Madras High Court
Commissioner Of Income Tax vs M/S.Tube Investments Of India Ltd on 9 June, 2022
T.C.A.Nos.695 of 2009 & 1100 to 1103 of 2010
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 09.06.2022
CORAM :
THE HON'BLE MR. JUSTICE R.MAHADEVAN
and
THE HON'BLE MR. JUSTICE J.SATHYA NARAYANA PRASAD
T.C.A.Nos.695 of 2009
and 1100 to 1103 of 2010
Commissioner of Income Tax,
Chennai.
...Appellant in T.C.A.No.695 of 2009
Commissioner of Income Tax – I,
Chennai.
...Appellant in T.C.A.Nos.1100 to 1103 of 2010
Versus
M/s.Tube Investments of India Ltd.,
DARE House,
234, NSC Bose Road,
Chennai – 600 001.
...Respondent in all T.C.As
T.C.A.No.695 of 2009:
Tax Case Appeal filed under Section 260 (A) of the Income Tax Act,
1961 against the order of the Income Tax Appellate Tribunal 'C' Bench,
Chennai in I.T.A.No.1650/Mds/2007 dated 09.01.2009.
1/28
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T.C.A.Nos.695 of 2009 & 1100 to 1103 of 2010
T.C.A.Nos.1100 to 1103 of 2010:
Tax Case Appeals filed under Section 260 (A) of the Income Tax Act,
1961 against the order of the Income Tax Appellate Tribunal 'A' Bench,
Chennai in I.T.A.Nos.987/Mds/2009, 988/Mds/2009, 989/Mds/2009 &
990/Mds/2009 dated 06.11.2009 respectively.
For Appellant
in all T.C.As : Mr.T.Ravikumar
For Respondent
in all T.C.As : Mr.K.Vaitheeswaran
COMMON JUDGMENT
R.MAHADEVAN, J.
The parties to the proceedings are one and the same and the issues
involved herein are identical. Hence, all these appeals were heard together
and decided by this common judgment.
2. The Revenue is the appellant herein. TCA No.695 of 2009 is
filed against the order of the Income Tax Appellate Tribunal, Chennai 'C'
Bench, dated 09.01.2009, relating to the assessment year 1998-98, whereas
TCA Nos.1100 to 1103 of 2010 are filed against the common order of the
Income Tax Appellate Tribunal, Chennai 'A' Bench, dated 06.11.2009,
relating to the assessment years 2000-01, 2001-02, 2002-03 and 2003-04
respectively.
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T.C.A.Nos.695 of 2009 & 1100 to 1103 of 2010
3. On 11.08.2009, TCA No.695 of 2009 was admitted on the
following substantial questions of law:
“1. Whether on the facts and circumstances of the case, the
Tribunal was right in holding that the value of the MILIEV grant
given by the Dutch government as a subsidy for purchase of wind
turbine generator, could not be brought to tax in the hands of the
assessee u/s.28(iv), when the assessee did not purchase the
equipment, but transferred the right to another company?
2. Whether on the facts and circumstances of the case, the
Tribunal was right in merely accepting the letter of the broker that
no off set credits were given to the assessee, instead of remanding
the matter to enable the assessing officer to get the correct facts
from the Dutch government through diplomatic channels?
3. Whether on the facts and circumstances of the case, the
Tribunal was right in allowing the “electricity charges” paid to
Wescare as a deduction, when purchase of electricity from a person
other than the electricity board is illegal and contrary to public
policy?”
4. By order dated 31.01.2011, Tax Case Appeal Nos.1100 to 1103
of 2010 were admitted on the following substantial questions of law:
“1. Whether on the facts and circumstances of the case, the
Appellate Tribunal was right in confirming the order of the
Commissioner of Income Tax (Appeals) holding that the assessee
was not the owner of the Wind Turbine Generators and the
'electricity charges' paid to M/s.Wescare India Ltd., was allowance
as deduction?
2. Without prejudice to the preceding question, whether on
the facts and in the circumstances of the case, the Income Tax
Appellate Tribunal was right in holding that the 'electricity charges'
paid to M/s.Wescare India Ltd., was allowable as deduction, when
purchase of electricity from a person other than the Tamil Nadu
Electricity Board was illegal and contrary to the Public Policy?”
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5. At the outset, the brief facts of the case, which are necessary
for deciding the issues involved herein, have been stated below:
5.1. The respondent / assessee is engaged in the business of
manufacture of bicycles, chains, precision steel tubes, CR steel strips, etc.
For the assessment year 1998-99, they filed its return on 30.11.1998
declaring total income of Rs.1,46,86,704/- and disclosing profit under
section 115J at Rs.4,04,28,085/-. The said return of income was processed
under section 143(1) on 28.03.1999 accepting the book profit and
assessment order was passed on 27.03.2001. Subsequently, notice under
section 148 came to be issued on 04.03.2005 for reassessment, based on the
survey conducted on 07.02.2005.
5.2. During the course of inspection, it was found that the
respondent / assessee entered into an Engineering, Procuring and
Commissioning Contract (for brevity, 'EPC contract') with M/s.Lagerway
Wind Turbines BV, Netherlands, a Dutch entity (for brevity, 'LW') on
20.01.1997, for development of a wind farm of 20 MW capacity consisting
of 80 Wind Turbine Generators (WTGs), to be built and delivered by LW.
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The total project cost was NLG 48,301,031 and the erection work was to be
carried out in India by M/s.Das Lagerway Wind Turbine Ltd (DLWL), an
Indian joint venture company involving LW. As per the EPC contract, on
17.02.1997, the respondent/assessee placed a purchase order with LW for
design, manufacture, supply, erection, testing and commissioning of 80 nos.
of WTGs at its site, in and around Sankanapuram. Consequently, the
respondent / assessee sent an application to the Dutch Government through
LW seeking grant under the Miliev Programme (subsidy scheme), as per
which, a substantial part of the cost of wind mills would be paid by the
Dutch Government through NIO Bank as grant for such purchase directly to
the supplier of the wind mill viz., LW, Netherlands and the balance cost
would be paid to the LW by the assessee by opening letter of credit.
Pursuant to the same, a MOU dated 17.02.1997 was entered into among the
respondent / assessee, WIPRO and DLWL, whereby WIPRO was to
syndicate the lease finance of the project and open the letter of credits in
favour of LW. Besides this, another MOU was signed among the
respondent/ assessee, WIPRO and Wind Energy System Care India Ltd
(Wescare), in and by which, the respondent / assessee took lease operation
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of 20 MW wind farm at Sankanapuram from Wescare and WIPRO
syndicated lease finance for the project.
5.3. On 24.03.1997, a grant agreement was entered into between the
NIO Bank and the respondent/assessee, to disburse the Miliev grant to LW
on behalf of the Dutch Government, as per which, the respondent/assessee
shall not transfer or assign its rights under this agreement to a third party.
The amount given under Miliev Grant was NLG 2,56,99,351. The total
amount of benefit passed on to DLWL was Rs.58.85 crores and DLWL paid
a sum of Rs.2 crores i.e., Rs.2.5 lakhs per wind turbine for 80 WTGs to the
respondent/assessee to acquire its right under EPC contract.
5.4. Out of total contract of Rs.102.15 crores, as per the purchase
order dated 17.02.1997, the respondent/assessee received only a part of the
same valued at Rs.84,52,700/- and sold the same to M/s.DLWL on high sea
sale basis for a consideration of Rs.86,21,753/- and the difference of
Rs.1,69,053/- was accounted as commission by the assessee. They did not
purchase the balance value of the goods and they requested LW to issue the
same in the name of DLWL, which assembled the wind turbines and sold
the same to various finance companies. On 05.09.1997, a performance
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guarantee letter was issued by LW in favour of the respondent / assessee; on
25.09.1997, no objection certificate was issued by the Tamil Nadu
Electricity Board to the respondent / assessee for installation of WTGs; and
on 29.09.1997, a tripartite agreement was entered into among the
respondent / assessee, Wescare and the finance companies, as per which, the
finance companies allowed Wescare to operate the wind mills on lease. The
respondent / assessee was to pay operational lease rental calculated as: the
electricity consumed x TNEB rates – 25 paise per unit. Accordingly, the
respondent/ assessee paid a sum of Rs.59,56,238/- towards the electricity
supplied to it by Wescare. As some of the wind mills were not working after
erection, the respondent / assessee assigned its rights under the EPC
contract in favour of Wescare for taking legal action against LW and for
getting compensation for inadequate working of the wind mills.
Subsequently, arbitration proceedings were initiated and a compensation of
Rs.24.27 crores was ordered under an international arbitration award dated
10.05.2004 and the respondent / assessee was entitled to receive 10% share
in the compensation.
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5.5. Taking note of all these aspects, the Assessing Officer by the
reassessment order dated 28.03.2006, inter alia disallowed the electricity
charges of Rs.59,56,238/- incurred by the respondent/assessee in respect of
electricity supplied to it by Wescare by holding that the respondent/assessee
was the owner of WTGs, besides making addition of Rs.58,85,41,252/-
(Rs.54,35,41,274/- for miliev grant by the Dutch Government +
Rs.4,49,99,978/- for additional subsidy granted by NIO Bank to the assessee
for meeting various expenses in connection with the installation of the
WTGs) towards consideration received by the respondent / assessee for
surrendering its rights under EPC contract in favour of DLWL and
Rs.33,87,06,625/- for off set credit. Aggrieved over the said assessment
order, the respondent/assessee preferred an Appeal before the First
Appellate Authority/Commissioner of Income Tax (Appeals) VIII, Chennai,
who partly allowed the appeal, vide order 30.03.2007. Challenging the said
order of the CIT(A), the appellant/Revenue preferred an Appeal before the
ITAT. By order dated 09.01.2009, the said appeal was dismissed. Therefore,
the appellant/Revenue is before this court with Tax Case Appeal No.695 of
2009.
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5.6. In respect of the assessment years 2000-01, 2001-02, 2002-03
& 2003-04, the respondent/assessee company filed its return of income,
declaring the total income of Rs.27,86,23,531/-, Rs.36,63,00,895/-,
Rs.46,35,46,246/- & Rs.56,89,60,117/- respectively. They claimed payment
of Rs.10,03,20,820/-, Rs.8,06,50,593/-, Rs.7,50,77,615/- and
Rs.1,77,65,398/- respectively, for purchase of electricity generated by the
wind mills. The returns of income filed by the respondent/assessee were
processed under Section 143(1). Subsequently, notices under Section 148
came to be issued to the respondent/assessee on 06.03.2007, 11.10.2007,
05.02.2007 & 28.03.2008 respectively. Upon receipt of the same, the
respondent/assessee filed its replies treating the original returns filed by
them as response to the said notices. After following due procedure, the
assessing officer ultimately passed the assessment order dated 31.12.2007 in
respect of the assessment years 2000-01 and 2003-03 and assessment order
dated 27.11.2008 in respect of the assessment years 2001-02 and 2003-04,
thereby disallowing the electricity expenses incurred by the respondent /
assessee, on the basis of the earlier order passed in respect of the assessment
year 1998-99.
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5.7. Aggrieved over the assessment orders so passed by the
Assessing Officer, the respondent/assessee preferred Appeals before the
CIT(A), who by separate orders dated 13.02.2009, partly allowed the
appeals. Challenging the same, the appellant/Revenue preferred Appeals
and the respondent/assessee preferred cross objections before the ITAT and
all the appeals and cross objections were dismissed, by a common order
dated 06.11.2009, which is impugned in TCA.Nos.1100 to 1103 of 2010
filed by the appellant/ Revenue.
6.1. Mr.T.Ravikumar, learned senior standing counsel for the
appellant/Revenue contended that according to the agreement with the
Dutch Government for the Miliev grant, the respondent / assessee was not to
transfer or assign the rights to any third party, whereas they entered into an
agreement with M/s.DLWL, whereby the right to purchase the wind turbine
generators, was transferred and consequently, the benefit of the Miliev grant
given by the Dutch Government was enjoyment by the said DLWL,
although the assessee continued to be the beneficiary and the moneys were
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purportedly paid to the manufacturer to subsidise the purchase of the
machinery by the assessee. Taking note of the same, the assessing officer
rightly made addition of Rs.58.85 crores representing the total amount of
benefit passed on to DLWL, as against the claim of Rs.2 crores by the
assessee, relating to the assessment year 1998-99. According to the learned
counsel, the grant is given as a subsidy for purchase of a particular
equipment and hence, the same would be treated as a capital receipt. On the
other hand, in this case, the respondent / assessee had passed on the benefit
of the grant to DLWL and no longer used the same for capital purchases and
therefore, the said grant should be treated as a benefit received under
section 28(iv) and the transfer of the same to a third party is an application
of such benefit. Adding further, the learned counsel submitted that the
respondent / assessee not only gave up the right of grant for a paltry
consideration of Rs.2 crores, but also took the same goods on lease on the
enhanced value from the banks / finance companies, which is inconceivable.
However, the CIT(A) erred in deleting the said addition made by the
assessing officer, which was also upheld by the Tribunal.
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6.2. The learned senior standing counsel appearing for the appellant
further contended that there were several documents to show that
negotiations were on for claiming off set credits and permitting
M/s.Lockheed Martin, USA to utilise the same; and M/s.Fremont were the
brokers for the same and hence, mere letter from the broker that no off set
credits were taken by M/s.Lockheed Martin, is not sufficient evidence and
the Tribunal ought to have in all fairness remanded the matter to the
assessing officer so as to enable the revenue to get a clear certificate from
the Dutch Government through diplomatic channels in this regard.
6.3. That apart, the learned senior standing counsel for the appellant
submitted that the wind mills were installed in the name of the assessee and
the assessee had been shown as the owner of the wind mills in the records of
TNEB; the transaction with the finance company for the sale of wind
turbines was not genuine and as such, the finance company cannot be
construed to be the owner of the same; the sale of components of wind
turbines by the assessee to DLWL was a sham transaction; and hence, the
assessing officer wholly justified in disallowing the electricity charges
incurred by the assessee in respect of the electricity supplied to it by
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Wescare. However, the CIT(A) erroneously concluded that the assessee was
not the owner and accordingly, allowed the claim of the assessee in regard
to the payment of operational lease rental to Wescare equivalent to the
measure of units of electricity consumed by the assessee at TNEB rates less
Rs.0.25 per unit. The said finding of the CIT(A) was also wrongly affirmed
by the Tribunal.
6.4. With respect to the assessment years from 2000-01 to 2003-04,
the learned senior standing counsel for the appellant submitted that
following the order passed by the Tribunal relating to the assessment year
1997-98, the CIT(A) erred in allowing the claim of the assessee for
deduction of electricity charges paid to Wescare and the same was also
confirmed by the Tribunal. Though it was contended by the revenue before
the Tribunal that the payment of operational lease rental though designated
as electricity charges cannot be allowed to be deducted, as the same was
violative of public policy within the meaning of Explanation 1 of section 37
of the Act, the Tribunal erred in rejecting the said contention and dismissed
the appeals filed by Revenue.
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6.5. Ultimately, the learned senior standing counsel appearing for
the appellant referred to various decisions and submitted that these tax case
appeals will have to be allowed by setting aside the orders impugned herein.
7. Mr.K.Vaitheeswaran, learned counsel appearing for the
respondent/assessee submitted that in terms of EPC contract and the Miliev
grant agreement, the respondent / assessee was a party recognized by the
Dutch Government / NIO as ultimate consumer of electricity; and the grant
was directly paid to LW and no part of the grant was received by the
assessee. For the right transferred to DLWL, the assessee received
consideration of Rs.2 crores, which was offered for taxation. Further, the
respondent / assessee was not the owner of WTGs and they only purchased
some parts of WTGs amounting to Rs.84,52,700/- in its name, at the initial
stage of the wind farm project, which were inturn, sold to DLWL on high
sea sale basis and thereafter, no further purchases were made by the
assessee. That apart, the WTGs were installed on the land owned by the
assessee and were leased to Wescare and the electricity generated was to be
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supplied to the assessee, which inturn made payment on the basis of the
electricity charges per unit produced. After considering those aspects, the
CIT(A) rightly allowed the claims of the assessee by deleting the additions
made by the assessing officer. The said orders of the CIT(A) were also
affirmed by the Tribunal. To substantiate his contentions, the learned
counsel placed reliance on various case laws. Therefore, according to the
learned counsel, no interference of this court is required to the orders passed
by the Tribunal, which are impugned herein.
8. Heard the learned counsel appearing for both sides and also
perused the materials placed before this Court.
9. At the outset, it is to be pointed out that the assessee in all these
appeals is M/s.Tube Investments of India Ltd. The first case viz., TCA
No.695 of 2009 pertains to the assessment year 1997-98. Following the
decision rendered by the Tribunal on 09.01.2009 in the appeal relating to
the assessment year 1997-98, which is questioned in TC.No.695 of 2009,
the appeals relating to the subsequent assessment years viz., 2000-01,
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2001-02, 2002-03 and 2003-04 were decided by the Tribunal, by order
dated 06.11.2009, which is impugned in TCA Nos.1100 to 1103 of 2010.
Therefore, as a logical sequitur, the decision to be taken in the first case
viz., TCA No.695 of 2009 will govern the subsequent cases too viz., TCA
Nos.1100 to 1103 of 2010.
10.1. The three major issues involved in TCA No.695 of 2009 are
with respect to (i)transfer of right by the assessee to another company; (ii)no
offset credit; and (iii)electricity charges paid to Wescare as deduction. At
the first instance, we are inclined to go into the findings of the authorities
below in this regard.
10.2. As regards the first issue, according to the respondent /
assessee, the benefit of Miliev grant given by the Dutch Government was
enjoyed by DLWL and the respondent / assessee received consideration of
only Rs.2 crores i.e., Rs.2.5 lakhs per wind turbine in respect of 80 WTGs
for transferring its right to DLWL under EPC contract for installation of 80
WTGs delivered by LW. Whereas, the Assessing Officer brought to tax the
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value of the entire benefit of Rs.58,85,41,252/- and treated the sale by the
respondent/ assessee to DLWL and the sale of the wind mills to the finance
companies as sham transactions, on the premise that the wind mills were
standing in the name of the assessee in the books of TNEB, the finance
companies never became the owners of the wind mills and these companies
claimed 100 per cent depreciation; and also on the basis of the letter dated
30.06.1997 from the company secretary of the assessee requesting Sanjay
Jayaraman in Hong Kong to send a letter directly to LW backdating it as
27.03.1997. However, the appellate authorities did not accept the same and
accordingly, deleted the addition made by the assessing officer, on the
ground that the grant was given by the Dutch Government as a matter of
policy and it had nexus with the equipment and not with the buyer and
hence, it was not possible for the purchaser to transfer the grant and the
same was directly disbursed to the manufacturer. It was also pointed out by
the appellate authorities that the revenue failed to produce any cogent
material to prove that the assessee received over and above the disclosed
consideration of Rs.2 crores; and there was no incriminating document
made available against the assessee. The Appellate Authorities further noted
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that as per the agreements entered into the parties, the finance companies
were allowed to operate the wind mills on lease and the payment of lease
rentals was assured by Wescare and the assessee was to pay operational
lease rental calculated as the electricity consumed x TNEB rates – 25 paise
per unit. We do not find any good reason to disagree with the reasonings so
recorded by the appellate authorities.
10.3. With regard to the second issue, the assessing officer made
addition of Rs.33,87,06,625/- in respect of off set credits alleged to have
been received by the respondent / assessee, stating that the respondent /
assessee was entitled to claim the benefit by using the value of the WTGs
imported from LW, under 'off set credit' or 'IP credit' allowed by the Dutch
Government; Lockheed Martin, a US company, had certain commitments of
purchasing goods from Dutch manufacturers to be fulfilled, the supply of 80
WTGs by LW to the assessee under the EPC contract was utilised towards
the said commitment of Lockheed Martin to purchase goods from the Dutch
manufacturers and the assessee claimed additional compensation from
Lockheed Martin to facilitate the claim of the 'off set credit'. The assessing
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officer also referred to certain communications exchanged among Lockheed
Martin, Fremont Group and the assessee in the financial year 1998-99,
relating the steps being taken for availing 'off set credits', which were found
at the premises of the assessee during the course of inspection. It was
contended by the assessee before the appellate authorities that the efforts
were made for facilitating the transaction and exploring the possibility of
obtaining off set credits, which however, did not materialise and therefore,
no amount was received by the assessee. Acceding to the same, the CIT(A)
was of the view that there is absolutely no document on record to indicate
with the authority that the assessee did receive offset credits and
accordingly, deleted the addition made by the assessing officer, which
finding of the CIT(A) was also affirmed by the Tribunal. In the absence of
any concrete material, we have no option except to concur with the view
taken by the appellate authorities.
10.4. As regards the electricity charges, the assessing officer
disallowed the said charges incurred by the assessee in respect of the
electricity supplied to it by Wescare through wind turbines, on the premise
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that the assessee was the owner of the wind turbines and the TNEB made
payments to the assessee for the electricity generated and hence, there is no
justification for claiming the electricity charges paid to Wescare as
deduction. It was pleaded by the assessee before the appellate authorities
that they purchased only some components of wind turbines in its name in
the initial stage of the wind farm project, which were inturn sold to DLWL
on high seas sale basis and the same was also duly accepted in the sales tax
assessment. The bill of lading and the bill of entry were in the name of
DLWL and delivery of the items under such invoices was taken by DLWL
and DLWL paid a sum of Rs.2 crores i.e., Rs.2.5 lakhs per wind turbine for
80 wind turbines to the assessee to acquire its right under the EPC contract
for the purchase of wind turbines, which was duly accounted and offered to
tax; and the assessee was only interested in supply of electricity and not in
the ownership of the wind turbines. Considering the same, the CIT(A) noted
that various agreements / arrangements / MOU were entered into by the
assessee with various parties from time to time with the object to supply of
electricity for a long duration at an economical / concessional rate; DLWL
was the real owner of the wind farm project and it accounted for the income
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in relation to the sale of wind turbines to the finance companies; the
assessments of the finance companies were completed treating them as the
owners of the wind turbines and depreciation was also allowed. It was
further pointed out that there is absolutely no evidence to indicate that the
assessee did purchase indigenous parts in connection with the erection and
commissioning of the turbines. Ultimately, the CIT(A) concluded that the
assessee was not the owner of the wind turbines and accordingly, allowed
the claim of the assessee in regard to the payment of operational lease rental
to Wescare. Though it was contended by the appellant/Revenue that the
allowance of electricity charges incurred by the assessee as deduction, is
violative of public policy within the meaning of Explanation 1 of section 37
of the Act, the appellate authorities rejected the same, by observing that the
payment of operational lease rental was in terms of the lease arrangement
between finance companies, Wescare and the assessee though measured in
terms of units of electricity consumed; and the same was admittedly, for the
consumption of electricity for business purposes; and there is no violation
of the policies/ guidelines by any of the parties to the lease agreement
pointed out by the TNEB till date. The said findings of the appellate
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authorities do not require any interference by this court, as the same are
based on the materials available before the same.
11.1. Before this court, the learned counsel for the appellant/
Revenue placed reliance on the following decisions:
(i)Sahney Steel & Press Works Ltd v. Commissioner of Income Tax
[(1997) 94 Taxman 0368], wherein, it was held by the Hon'ble Supreme
Court that “subsidy from public funds granted by Government by way of
refund of sales tax on purchase of machinery, etc. after commencement of
production to enable the assessee to run the business more profitably, and
not for setting up of the industry, is operational subsidy and hence, a
revenue receipt”.
(ii)Upasana Finance Ltd v. Joint Commissioner of Income-tax,
[(2013) 40 taxmann.com 252 (Madras)], wherein, the assessee purchased a
boiler and subsequently, leased it out to sister concern of seller and they
claimed depreciation on the said boiler. The assessing officer found that
boiler was attached to land and sale could not be completed by mere
issuance of sale bills and the boiler was still lying and functioning in the
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factory of seller and it was not installed in its sister concern and hence, the
transaction in question was a loan transaction and it was wrongly given
colour of lease transaction and hence, disallowed the assessee's claim. The
same was upheld by the Tribunal, against which, the assessee preferred the
Tax case appeal and the same was dismissed by this court, by holding that
“when the finding of fact on the genuineness of the transaction had not been
challenged in the manner known to law and the same having attained
finality, there exists no ground to interfere with the order of the authorities
below rejecting the claim for depreciation”.
(iii)CIT v. Ganapati Finance Ltd [(2013) 29 taxmann.com 162
(Delhi)], wherein the assessee claimed depreciation on LPG cylinders
leased out to Janta Gases and Air Jet Spindle Assembly and Positar disc
leased out to Maruti Syntax. The assessing officer disallowed depreciation
after forming a view that assessee did not purchase the said assets, but
merely financed their purchase. The same was reversed by the CIT(A),
which was also affirmed by the Tribunal. However, the Delhi High Court
was of the opinion that “the Tribunal ought to have tested the evidence
adduced by the assessee in the light of the material gathered by the
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assessing officer, the conduct of the parties and other surrounding
circumstances, whereas the Tribunal seems to have proceeded merely on
the basis of the documentary evidence without putting it to rigorous
examination in the light of the aspects highlighted by the assessing officer”.
“In the case of LPG cylinders, the transaction was only a financing
transaction and not a lease, with no material to show that the assessee
became the owner of the cylinders and leased them to Janta. In the case of
air jet spindles and positar disc, the very existence of the assets and the
genuineness of the purchase of the assets by the assessee was not proved.
Therefore, the assessee was not entitled to depreciation”.
(iv)Avasarala Technologies Ltd v. Joint Commissioner of Income
tax [(2016) 66 taxmann.com 377 (SC)]. In that case, the assessee claimed
depreciation on certain machinery allegedly purchased from Andhra
Pradesh State Electricity Board vide sale deed dated 29.09.1995 which, as
per the assessee, was given to the APSEB itself on lease. All the authorities
below had found, as a fact, that there was no such purchase of machinery
and the transaction in question was sham. On that basis, it was concluded
that since the machinery was not purchased by the appellant, it never
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T.C.A.Nos.695 of 2009 & 1100 to 1103 of 2010
became the owner of the machinery and therefore, could not claim any
depreciation thereof. “These are pure findings of facts recorded by the
authorities below and therefore, no question of law arose out of impugned
order”, according to the Hon'ble Supreme Court.
(v)Commissioner of Income Tax v. Southern Cables & Engineering
Works [(2007) 289 ITR 0167], in which, it was held by Kerala High Court
that “an assessee who is following mercantile system of accounting, is
entitled to deduct, from the profits and gains, its business liability which
arose during the relevant previous year and that liability did not cease to
be a liability because the assessee had taken proceedings before higher
authorities for getting it reduced or wiped off”.
11.2. We are in agreement with the legal proposition laid down in the
aforesaid decisions. However, the same have no relevance to the facts of the
present case, wherein, the respondent / assessee did not make any claim for
depreciation before the assessing officer as if they were the owner of the
wind mills. On the corollary, the appellant /Revenue failed to produce
concrete material evidence against the respondent / assessee.
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T.C.A.Nos.695 of 2009 & 1100 to 1103 of 2010
12. At the same time, it is pertinent to refer to the following
decisions cited by the learned counsel for the respondent / assessee, viz.,
(i)Godhra Electricity Co.Ltd v. Commissioner of Income-tax
[(1997) 91 Taxman 351 (SC)], in which, it was observed by the Hon'ble
Supreme Court, as follows:
“14.The question whether there was real accrual of income to
the assessee-company in respect of the enhanced charges for supply of
electricity has to be considered by taking the probability or
improbability of realisation in a realistic manner. If the matter is
considered in this light, it is not possible to hold that there was real
accrual of income to the assessee-company in respect of the enhanced
charges for supply of electricity which were added by the ITO while
passing the assessment orders in respect of the assessment years under
consideration. The AAC was right in deleting the said addition made by
the ITO and the Tribunal had rightly held that the claim at the
increased rates as made by the assessee – company on the basis of
which necessary entries were made represented only hypothetical
income and the impugned amounts as brought to tax by the ITO did not
represent the income which had really accrued to the assessee-company
during the relevant previous years...”
(ii)Commissioner of Income Tax Chennai v. Sundaram Finance
Ltd. [(2016) SCC Online Mad 3072], wherein, it was held by this court as
follows:
“14.As rightly pointed out by the Commissioner of Income Tax
(Appeals), the question of ownership of the land has nothing to do with
the claim for depreciation. Depreciation is claimed in respect of the
plant and machinery installed on the land.
15.Unfortunately, the Assessing Officer was misguided by the
fact that the Electricity Authority granted permission only to the land
owner to run the windmills. It is not the case of the Department or the
respondent herein that the respondent was in the business of generating
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T.C.A.Nos.695 of 2009 & 1100 to 1103 of 2010
power through windmills. There is no restriction by the Electricity
Board that unless the applicant for the generation of wind power also
owns the plant and machinery he would not be entitled to a license.
16.In other words, the Assessing Officer as well as the Tribunal
misdirected themselves to the actual issue on hand, without realizing
what is the income either from the land owner or from the financier
depending each side of the table as per the terms of the financing
agreement. The Revenue cannot claim revenue from both. Therefore,
the question of law is answered against the Revenue and the appeals
are dismissed”.
In the light of the ratio laid down in the aforesaid decisions, this court is of
the opinion that without any substantive material, the respondent / assessee
cannot be construed as owner of the wind mills and hence, the payment
made by them to Wescare can be treated only as consumption charges for
the electricity supplied to them, that too, for business purposes. As such,
there is no question of law much less substantial question of law arisen for
consideration.
13. In the result, all these tax case appeals filed by the Revenue
stand dismissed. However, there shall be no order as to costs.
(R.M.D., J.) (J.S.N.P., J.)
09.06.2022
mrr
Index : Yes/No
Speaking Judgement (or) Non-Speaking Judgement
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T.C.A.Nos.695 of 2009 & 1100 to 1103 of 2010
R.MAHADEVAN, J.
and
J.SATHYA NARAYANA PRASAD, J.
mrr
To
1.The Commissioner of Income Tax,
Chennai.
2.The Commissioner of Income Tax – I,
Chennai.
3.Income Tax Appellate Tribunal 'C' Bench,
Chennai.
4.Income Tax Appellate Tribunal 'A' Bench,
Chennai.
T.C.A.Nos.695 of 2009 & 1100 to 1103 of 2010
09.06.2022
https://www.mhc.tn.gov.in/judis
