Delhi High Court

Jt./Addl. Cit vs Goyal Mg Gases Ltd. on 23 July, 2004

Equivalent citations: (2004) 90 TTJ Del 280

ORDER

Virnal Gandhi, President.

These two appeals by the revenue for the assessment years 1996-97 and 1997-98 are directed against the orders of the CIT (A) :

2. Grounds of appeal raised in assessment year 1996-97 are as under :

"1. On the facts and in the circumstances of the case, the Learned CIT (A) erred in holding that the assessed is entitled to 100% depreciation on tankers against 20% allowed by the assessing officer thereby allowing depreciation of Rs. 3.64 crores.

2. The Learned CIT (A) erred in allowing dep. of Rs. 11.17 crores on wind electricity generators.

Similar grounds have been raised in assessment year 1997-98.

3. The facts of the case briefly stated are that the assessed company M/s. Goyal MG Gases Ltd. (hereinafter referred to as the GGL) started business of manufacturing, bottling and marketing of industrial gases like Oxygen, Nitrogen, Argon, Hydrogen etc. It entered into agreement on 1-2-1996 with M/s. Wind Powers Ltd. (hereinafter referred to as the WPL) to purchase three wind farms namely M/s. Cauveri Farm, Yamuna Farm and Ganga Farm for a total consideration of Rs. 2,250 lakhs.

4. The main disputes that arise for consideration in these two appeals are-first relating to depreciation on tankers and second, depreciation on wind electric generators.

5. As far as first ground of appeal relating to 100% depreciation on tankers used for transportation of gases is concerned, the matter is fully covered in favor of the assessed as per decision of the Tribunal in the case of the assessed for the assessment years 1992-93 to 1994-95 and 1995-96. In above years the assessing officer has held that these tankers were to be treated as Cylinders for purposes of depreciation. However, on appeal, the learned CIT (A) allowed 100% depreciation and above orders were confirmed by the Income Tax Appellate Tribunal in further appeal vide their order dated 11-6-1999 in ITA Nos. 4199 & 5017 (Delhi) 96 and 4509 (Delhi) 97 and it was directed that 100% depreciation be allowed. The matter is thus fully covered in favor of the assessed.

6. The learned Departmental Representative tried to distinguish above order on the ground that cylinders were used for transportation of gases. However, there is nothing on record to support the contention of the revenue. The Tribunal has already recorded that the assessed is entitled to 100% depreciation on tankers which were employed for transportation of gases. In the light of above decision of the Tribunal, we reject ground No. 1 in both the assessment years.

7. The second common ground relates to the claim of depreciation, on Wind Farms. As already noted, the assessed vide agreement dated 1-2-1996 had agreed to purchase three Wind Farms from Wind Powers Ltd. These farms were required to be commissioned before 31-3-1996. 100% depreciation is allowed on wind electric generators used in Wind Farms but as generators were put to use for less than 180 days in this case, the assessed claimed depreciation at 50% of Rs. 22,34,80,640 i.e., Rs. 11,17,40,320.

8. The assessing officer while completing the assessment, disallowed depreciation as No Objection Certificates for installation of Wind Mills were signed as late as 30-3-1996 and therefore, according to the assessing officer, Wind Mills could not have been put to use before 31-3-1996 as claimed by the assessed. The claim of depreciation was accordingly disallowed.

9. On appeal, the CIT (A) found that the generators had been commissioned during the relevant year and accepted the claim of depreciation made by the assessed. The CIT (A) also rejected the further contention raised by the assessing officer during the course of appellate proceedings that the assessed was not the owner of the wind farms. The department, aggrieved by the order of the CIT (A), is in appeal before the Tribunal.

10. It was submitted by the learned Departmental Representative that the assessed never became the owner of the wind electricity generators so as to become entitled to claim depreciation thereon. He further contended that the wind electricity generators were also not commissioned and installed before 31-3-1996 as to claim depreciation in the assessment year 1996-97. The learned Departmental Representative has placed reliance on a statement made by the supplier and also the observations of the Delhi High Court in a suit (AA No. 133 of 1996) filed by the supplier M/s. Wind Power Ltd. against the assessed and urged that the assessed was not the owner of the equipment in the relevant year. The Honble Delhi High Court observed as under :

"9. Having regard to the materials placed before me and the prim facie view that the petitioner is entitled to the possession of the project and the respondent cannot interfere with the same. There shall be an injunction restraining the respondent from interfering the possession of the Wind Power Limited till the disposal of the arbitration proceedings. Regarding the deposit of money as claimed by the petitioner the petitioner is in possession of the project which even according to the petition, is worth Rs. 22.50 crores and therefore the petitioner has got sufficient security and without adjudicating upon the merits of the case I cannot direct the respondent to deposit the amount.

10. However, the respondent cannot be permitted to receive the money from the Electricity Board for the electricity produced by the petitioner in the project. Therefore, I am of the view in the interest of justice, Electricity Board should be directed to keep the amount in deposit subject to ultimate decision by the honble Arbitrator. The respondent has never disputed the fact that the petitioner has completed the project and the Electricity Board also had approved the work done by the petitioner, otherwise the electricity board would not have agreed to purchase the electricity from the project. The scope of Turnkey project is that once the Contractor had done the work, the owner should pay the money due to the Contractor. It is not open to the owner to delay the as the Contractor has invested the entire money at his own risk at the project. Therefore, the respondents saying that the electricity generated is not sufficient, cannot at once receive money from the Electricity Board pending the adjudication of the disputes. Therefore, there shall be an injunction restraining the respondent from receiving any money from the Tamil Nadu Electricity Board with reference to the electricity supplied from the project pending the adjudication of the disputes by the Honble Arbitrator." (Emphasise here italicised in print supplied)

11. It was pointed out by the learned Departmental Representative that M/s. Wind Power Ltd. had denied the ownership of the assessed over the equipment and the assessed was not even in possession of the wind farms because the project was not handed over. Specific attention was drawn to the statement of Shri Vijay Shah, Director of M/s. Wind Power Ltd., before the income-tax authorities wherein he had stated that the sale was not complete as the assessed had not paid the major portion of the cost.

12. The learned Departmental Representative further raised the issue that the plant and machinery was neither commissioned nor installed before 31-3-1996. The assessing officer placed reliance on the No Objection Certificate issued by TNEB which, although, dated 5-3-1996 was signed on 30-3-1996. The assessing officer was of the view that once the NOCs were signed on 30-3-1996, the project could not have been installed before 31-3-1996. The assessing officer also rejected the installation certificate issued by TNEB as selfserving documents.

13. The learned Departmental Representative therefore, submitted that the assessed cannot be allowed depreciation on wind electricity generators by holding that the same were not, put to use and installed during the assessment year 1996-97.

14. Learned counsel for the assessed on the other hand, submitted that in this case, the assessed was the owner of the wind electricity generators, which were commissioned and installed before 31-3-1996. The learned counsel of the assessed has filed a voluminous paper book in support of his arguments. It was argued that the purchase order dated 1-2-1996 clearly envisaged that the supplier was required to maintain and operate the wind farm on behalf of the assessed for a period of two years after commissioning. The ownership of the project vested with the assessed and the supplier was in possession pursuant to the aforesaid obligation, namely, that the supplier was responsible for the operation and maintenance on behalf of the assessed.

15. The learned counsel also drew our attention to an order of the Supreme Court passed in the appeal preferred by the assessed against the order of the Debt Recovery Appellate Tribunal (hereinafter referred to as the "DRAT"). The DRAT had ordered that sums due to the assessed for supply of electricity be withheld by the TN Electricity Board (hereinafter referred to as the TNEB) till disposal of the matter by the Delhi High Court relating to arbitration between the assessed and M/s. Wind Power Ltd. The learned counsel has urged that the observations of the Honble Supreme Court in its order dated 24-11-2003 proved beyond doubt that the assessed was the owner of the wind electricity generators. He has drawn our attention to the following finding of the Apex Court

"Dispute arose between WPL and GGL out of the contract between them which had an arbitration clause. The disputes were referred to an arbitrator who by Award dated 7-1-2002 directed an amount of Rs. 2,67,44,336 to be paid by GGL, to WPL. During the pendency of the arbitration proceedings the High Court of Delhi had, in exercise of power conferred by section 9 of the Arbitration and Conciliation Act, 1996, directed by issuing a garnishee order the TNEB to withhold the amounts due and; payable by it to GGL, pending the arbitration proceedings. The learned Arbitrator by his Award dated 7-1-2002 directed the TNEB to release an amount of Rs. 2,67,44,336 to the claimant WPL, out of the amounts withheld by, TNEB and release the balance amount to GGL, as the project belongs to GGL and TNEB would deal with GGL, directly. All other claims and counter claims were directed to be rejected. As against the Award passed by the learned Arbitrator WPL has preferred an objection under section 34 of the Arbitration & Conciliation Act, 1996 in Delhi High Court which is pending for adjudication."

16. The learned counsel for the assessed has also relied on the statement dated 5-1-2000 of Shri Vijay Shah, Director of M/s. Wind Power Limited, which was also relied upon by the learned Departmental Representative and pointed out the supplier has itself accepted the ownership of the assessed over the wind farms.

17. Our attention was also drawn to the suit filed by the supplier and the order passed thereon by the Honble High Court to emphasize the point that what was in dispute between the supplier and the assessed was the unpaid purchase consideration. The suit was filed by the supplier for recovery of money, the learned counsel argued. It was vehemently argued by the learned counsel for the assessed that if the supplier was the owner of the project and already had possession of the project, the supplier could have disposed of the project without recourse to the assessed and it was not necessary for the supplier to resort to the legal proceedings.

18. Further, the learned counsel for the assessed referred to the letter dated 11-6-1997 addressed by M/s. Wind Power Limited i.e., the supplier to the Assistant Executive Engineer. It was argued by the counsel that. the conclusion drawn by the assessing officer was erroneous as it was concluded that the assessed was not the owner/in possession of the wind farms. The assessing officer only considered para 2 at page 56 of the Paper Book where it was mentioned that the project was complete but still not handed over to the assessed due to non-payment of dues. However, para 1 at page 55 of the Paper Book was ignored wherein the supplier has clearly admitted that 15 Wind Electricity generators were commissioned by them for the assessed which were in the names of Cauveri Wind Farms, Ganga Wind Farms and Yamuna Wind Farms. Further, nowhere in the said letter the supplier commented on the fact that the ownership was not of the assessed, rather the supplier merely mentioned that the project was not physically handed over to the assessed. It was also submitted that not only is handing over the project not material for transfer of ownership, but in the present case, the supplier was in possession of the project for operation and maintenance, as agreed ,between the parties.

19. As regards user of the assets, the learned counsel for the assessed contended that the electrical installation at all three farms were certified and permitted to be commissioned before 31-3-1996 after due inspection of the electrical installations on 21-3-1996. Safety certificates dated 26-3-1996 were issued by Chief Electrical Inspector. Further, reliance was placed on the No Objection Certificates dated 5-3-1996 issued by Mr. C. Singaram, Member (General), T.N. Electricity Board (TNEB) which confirmed that TNEB had no objection for installation of 5 number 330 KW Wind Electric Generators. The learned counsel has also drawn our attention to the test reports issued by TNEB, which are dated 30-3-1996, which establish that the generators had been installed, inspected and tested by TNEB on 30-3-1996. The learned counsel, further argued that the fact that the electricity had been supplied to TNEB stands proven by the H.T. Meter Card dated 30-3-1996, which indicated the connected load from the three wind farms. Copies of bills/invoices raised on TNEB for supply of electricity during the period 30-3-1996 to 15-4-1996 were also relied upon. The learned counsel argued that the certificate dated 27-3-1999, signed by the Executive Engineer, TNEB confirming that all three wind farms were commissioned into service on 30-3-1996 and started production with permission of TNEB could not be rejected merely on surmises.

20. We have carefully considered the submissions made by both sides and the material placed on record.

21. It is not in dispute that M/s. Wind Power Limited had agreed to supply the generators to the assessed pursuant to the PO dated 1-2-1996. It is also not disputed by the supplier that the generators were, in fact, commissioned in March, 1996. The assessed had partly paid the amount as per the PO to M/s. Wind Power Ltd. and had raised certain disputes on the performance of the generators. The supplier had filed a suit against the assessed for recovery of the amounts due. The Delhi High Court, vide order dated 30-4-1997 permitted M/s. Wind Power Ltd. to continue its physical possession of the project on the ground that the interest of the unpaid seller needed to be protected. It is clear from the order of the High Court and other papers on record that the suit filed by M/s. Wind Power Ltd. was not to assert its rights as the owner of the project, but only to recover the dues allegedly payable by the assessed and to prevent the assessed from interfering with its possession. The High Court has clearly observed that the owner must pay the monies due to the contractor once the work is completed. Thus, the ownership of the project was never in doubt even in the case before the High Court. In fact, the ownership of the assessed was an admitted position before the High Court.

22. The possession of the project by M/s. Wind Power Ltd. was only on account of its obligation to operate and maintain the plant, post commissioning, and not because the project had not been handed over to the assessed as owner, thereof. Such permissive possession by M/s. Wind Power Ltd. as a licensee cannot result in the ownership rights of the assessed being diminished in any manner. The only grievance of M/s. Wind Power Ltd. was the payment of its outstanding dues, which were disputed by the assessed and there was no claim made by M/s. Wind Power Ltd. asserting ownership over the project.

23. This fact is also clear from the Honble Supreme Courts order placed on record by the assessed. The Supreme Court has taken note of the Arbitrators award dated 7-1-2002 wherein it was held that the project belonged to the assessed and has allowed the appeal of the assessed against the DRATs order directing TNEB to withhold funds belonging to the assessed. It is also not in dispute that the assessed was recovering monies from TNEB for supply of electricity. If the assessed was not the owner of the project, TNEB was not obliged to pay moneys to the assessed for the electricity generated. Shri Vijay Shah, Director of the supplier company, in his statement before the Deputy Director of Income Tax has clearly stated that the wind farms, Ganga, Yamuna and Cauveri, were owned by the assessed. He only made grievance of the fact that "the total consideration for the transfer of lands and also the WEGs was not paid in full by the other company".

24. The factual position as summarized above clearly establishes that the assessed was, in fact, the owner of the wind electricity generators. The suit before the High Court was for recovery of dues, and before the High Court no doubt was raised regarding the ownership of the assessed over the project. The issue, which came up for consideration before the Honble High Court, was the security required to be furnished to the supplier till completion of arbitration proceedings. Similarly, before the Supreme Court also the issue of ownership was never raised and contested.

25. The other evidence on record further establishes beyond doubt the factual situation that the assessed was the owner of the project. There is no evidence controverting the fact of ownership of the assessed. The statement of Shri Vijay Shah, relied upon by both sides does not advance the case of the revenue that the title in the project did not pass to the assessed. Therefore, the contention of the learned Departmental Representative that the assessed is not the owner and, thus, not entitled to depreciation is hereby accordingly rejected.

26. Further, the substantial documents in the shape of certificates from T.N.E.B. & Bills placed on record leave no room for doubt that the plant and machinery was installed and commissioned before 31-3-1996. The learned Departmental Representative could not controvert any of the documents placed on record by the learned counsel for the assessed. There is enough material to substantiate that power was generated by the electric generators before 31-3-1996. There can, thus. be no ground for disallowing depreciation on the ground that there was no user during the year.

27. The action of the assessing officer in denying depreciation cannot be upheld. We, therefore, find no ground for interfering with the order of the learned CIT (A).

28. In the result, the appeals of the revenue are dismissed.