inclusion of
these charges in the Appellant Income is to avoid double counting. In our view
such inclusion tantamount to penalty for not segregating the accounts of
transmission and SLDC function. This Tribunal has, in a catena of judgments,
consistently held that State Commission cannot convert Tariff determination
exercise as penalty proceedings. The relevant paragraph from one such
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Judgement in Appeal No.15 of 2018
judgement “ Maharashtra State Electricity Distribution Co Ltd v MSERC ( 2009
SCC OnLine APTEL 73) is extracted below:
“ The striking feature of this case is that the disallowance of Rs.96 Crores is
in the nature of penalty, not on account of inefficiency but on account of an act
perceived as disobedience. The purpose of determining the ARR and
designing the tariff is to regulate power purchase, supply and distribution in an
equitable manner so that the consumer is able to get the power at the price
reflecting the cost while the distributor is able to recover the cost of supply along
with the normal profit. The sole attention of the Commission while doing this
exercise is to balance the cost of procurement and the revenue. The
Commission has to be alert all the time that no distribution licensee is able to
pass on to the consumers any cost unwisely or inefficiently incurred. At the same
time the Commission has to see that the distribution licensee can survive in the
business by getting the due returns and the cost. The Commission has to be
entirely objective, dispassionate and professional in its approach in doing this
tedious exercise. The Electricity Act has sufficient provision for handling the
situation of disobedience. As already mentioned above, section 142, gives the
Commission, power for punishment in such a situation. The Commission is a
creation of the statute. Even if such power given is considered by the
Commission to be insufficient the Commission cannot convert its power of tariff
fixation given by section 61 and 62 of the Electricity Act 2003 into a proceeding
for imposing penalty”.
Thus, inclusion of open Access charges of SLDC, as the income of the Appellant
while working out its transmission tariff in the Impugned Order, particularly when
ARR of SLDC is worked out separately, cannot be sustained in law.
29. In view of above deliberation, the Impugned Order is liable to be set aside
on the aforesaid issues, and the matter is remanded to the State Commission
with a direction to: (i)consider only 75 % of income from short term open access
customers, as Non tariff income of the Appellant; and (ii) exclude open access
income of SLDC from the income of Appellant as part of Non tariff income for the
relevant years, FY 2014-15 and FY 2015-16.
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Judgement in Appeal No.15 of 2018
(i) Non-Tariff Income for FY 2017-18 considering the amount earned in
the FY 2015-16, which had one-time adjustments
30. Learned Counsel on behalf of Appellant submitted that the State
Commission has erred in considering the higher projection of Rs. 82.24 Crore as
non-tariff income for FY 2017-18 based on True Up Order for FY 2015-16,
disregarding the fact that figure of Rs. 82.24 Crore includes an amount of Rs.
44.90 Crore, which are on account of one-time adjustment of STOA charges,
Open Access charges, etc. as non-tariff income for FY 2015-16.
31. Per Contra, it has been submitted on behalf of State Commission that
forecasting approach adopted, using the latest trued-up year data, is a settled
regulatory technique aimed at minimising projection errors and protecting
consumers from inflated ARR. The Appellant’s characterization of Open
Access/STOA as “one-time” is unsubstantiated, particularly when Open Access
consumers shall remain in the system. In any event, the variations in non-tariff
income are an “uncontrollable parameter” for the purpose of true-up, and thus
are trued up subsequently, eliminating prejudice.
32. We find merit in the submissions of State Commissions and considering
that the open access consumer remains in the system and for FY 2017-18, there
is possibility of earning this income and moreover in the true-up of FY 2017-18,
only the actual non- tariff income shall be considered, thereby protecting the
interest of Appellant. It has also been informed, that State Commission in its order
dated 31.07.2019, has considered Rs 574.33 Crore in the True up of FY 2017-18
on account of Non –Tariff Income, however same is under challenge before this
Tribunal in Appeal 59 of 2021, which is pending adjudication. Accordingly, in our
considered view, at this stage when True up exercise for FY 2017-18 has already
been completed by State Commission, Impugned Order needs no interference
on this issue.
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Judgement in Appeal No.15 of 2018
ISSUE NO 4 : INCOME TAX ON REVENUE REQUIREMENTS
33. Learned counsel on behalf of the Appellant submitted that the State
Commission has erred in not fully allowing the income tax paid by the Appellant
in the revenue requirements of the Appellant; in contravention of the judgement
of this Tribunal dated 01.02.2016 in Appeal No. 255 of 2013, wherein it has been
held that the entire income tax arising out of the licensed business should be
allowed to the Appellant and not restricted only on the return on equity,
34. Per Contra, it has been submitted on behalf of State Commission that such
submissions of Appellant are contrary to the Regulatory framework as Regulation
5.22 & 5.23 of Transmission Tax Regulations, 2011 clearly specifies that tax on
income, shall be limited to tax on return on the equity component of capital
employed. The State Commission, in the Impugned Order has computed the
income tax based on return on the equity component of capital employed and
Appellant’s submission regarding actual payment of income tax for FY 2012-13
to FY 2014-15 is liable to be rejected.
35. Learned Counsel on behalf of Respondent No 4- TPPDL submitted that in
the referred Judgement of this Tribunal dated 01.02.2016, this Tribunal had
remanded the issue of income tax to be paid by DTL ( FY 2007-08 to FY 2011-
12) to DERC for considering the tax paid by DTL with due verification and
prudence check. This Tribunal, in this judgement has not considered the various
judgements on the principle of treating income tax for a licensed business of an
entity. However this Tribunal, in its judgement dated 21.07.2025 in Appeal Nos
69-72 of 2018 ( “BRPL v DERC”) considered similar regulations for the same
period for Distribution licensee and after considering various judgements on the
issue directed the State Commission to allow tax based on return on equity
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irrespective of actual tax paid by the entity and accordingly same should be
applied in the present case.
36. It is apposite to reproduce the relevant Regulations of DERC Transmission
Tariff Regulations, 2011:
“5.22 Tax on the income streams of the Transmission Licensee shall be
recovered from the beneficiaries. Tax on income, if any, liable to be paid
shall be limited to tax on return on the equity component of capital
employed. Any additional tax liability on account of incentive due to
improved performance like higher availability, lower O&M Expenses etc.
and other income shall not be considered:
Provided that the deferred tax liability, excluding Fringe Benefit Tax, for the
st
period upto 31 March, 2012 whenever it materializes, shall be
recoverable directly from the beneficiaries and the long-term customers.
5.23. The actual assessment of income tax should take into account
benefits of tax holiday, and the credit for carry forward losses applicable
as per the provisions of the Income Tax Act 1961 shall be passed on to the
consumers.”
37. Regulation 5.22, allows the transmission licensee to recover income tax
from beneficiaries, but only to the extent that it arises from the return on equity
(RoE) component of capital employed. In our view, this provision clearly anchors
the recovery of income tax to the regulated return, and does not extend to
ancillary or incentive-based earnings. Taxes arising from improved performance
(higher availability, lower O&M, or other income streams) are explicitly excluded.
This ensures that consumers do not bear the burden of taxes on gains that are
rewards for efficiency or non-core income. As per this Regulation, for the period
up to 31 March 2012, deferred tax liability (excluding Fringe Benefit Tax) is
recoverable when it materializes. This provision recognizes deferred tax as a
legitimate cost to be passed through, but only for that defined period. In our view,
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this Regulation balances the licensee’s right to recover legitimate tax costs with
consumer protection, by ring-fencing recovery to the equity return and excluding
incentive-related taxes.
38. As per Regulation 5.23, if the licensee enjoys exemptions under the Income
Tax Act, those benefits must be passed on to consumers. Similarly, if the
licensee offsets taxable income against carried-forward losses, the reduced tax
liability must translate into reduced recovery from consumers. Thus, in our view
the intent of this regulation is to ensure that consumers are not charged
hypothetical or inflated tax burdens; only the net actual tax liability after availing
statutory benefits is recoverable. This Regulation operationalizes the principle of
“actuals” — recovery must reflect the real tax payable, after accounting for all
statutory deductions, exemptions, and credits. It prevents regulatory arbitrage
where a licensee might otherwise claim gross tax liability without passing on
benefits.
39. The Appellant has relied upon the Judgement of this Tribunal dated
01.02.2016 in Appeal No. 255 of 2013 to contend that entire income tax arising
out of the licensed business is to be allowed to the Appellant and not restricted
only on the return on equity, as settled by this Tribunal. We have perused the
referred judgement and entire deliberation with regard to treatment of income tax
is reproduced hereunder:
“ Our Consideration and Conclusion on this issue
4 5.1 The contention of the Petitioner/Appellant is that the Appellant has
claimed Rs. 201.14 crore as against Rs. 23.51 crore computed by the
Commission as there is a significant difference in the amount claimed by
the Appellant and the income tax worked out by Commission on the basis
of ROE.
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45.2.Let us examine the relevant regulation pertaining to corporate income
tax as per the Transmission Tariff Regulations, 2007 which is as under:
“5.23 Income Tax, if any, on the Licensed Business of the
Transmission Licensee shall be treated as expense and shall be
recoverable from its beneficiaries. However, tax on any income other
than that through its Licensed Business shall not be a pass through,
and it shall be payable by the Transmission Licensee itself.
“5.24 The income tax actually payable or paid shall be included in the
Tariff computation. The actual assessment of income tax should take
into account benefits of tax holiday, and the credit for carry forward
losses applicable as per the provisions of the Income Tax Act 1961
shall be passed on to the Beneficiaries.
“5.25 Tax on income, if any, liable to be paid shall be limited to tax on
return on the equity component of capital employed. However, any tax
liability on incentives due to improved performance shall not be
considered”.
45.3 The Counsel of the Appellant has submitted in their written
submission that the aspect of income tax is pending before the State
Commission which is yet to be heard.
45.4 In our opinion, the Commission has to consider the income tax
actually paid by the Appellant with due verification and the same has to be
included in the Tariff computation and shall be passed on to the
beneficiaries. Further, tax on any income other than that through its
licensed business shall not be passed through, and it shall be payable by
the Transmission Licensee itself. Accordingly, the issue is decided in
favour of the Appellant and the issue is remanded back to consider the
Income Tax amount paid with due verification and prudence check.”
40. In the said Judgement, the relevant Regulations have been extracted, and
it states that State Commission to consider the income tax actually paid with due
verification and prudence check, there is no observation/ interpretation of the
Regulation 5.25, which clearly stipulates that Tax on income, if any, liable to be
paid shall be limited to tax on return on the equity component of capital employed
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and any tax liability on incentives due to improved performance shall not be
considered.
41. Section 181 of the Electricity Act, 2003 grants State Commissions quasi-
legislative power to frame regulations consistent with the provision of the Act and
accordingly Regulations framed under Section 181, like referred DERC
regulations have the force of subordinate legislation. They bind the Commission
itself, licensees, and stakeholders until struck down or modified by a competent
judicial authority. The Supreme court in “ PTC India Ltd. v. CERC” (2010) 4 SCC
603 has held that regulations framed under Section 178 and181 are binding and
have the force of law, however, they are subject to judicial review on the ground
of being ultra vires the parent statute. S ection 111 of the Electricity act c onfers
appellate jurisdiction upon this Tribunal over orders of State Commissions,
however it does not have powers for judicial review of the Regulations framed
under section 178 and 181 of the Electricity Act and thus cannot disregard the
valid regulations while deciding the Appeals. It is also well settled that
regulations, being subordinate legislation, must conform to the Electricity Act,
2003 and constitutional principles. If inconsistent, they can be struck down by
constitutional courts. This Tribunal, while interpreting such regulations, may
ensure conformity of orders with the Act and regulations, but it does not possess
the jurisdiction to invalidate the regulations themselves.. We however find that in
the Tribunal’s judgment dated 01.02.2016, no finding was made that Regulation
5.25 was inconsistent with the Electricity Act. Unless such inconsistency is
judicially declared, the regulation continues to bind.
42. Thus in our view the word “actually paid” in the referred judgement cannot
be construed to mean that the income tax be allowed over and above the ROE
component, which in our view shall be in contravention of the extent Regulations,
therefore reliance placed by Appellant on the same is of no avail.
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43. This Tribunal in its judgement dated 21.07.2025 in Appeal No 69-72 of 2018
( “BRPL v DERC”), reliance on which has been placed by Respondent ,
deliberated the approach adopted by the State Commission in allowing lower
amongst the (a) income tax computed on 16% Return on Equity (RoE) or (b)
income tax actually assessed, during the FY 2007-08 to FY 2015-16. In the said
judgment, this Tribunal, considered the Regulation 5.22 MYT Regulations, 2007,
Regulation 5.32 of MYT Regulations, 2011, which has similar provision with
regard to income tax as noted above in Regulation 5.22 applicable in the
present case. After deliberating on the various earlier judgement of this Tribunal
observed that issue of Income tax on regulated business to be computed as if
it were water tight compartment is already decided and held that Income tax to
be calculated considering return on equity. Relevant Paragraphs of Judgement
of this Tribunal dated 21.07.2025 is extracted here under :

………
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Judgement in Appeal No.15 of 2018
221. Regulation 5.22, as quoted above, also mandates the same. It is
also important to note that in the above batch of appeals, this Tribunal was
considering the relevant Regulations framed by Maharashtra Electricity
Regulatory Commission which are identical to the MYT Regulations, 2007
and 2011 framed by the Delhi Commission and applicable to the instant
case.
222. Further, this Tribunal vide judgment dated 22.03.2024 in Appeal
No. 283 of 2017 has considered the aforesaid appeals as under:
“68. The Respondents have contended that Regulation 22.3 provides that
the RoE has to be grossed up with actual tax paid whereas the Appellant
has contended that RoE is to be grossed up with the applicable tax
payable.
69. Undisputedly, the accounts of the Appellant’s generating station have
to be considered independent of the accounts of the parent company,
this Tribunal in Tata Power Company Limited vs MERC, Appeal No. 104,
105 and 105 of 2012 has held that each regulatory business is to be
treated independently, exclusive of other businesses of the company,
further, in Appeal No. 251 of 2006 has laid down the ratio that the income
tax assessment of the licensee must be done on standalone basis, the
relevant extract of the judgment is reproduced below:
53. For example, when on standalone basis the regulated business has
taxable income to be taxed at normal rates, there may be losses/tax
exemptions in other businesses which may result in overall taxable
income being less than the regulated taxable income and, hence, actual
tax liability for all businesses being less than that of regulated business
on standalone basis. In case, actual tax liability is allowed by the regulator
whether in full or in proportion of profit of regulated business, it obviously
amounts to less than due tax allowance for regulated business due to
exemptions/losses of other business being utilised for subsiding the
regulated business, which is not permissible as per the above Judgment.
The impact is more pronounced when the overall taxable income
becomes so small or even negative that the tax rate applicable is MAT,
which not only artificially reduces the tax liability for regulated business
due to lower rate, but also creates an incorrect impression that this tax
allowed at MAT rate is to be reversed in future as MAT credit allocating
MAT credit. This is obviously not permissible and for giving effect to the
said Judgment in Appeal No. 251 of 2006 tax computation for regulated
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Judgement in Appeal No.15 of 2018
business has to be done on standalone basis at normal rates even
though it may result into tax allowance higher than actual tax payment for
overall business.
…….
57. In the present case, the State Commission has worked out the book
profit of each segment separately. It observed that the Appellant has paid
MAT. It did not worked why and how the tax liability of the company,
under normal income tax rates, got reduced to such a level that it came
under MAT. Was it due to regulated business or unregulated business?
Was the regulated business enjoying any tax holiday or accelerated
depreciation or other tax deductions? Book Profit calculations in the
Impugned order do not reflect any such deductions in the regulated
businesses of G, T & D. Obviously, it was due to other business
(unregulated by MERC) of the Appellant which caused massive
permissible deductions. The benefit of such deduction must be shared by
the beneficiaries of such business only and not by the consumers of
regulated business. Presently, those businesses may be getting tax
rebates due to tax holidays or accelerated depreciation. But in the future
at the end of tax holidays and reduced depreciation, these deductions
would not be available to those companies and their tax liability would
increase. Under those circumstances, the tax burden of the unregulated
business would not be allowed to be shared by regulated business of
MERC.”
58. The Tribunal in Appeal No. 251 of 2006 has laid down the ratio that
the income tax assessment of the licensee must be done on standalone
basis. In Appeal No. 173 of 2011 the Tribunal has provided the
methodology for assessing the income tax liability of the licensee. The
State Commission did not follow these directions and got carried away
with the observations that the utility must not gain or loose on account of
income tax made in the context of grossing up of income tax. It simply
allocated the actual tax paid by the Appellant, for the company as a
whole, in proportion to their respective book profit.
59. The issue is decided accordingly. The Commission is directed to
reassess the Income tax liability of the Appellant as per our findings
above and issue consequential orders.
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Judgement in Appeal No.15 of 2018
70. From the afore-quoted judgment, it is clear that the tax assessment
of the regulated business must be done on standalone basis and if, tax
as per the regulations is to be considered on applicable basis, it cannot
be considered on actual basis.
223. It is evident that the Commission has not followed these directions
and got carried away with the observations that the utility must not gain or
lose on account of income tax made in the context of grossing up of income
tax. It simply allocated the actual tax paid by the Appellant, for the
company as a whole, in proportion to their respective book profit; therefore,
there is no consideration of choosing different methodologies and deciding
the lower of those.
224. In any event, whether the tax to be allowed on RoE or the actual
Tax paid has to be consistent. Either it is on RoE or actual. The ‘lesser of
the two’ as adopted by the Commission is not only contrary to the above
noted Judgments of this Tribunal but also contrary to the regulations
framed by the Commission itself.
225. Hence the Commission is directed to compute and allow the Tax
based on ROE. The issue, thus, is decided in favour of the Appellant “.
44. It is to note that in the judgement of this Tribunal dated 21.07.2025 , the
matter was confined to examining whether the State Commission was justified
in adopting the lower of the two figures, namely (a) the income tax computed on
the normative Return on Equity of 16%, or (b) the income tax actually assessed,
for the period FY 2007–08 to FY 2015–16. The present lis raises a more
fundamental question, namely, whether the income tax liability is to be computed
on the normative Return on Equity in the capital employed or on the actual tax
paid by the utility. In this judgement dated 21.07.2025, upon consideration of
the earlier pronouncement of this Tribunal as well as the relevant Regulations, it
was held that income tax is to be computed on the Return on Equity irrespective
of the actual tax paid. In our view, the rationale underlying this position is that
tariff determination is premised on normative parameters, designed to ensure
uniformity, predictability, and insulation from the vagaries of individual tax
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Judgement in Appeal No.15 of 2018
planning or contingent assessments; to hold otherwise would be to introduce
variability and uncertainty into the tariff framework, contrary to the settled
regulatory philosophy.
45. Therefore, the governing principle, as crystallised through judicial
precedent and applicable regulatory design, is that the income tax liability is to be
determined on the Return on Equity, and not on the actual tax outflow of the utility.
We, accordingly, find no merit in the contention on the Appellant that actual
income tax paid should be allowed in the tariff. In view of above deliberations, we
hold that income tax is to be confined to the tax computed on the Return on
Equity component employed for tariff purposes, irrespective of the quantum of
actual tax paid by the regulated entity. We accordingly find no infirmity in the
impugned order on this issue and same is hereby upheld.
ISSUE NO 5 OPERATION AND MAINTENANCE EXPENSES; NON
CONSIDERATION OF IMPACT OF THE PAY REVISION, SALARY PAID TO
THE STAFF DEPUTED FROM IPGCL, STAFF BEING RECRUITED
46. Learned Counsel for the Appellant has confined its submission to non-
consideration of IPGCL staff salary and salary of staff under recruitment only and
submitted that the State Commission has rejected an amount of Rs. 4.50 Crore
for the FY 2016-17 on account of salary for the staff deputed from Indraprastha
Power Generation Company Ltd. ( IPGCL), who actually worked for the Appellant.
The State Commission has also erred in not considering the financial impact due
to salary of staff under recruitment of approximately Rs. 28.87 Crore, which was
additionally claimed. It is submitted that Appellant has a sanctioned strength of
2737 staff out of which only 1438 staff including 77 deputed from IPGCL were
working as in June-2017 and recruitment of 429 employees of various categories
is under progress, details of which were submitted to State Commission. The
Appellant is seriously under-staffed and requires further staff to continue to
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Judgement in Appeal No.15 of 2018
provide efficient services and for further expansion of services. In addition, since
the revenue requirements and tariff is on Multi Year basis, the non-inclusion also
affects the base figure which would affect the revenue requirements for the future
also.
47. Per Contra, it is submitted on behalf of the State Commission that O&M
(including employee expenses and A&G) is treated as controllable and normative
in the Delhi MYT framework. The Delhi High Court has already upheld that O&M
is deemed controllable and is not subject to true-up; normative formulation is
intended to incentivise efficiency and disincentivise inflated cost recovery. This
Tribunal in Appeal No. 301/2015 has reiterated the above, holding that O&M is a
controllable parameter and surplus/deficit on controllable parameters cannot be
trued up. The Supreme Court has further held that true-up cannot be used to
revisit basic premises of the tariff order and cautions against unsettling a legal
fiction by letting the mind “boggle”. On applying these principles, the Appellant’s
attempt to secure additional employee costs (beyond the normative framework)
under the head of O&M is impermissible unless the Regulations themselves
provide a specific pass-through mechanism. With specific reference to
disallowance of salary of IPGCL staff, it is further submitted that the IPGCL’s
normative O&M is already higher than actual, partly due to reduced employee
expense burden and allowing the same cost again under the Appellant would
amount to double counting. With regard to the staff under recruitment, it is
submitted that the Appellant’s claim on this account is expressly described as
“likely impact” and recruitment “ongoing”. Such a claim is speculative at the ARR
stage and seeks an ex ante allowance without actual incurrence and prudence.
Under the Business Plan Regulations, 2017, O&M is allowed on a network-linked
normative basis; manpower planning decisions are within management control
and do not automatically justify deviation from norms.
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Judgement in Appeal No.15 of 2018
48. It is submitted on behalf of Respondent No 4- TPDDL that Impugned Order
relates to true-up of ARR for FY 2014-15 and FY 2015- 16 and ARR for the 2017-
18. However, the aforementioned issues raised by DTL pertain to true up of FY
2016-17 and accordingly cannot be considered in the Impugned Order.
Therefore, any grievance with respect to IPGCL’s staff salary & Salary of staff
under recruitment need to be raised by DTL in an Appeal against DERC’s Tariff
Order dated 28.03.2018 (True Up of FY 2016-17 and ARR of FY 2018-19).
49. It is noted from the Impugned Order that the Appellant has considered
employee expenses for FY 2015-16 as base year expenses for computation of
Employee expenses FY 2017-18. The Appellant has considered an amount of
Rs 4.5 Crore on account of salary of IGPL staff in FY 2016-17 and same has
been included in the base cost after escalation factor from FY 2017-18 onwards
and after considering Employee expenses, A&G expenses and R&M expenses,
O&M expenses of Rs 364.62 Crore has been claimed by the Appellant.
50. The State Commission, after referring to the Business Plan Regulations,
2017, as extracted below, has approved the O&M expenses for the FY 2017-18.
“4.11 Further the Commission has notified Business Plan Regulation 2017
wherein O&M Expenses has been approved by the Commission based on
Network details (No. of bays and Line Lengths in circuit kilometres) of the
Petitioner as follows:
"14. OPERATION AND MAINTENANCE EXPENSES
(1) The Normative, Bay wise and Circuit kilometres wise, Operation and
Maintenance expenses of a Transmission Licensee, including Own
consumption of energy for Transmission Licensee's installations and
offices, shall be as follows:
Table 7: Bay wise Norms for HVAC (Rs. Lakh/bay)

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Table 8: Circuit km wise Norms for HVAC lines (Rs. Lakh/ckm.)

(2) Impact of any statutory Pay revision on employee's cost as may be
applicable on case to case basis shall be considered separately, based on
actual payment made by the Transmission Licensees and prudence check at
the time of true up of ARR for the relevant financial year."
51. We note that, in terms of Business Plan Regulations 2017, the O&M
expenses are normative based on bay wise and circuit kms wise and it is
understood that O&M expenses so worked out include employee expenses also,
and no separate employee expenses, except those expenses as mentioned
under (2) above are allowed. The normative formulation is intended to incentivise
efficiency and dis-incentivise inflated cost recovery. As such, manpower
planning decisions are within management control and once in terms of
Regulations, O&M expenses are on normative basis, there cannot be any rational
in allowing any additional cost whether, on account of employee from IPGCL or
fresh recruitment as entire employee cost is to be managed within the O&M
expenses so worked out on normative basis except when exceptions have been
carved out in the Regulations. In the present case, the Appellant has itself
th
submitted that the issue of 7 pay commission arrear has been resolved in Tariff
order dated 31.07.2019 in true up of FY 2017-18.
52. In view of above observations, we find no infirmity in the Impugned Order
on this issue, and the same is hereby upheld.
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Judgement in Appeal No.15 of 2018
CONCLUSION
In view of the above deliberations, decision on all the issues is summarized
in following table:

Page 28 of 29

The captioned appeal is partly allowed. The State Commission, is directed
to pass consequential order on the issues remanded, as expeditiously as
possible, preferably within a period of four months from the date of receipt of this
judgement. Captioned Appeal, along with all pending IAs, if any, are disposed
of in above terms.
th
PRONOUNCED IN THE OPEN COURT ON THIS 20 DAY OF APRIL, 2026.
(Virender Bhat)
Judicial Member
(Seema Gupta)
Officiating Chairperson
REPORTABLE / NON-REPORTABLE
Pr/dk/ag
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