9911796707
TMI Blog2005 (6) TMI 547X X X X Extracts X X X X X X X X Extracts X X X X ..... guest house has been considered by Special Bench of the Tribunal Delhi in the case of Eicher Tractors Ltd. vs. Dy. CIT (2002) 77 TTJ (Del)(SB) 681: (2003) 84 ITD 49(Del)(SB). The Special Bench has held therein that s. 37(4) is a specific provision whereas ss. 30, 31 and 32 are general provisions and as the former overrides the latter, the expenditure relating to maintenance of guest house is not allowable as deduction in computing the taxable income of an assessee. In view of the above, we hold that the CIT(A) has rightly upheld the disallowance of Rs. 1,10,707. This issue is, therefore, decided against the assessee and accordingly, the relevant ground No. 11 is dismissed. 2.1 The second issue raised by the assessee-company in this appeal is that of the disallowance of depreciation on assets purchased and leased back to Haryana State Electricity Board, Madhya Pradesh State Electricity Board, Karnataka Power Corporation Ltd. & Golden Finalease (P) Ltd. This issue is covered in the detailed grounds raised by the assessee in sub-grounds 1 to 11 of the main ground III. 3. According to the assessee-company, the assessee had purchased Electrostatic Precipitation System from Haryana St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... At the time of purchase, the said equipment system was located at the Raichur Thermal Power Station of Karnataka Power Corporation. The lease agreement was executed for a period of 120 months. In this case also, the assessee-company had accepted an interest-free security deposit at 45 per cent of the cost of equipments. The cost of Rs. 10,14,24,150 was determined on the basis of the valuation report of Shri R. Arvind Kumar, chartered engineer, Bangalore. As a fourth instance of transaction, the assessee-company had purchased cinematograph positive and negative films from M/s Golden Finalease (P) Ltd. for a price of Rs. 6,00,01,000 in September, 1995. The purchase price was worked out on the basis of the books of account of Golden Finalease (P) Ltd., duly certified by M/s Govind and Associates, a practising firm of chartered accountants at Madras. After the purchase of the films, they were leased back to M/s Golden Finalease (P) Ltd. on the basis of a lease agreement. 4. The assessee-company in computing its taxable income for the asst. yr. 1996-97 claimed depreciation at the rate of 100 per cent on the purchase of instruments and equipments leased back to the State Electricity Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 450: (2003) 263 ITR 706(SC) whereby the rigours of the judgment of the Supreme Court in McDowell's case (supra), which has always been pursued by the Revenue authorities, has been diluted. The learned senior counsel submitted that the Supreme Court has held in the subsequent decision that any tax planning done by an assessee within the four corners of law is legitimate and the transaction cannot be treated as sham only for the reason that the assessee makes out a saving in the quantum of taxes paid by it. 7. The learned senior counsel relied on various clauses of the agreements entered into by assessee-company with the lessees. He explained that in all these cases, the purchases of machineries and equipments have been proved beyond doubt. The payment of consideration also has been established. The receipt of security deposit has been established. The assessee has received lease rentals from all the four parties as stipulated in the lease agreements and such lease rentals have been offered for tax in the hands of the assessee-company. All the concerned parties have confirmed their respective roles in all these four transactions of sale and lease-back. Except raising some appreh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transactions, the ratio laid down in McDowell's case (supra) has no application. The learned senior counsel submitted that the issue of depreciation raised in the present appeal is squarely covered by the above decisions of High Courts and, therefore, the lower authorities have erred in law in declining to allow the claim of deduction at the rate of 100 per cent made by the assessee-company. 9. Mrs. Anuradha Bhatia, the learned CIT, appearing for the Revenue contended that the facts and circumstances of the present case are exactly identical to the facts considered by the Special Bench of the Tribunal Mumbai in the case of Mid East Portfolio Management Ltd. vs. Dy. CIT (supra). She submitted that after a detailed examination of the facts, terms and conditions of the lease agreements and circumstances of the case, the Special Bench has come to a definite finding that the transaction entered into by the assessee in that case was a colourable device to evade the payment of tax and, therefore, covered by the decision of the Supreme Court in McDowell & Co. Ltd. vs. CTO (supra) and further held, therefore, that the assessee was not entitled for 100 per cent depreciation. She submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee other than the materials already disclosed by the assessee before the assessing authority. In the light of the details collected in the course of search, it is stated by the assessing authority that various papers of the Haryana State Electricity Board were perused by him. But we find that those papers of Haryana State Electricity Board perused by the AO in the light of the search were not any fresh materials or evidence. All those papers were always with the Haryana State Electricity Board and accessible to the Department and furnished by the assessee-company. Therefore, we are of the considered view that the highlighting of the search action in the assessment order is somewhat misleading. 14. So also, the assessing authority has relied on a confessional statement as a prima facie evidence against the case of M/s Golden Finalease (P) Ltd. As pointed out by the learned senior counsel, the statement did not have any evidentiary value as the statement was extracted at the back of the assessee-company and the assessee-company never had an opportunity to rebut it either by cross-examination or by any other mode known to procedural law. 15. The assessing authority has sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c detriment or prejudice to the Revenue. Even though the assessee-company is claiming depreciation at the rate of 100 per cent, the assessee-company is disclosing lease rentals as its taxable income for a period of more than 5 years, on a regular basis. The depreciation is claimed only by the assessee-company. The lessees are not claiming depreciation. Therefore, if at all any detriment is alleged in this case, that is only relative/presumptive and not absolute. 18. In the present case, the Revenue has not established that the transactions were sham transactions. The lease agreements executed by the assessee-company had the transactions entered into thereupon are not prohibited by law. They are within the four corners of law. Therefore, in obedience of the decision of the Orissa High Court as stated above, we have to hold that the assessee is entitled to claim depreciation at the rate of 100 per cent on the assets leased out by it to the four parties mentioned above. 19. It is the argument of the Revenue that the impugned transactions involved in the present case did not answer the tests laid down by Special Bench in the case of Mid East Portfolio Management Ltd. (supra). The pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that when Government or statutory body is party to a transaction, question of evasion of tax does not arise. In the present case three out of four lessees are State Government undertakings. In the facts and circumstances, we find that there is no evidence to hold that the transactions were sham and therefore, the decisions of the Orissa High Court as well as the Gauhati High Court apply to the case and the claim of the assessee for depreciation at the rate of 100 per cent need to be accepted as genuine. Therefore, we direct the assessing authority to grant the depreciation allowance as claimed by the assessee. This issue is decided in favour of the assessee. 22. The third issue raised by the assessee in this appeal relates to the computation of deduction available under s. 80HHC. This issue is grounded in paragraph IV of the grounds of appeal. The first aspect of the issue is that the lower authorities have erred in reducing 90 per cent of the interest received by the assessee from the quantum of business profit for the purpose of computing the deduction under s. 80HHC. The alternative contention of the assessee is that if at all exclusion of interest is called for in computing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1989) 177 ITR 354(Bom). 28. We considered the matter. The exemption provided in s. 80-IA is available to an assessee, among others, who has set up a plant for generation of power. It does not speak anything about consumption of the power generated by the assessee. There is no fetter against the assessee using the power for self-consumption. The only condition to be satisfied is that the assessee should generate power. In such provisions of law relating to exemption, there is no scope for any intendment to bring out hypothetical fetters and restrictions. The law should be read and understood in its literal sense. Therefore, we are of the considered view that the assessee has generated power from the two DG sets implanted by it, and therefore, the assessee-company is entitled for the deduction under s. 80-IA on the income imputable from the generation of power. 29. The proposition regarding the manufacturing of articles for self consumption and claiming eligible deduction thereon was examined by the Supreme Court in the case of Textile Machinery Corporation Ltd. vs. CIT (supra). In that case, the assessee, a heavy engineering concern, manufacturing boilers, machinery parts, wagons, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under this section, the profits and gains of such eligible business shall be computed as if the transfer, in either case, had been made at the market value of such goods as on that date." The above concept of transfer pricing is also apparent in r. 7 of IT Rules, 1962 provided for determining the income from agricultural produces consumed by the agriculturist-assessee in his business as raw material. The rule provides that in the case of income which is partially agricultural income and partially income chargeable as business income, in determining that part which is chargeable to income-tax, the market value of any agricultural produce which has been raised by the assessee and utilized as a raw material in such business shall be deducted at the prevalent market value. This principle has been considered and upheld by the Supreme Court in the case of Thiru Arooran Sugars Ltd. vs. CIT (1997) 142 CTR (SC) 9: (1997) 227 ITR 432(SC). Therefore, we direct the assessing authority to work out the profits on the basis of the price of the power generated by the assessee at the average of the annual landed cost of electricity purchased by the assessee from Karnataka State Electric ..... X X X X Extracts X X X X X X X X Extracts X X X X
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